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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. 3 [X]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 4 [X]
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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 1775 Eye Street, NW
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
[ ] on April 30, 1999, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[X] on April 30, 1999, pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on April 30, 1999, 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.
Title of Securities Being Registered: Interests in a separate account under
individual and group flexible premium deferred variable annuity contracts.
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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
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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.
The Contract is also available for individuals and groups in connection with a
retirement plan qualified under Section 401, 403(b), 408, 408A or 457 of the
Internal Revenue Code. The Contract is designed to give you flexibility in
planning for retirement and other financial goals.
You may allocate your purchase payments to one or more of the Subaccounts
that comprise a separate account of Security Benefit called the Variable Annuity
Account VIII, or to the Fixed Account. Each Subaccount invests in a
corresponding Series of the SBL Fund. The Subaccounts currently available under
the Contract are:
* Growth * Managed Asset Allocation
* Growth-Income * Equity Income
* Money Market * High Yield
* Worldwide Equity * Social Awareness
* High Grade Income * Value
* Mid Cap * Small Cap
* Global Aggressive Bond * Enhanced Index
* Specialized Asset Allocation * Select 25
* International
Amounts allocated to the Fixed Account will accrue interest at rates that
are paid by Security Benefit as described in "The Fixed Account," page 23.
Contract Value in the Fixed Account is guaranteed by Security Benefit.
Amounts that you allocate to the Subaccounts under a Contract will vary
based on investment performance of the Subaccounts. No minimum amount of
Contract Value is guaranteed.
When you are ready to receive annuity payments, the Contract provides
several options for annuity payments. See "Annuity Options," page 22.
You may return a Contract 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 youshould know before purchasing the Contract. The
"Statement of Additional Information," dated May 1, 1998, which has been filed
with the Securities and Exchange Commission contains certain additional
information. 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.
The SEC maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference and
other information regarding companies that file electronically with the SEC.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE SBL FUND. YOU
SHOULD READ THE PROSPECTUSES CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
THE CONTRACT IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE VALUE
OF YOUR CONTRACT WILL GO UP AND DOWN AND YOU COULD LOSE MONEY. DATE: MAY 1, 1999
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TABLE OF CONTENTS
Page
DEFINITIONS............................................................... 4
SUMMARY................................................................... 5
Purpose of the Contract................................................. 5
The Separate Account and the SBL Fund................................... 5
Fixed Account........................................................... 5
Purchase Payments....................................................... 5
Contract Benefits....................................................... 5
Free-Look Right......................................................... 5
Charges and Deductions.................................................. 5
Contingent Deferred Sales Charge...................................... 5
Mortality and Expense Risk Charge..................................... 6
Administration Charge................................................. 6
Premium Tax Charge.................................................... 6
Other Expenses........................................................ 6
Contacting Security Benefit............................................. 6
EXPENSE TABLE............................................................. 7
Contractual Expenses.................................................... 7
Annual Separate Account Expenses........................................ 7
Annual Mutual Fund Expenses............................................. 7
Examples................................................................ 8
CONDENSED FINANCIAL INFORMATION........................................... 9
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND SBL FUND.... 11
Security Benefit Life Insurance Company................................. 11
Year 2000 Compliance.................................................... 11
Published Ratings....................................................... 11
Separate Account........................................................ 12
SBL Fund................................................................ 12
Series A (Growth Series).............................................. 12
Series B (Growth-Income Series)....................................... 12
Series C (Money Market Series)........................................ 13
Series D (Worldwide Equity Series).................................... 13
Series E (High Grade Income Series)................................... 13
Series H (Enhanced Index Series)...................................... 13
Series I (International Series)....................................... 13
Series J (Mid Cap Series)............................................. 13
Series K (Global Aggressive Bond Series).............................. 13
Series M (Specialized Asset Allocation Series)........................ 13
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
Series Y (Select 25 Series)........................................... 14
The Investment Adviser................................................ 14
THE CONTRACT.............................................................. 14
General................................................................. 14
Application for a Contract.............................................. 14
Purchase Payments....................................................... 14
Allocation of Purchase Payments......................................... 15
Dollar Cost Averaging Option............................................ 15
Asset Reallocation Option............................................... 16
Transfers of Contract Value............................................. 16
Contract Value.......................................................... 16
Determination of Contract Value......................................... 17
Full and Partial Withdrawals............................................ 17
Systematic Withdrawals.................................................. 18
Free-Look Right......................................................... 18
Death Benefit........................................................... 18
Distribution Requirements............................................... 19
Death of the Annuitant.................................................. 19
CHARGES AND DEDUCTIONS.................................................... 19
Contingent Deferred Sales Charge........................................ 19
Waiver of Withdrawal Charge............................................. 20
Mortality and Expense Risk Charge....................................... 20
Administration Charge................................................... 21
Premium Tax Charge...................................................... 21
Other Charges........................................................... 21
Variations in Charges................................................... 21
Guarantee of Certain Charges............................................ 21
SBL 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............................. 23
Option 6--Payments of a Specified Amount.............................. 23
Option 7--Period Certain.............................................. 23
Option 8--Joint and Contingent Survivor Option........................ 23
Value of Variable Annuity Payments: Assumed Interest Rate............. 23
Selection of an Option.................................................. 23
THE FIXED ACCOUNT......................................................... 23
Interest................................................................ 24
Death Benefit........................................................... 24
Contract Charges........................................................ 24
Transfers and Withdrawals from the Fixed Account........................ 24
Payments from the Fixed Account......................................... 25
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............................................... 26
Misstatements........................................................... 26
Loans................................................................... 26
Restrictions on Withdrawals from Qualified Plans........................ 27
FEDERAL TAX MATTERS....................................................... 27
Introduction............................................................ 27
Tax Status of Security Benefit and the Separate Account................. 28
General............................................................... 28
Charge for Security Benefit Taxes..................................... 28
Diversification Standards............................................. 28
Income Taxation of Annuities in General--Non-Qualified Plans............ 28
Surrenders or Withdrawals Prior to the Annuity Start Date............. 29
Surrenders or Withdrawals on or after Annuity Start Date.............. 29
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................................ 30
Multiple Contract Rule................................................ 30
Possible Tax Changes.................................................. 30
Transfers, Assignments or Exchanges of a Contract..................... 30
Qualified Plans......................................................... 30
Section 401........................................................... 31
Section 403(b)........................................................ 31
Section 408........................................................... 32
Section 457........................................................... 32
Rollovers............................................................. 33
Tax Penalties......................................................... 33
Withholding........................................................... 33
OTHER INFORMATION......................................................... 34
Voting of SBL Fund Shares............................................... 34
Substitution of Investments............................................. 34
Changes to Comply with Law and Amendments............................... 35
Reports to Owners....................................................... 35
Telephone Transfer Privileges........................................... 35
Legal Proceedings....................................................... 35
Legal Matters........................................................... 35
PERFORMANCE INFORMATION................................................... 35
ADDITIONAL INFORMATION.................................................... 36
Registration Statement.................................................. 36
Financial Statements.................................................... 36
STATEMENT OF ADDITIONAL INFORMATION....................................... 36
APPENDIX A - IRA Disclosure Statement
APPENDIX B - Roth IRA Disclosure Statement
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YOU MAY NOT BE ABLE TO PURCHASE THE CONTRACT IN YOUR STATE. YOU SHOULD NOT
CONSIDER THIS PROSPECTUS TO BE AN OFFERING IF THE CONTRACT MAY NOT BE LAWFULLY
OFFERED IN YOUR STATE. YOU SHOULD ONLY RELY UPON INFORMATION CONTAINED IN THIS
PROSPECTUS OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
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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 you terminate the Contract,
either through a full withdrawal, payment of charges, or payment of the death
benefit proceeds.
ACCUMULATION UNIT -- A unit of measure used to calculate Contract Value.
ANNUITANT -- The person that you designate to receive annuity payments. If
you designate Joint Annuitants, "Annuitant" means both Annuitants unless
otherwise stated.
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 beginning on the Annuity Start Date 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 fromyour 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 your 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 a Contract which includes amounts
allocated to the Subaccounts 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 to which you may allocate all or a portion of your Contract Value to be
held for accumulation at fixed rates of interest (which may not be less than 3
percent) declared periodically by Security Benefit.
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.
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 basisconvalescent or chronic care for in-patients who, by
reason of infirmity or illness, are not able to care for themselves.
SBL FUND -- A diversified, open-end management investment company commonly
referred to as a mutual fund.
SEPARATE ACCOUNT -- The Variable Annuity Account VIII. A separate account of
Security Benefit thatconsists of accounts, referred to as Subaccounts, each of
which invests in a corresponding Series of the SBL Fund.
SUBACCOUNT -- A division of the Separate Account of Security Benefit which
invests in a corresponding series of the SBL Fund. Currently, seventeen
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, Independence Day, 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 you will receive upon full withdrawal of the
Contract.It is equal to Contract Value less any Contract Debt, any applicable
withdrawal charges, and any uncollected premium taxes.
SUMMARY
This summary provides 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 you flexibility in
planning for retirement and other financial goals.
You may purchase the Contract as a non-tax qualified retirement plan for an
individual ("Non-Qualified Plan"). You may also purchase the Contract, on a
group or individual basis, in connection with a retirement plan qualified under
Section 401, 403(b), 408, 408A, 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 SBL FUND
The Separate Account is currently divided into seventeen accounts referred
to as Subaccounts. See "Separate Account," page 12. Each Subaccount invests
exclusively in shares of a corresponding Series of the SBL Fund. The Series of
SBL 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, Enhanced Index Series, International
Series,Mid Cap Series, Global Aggressive Bond Series, Specialized Asset
Allocation Series, Managed Asset Allocation Series, Equity Income Series, High
Yield Series, Social Awareness Series, Value Series, Small Cap Series and Select
25 Series. See "SBL Fund," page 12.
You may allocate all or part of your purchase payments to the Subaccounts.
Amounts that you allocate to the Subaccounts will increase or decrease in dollar
value depending on the investment performance of the Series of SBL Fund in which
such Subaccount invests. You bear the investment risk for amounts allocated to a
Subaccount.
FIXED ACCOUNT
You may allocate all or part of your purchase payments to the Fixed Account,
which is part of Security Benefit's General Account. Amounts that you allocate
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, you may choose
the amount and frequency of purchase payments, except that the minimum
subsequent purchase payment is $500. See "Purchase Payments," page 14.
CONTRACT BENEFITS
You may transfer Contract Value among the Subaccounts and to and from the
Fixed Account, subject to certain restrictions as described in "The Contract,"
page 14 and "The Fixed Account," page 23.
At any time before the Annuity Start Date, you may surrender a Contract for
its Withdrawal Value, and may make partial withdrawals, including systematic
withdrawals, may be taken from Contract Value, subject to certain restrictions
described in "The Fixed Account," 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 Ownerprior
to the Annuity Start Date. 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. Security Benefit guarantees annuity payments under the fixed Annuity
Options. See "Annuity Period," page 21.
FREE-LOOK RIGHT
You may return the Contract within the Free-Look Period, which is generally
a ten-day period beginning when you receive the Contract. In this event,
Security Benefit will refund to you 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.
CHARGES AND DEDUCTIONS
Security Benefit does not deduct 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
If you withdraw Contract Value, Security Benefit may deduct a contingent
deferred sales charge (which may also be referred to as a withdrawal charge).
The amount of the withdrawal charge depends 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, 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
portion of any withdrawal that exceeds the Free Withdrawal amount to the extent
that portion of the withdrawal does not exceed total purchase payments, reduced
by any previous withdrawals (not including free withdrawals). For the purpose of
determining any withdrawal charge, Security Benefit deems withdrawals 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:
CONTRACT YEAR WITHDRAWAL CHARGE
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1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and later 0%
The amount of the withdrawal charge assessed against your Contract will
never exceed 6 percent of purchase payments paid under the Contract. In
addition, no withdrawal charge will be assessed 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, Security
Benefit will also waive the withdrawal charge 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 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," 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. Security
Benefit does not assess the administration charge against Contract Value which
has been applied under Annuity Options 1 through 4, 7 and 8. See "Administration
Charge," page 21.
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 21.
OTHER EXPENSES
Security Benefit pays the operating expenses of the Separate Account.
Investment advisory fees and operating expenses of SBL Fund are paid by the Fund
and are reflected in the net asset value of the Fund shares. For a description
of these charges and expenses, see the Prospectus for SBL Fund.
CONTACTING SECURITY BENEFIT
You should direct all written requests, notices, and forms required by the
Contract, and any questions or inquiries 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.
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly and indirectly if you allocate
Contract Value to the Subaccounts. The table reflects any contractual charges,
expenses of the Separate Account, and charges and expenses of the SBL Fund. The
table does not reflect premium taxes that may be imposed by various
jurisdictions. See "Premium Tax Charge," page 21. 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 SBL Fund's
costs and expenses, see the SBL Fund Prospectus, which accompanies this
Prospectus.
CONTRACTUAL EXPENSES
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
ANNUAL SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF EACH
SUBACCOUNT'S AVERAGE DAILY NET ASSETS)
Annual Mortality and Expense Risk Charge............................ 1.25%
Annual Administration Charge........................................ 0.15%
Total Separate Account Annual Expenses.............................. 1.40%
ANNUAL MUTUAL FUND EXPENSES (AS A PERCENTAGE OF EACH SERIES' AVERAGE
DAILY NET ASSETS)
ADVISORY FEE TOTAL
(AFTER FEE OTHER MUTUAL FUND
WAIVER)(2),(3) EXPENSES(4) EXPENSES(3)
Growth (Series A)........................ 0.75% 0.06% 0.81%
Growth-Income (Series B)................. 0.75% 0.05% 0.80%
Money Market (Series C).................. 0.50% 0.07% 0.57%
Worldwide Equity (Series D).............. 1.00% 0.26% 1.26%
High Grade Income (Series E)............. 0.75% 0.08% 0.83%
Enhanced Index Series (Series H)......... 0.75% 0.22% 0.97%
International Series (Series I).......... 1.10% 0.57% 1.67%
Social Awareness (Series S).............. 0.75% 0.07% 0.82%
Mid Cap (Series J)....................... 0.75% 0.07% 0.82%
Global Aggressive Bond (Series K)........ 0.75% 0.90% 1.65%
Specialized Asset Allocation (Series M).. 1.00% 0.24% 1.24%
Managed Asset Allocation (Series N)...... 1.00% 0.22% 1.22%
Equity Income (Series O)................. 1.00% 0.08% 1.08%
High Yield Series (Series P)............. 0.00% 0.18% 0.18%
Value Series (Series V).................. 0.75% 0.14% 0.89%
Small Cap Series (Series X).............. 0.00% 0.59% 0.59%
Select 25 (Series Y)..................... 0.75% 0.34% 1.09%
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, 1997, the Investment Adviser
waived the advisory fee of Series P and Series X. During the fiscal year
ending December 31, 1998, the Investment adviser will waive the advisory
fees of Series P and Series X; absent such waiver, the advisory fee of
Series P 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 31,1998.
3. During the fiscal year ended December 31, 1997, the Investment Manager
waived the management fees of Series K and Series V and continued such
waiver through April 30, 1998. Expense information for Series K and V has
been restated to reflect the fees that would have been applicable had there
been no fee waiver.
4. Other Expenses for Series V and Series X are based on estimated amounts for
the current fiscal year.
EXAMPLES
The examples presented below show the expenses that you would pay at the end
of one, three, five or ten years (except for the Value, Small Cap, Enhanced
Index, International and Select 25 Subaccounts which show expenses for only the
one and three year periods). 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 and a hypothetical return of 5 percent.
YOU SHOULD NOT CONSIDER THE EXAMPLES BELOW 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 -- You would pay the expenses shown below assuming full withdrawal
of the Contract at the end of the applicable time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Growth Subaccount........................ $76 $114 $145 $254
Growth-Income Subaccount................. 76 114 145 253
Money Market Subaccount.................. 74 107 133 230
Worldwide Equity Subaccount.............. 81 127 168 299
High Grade Income Subaccount............. 77 114 146 256
Enhanced Index Subaccount................ 78 119 153 271
International Subaccount................. 79 122 159 283
Mid Cap Subaccount....................... 77 114 146 255
Global Aggressive Bond Subaccount........ 85 139 187 336
Specialized Asset Allocation Subaccount.. 81 127 167 297
Managed Asset Allocation Subaccount...... 81 126 166 295
Equity Income Subaccount................. 79 122 159 282
High Yield Subaccount.................... 70 95 113 188
Social Awareness Subaccount.............. 77 114 146 255
Value Subaccount......................... 77 116 149 263
Small Cap Subaccount..................... 74 107 134 232
Select 25 Subaccount..................... 79 122 159 283
Example -- You would pay the expenses shown below assuming NO withdrawals:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Growth Subaccount........................ $22 $69 $118 $254
Growth-Income Subaccount................. 22 69 118 253
Money Market Subaccount.................. 20 62 106 230
Worldwide Equity Subaccount.............. 27 83 141 299
High Grade Income Subaccount............. 23 70 119 256
Enhanced Index Subaccount................ 24 74 127 271
International Subaccount................. 31 95 161 338
Mid Cap Subaccount....................... 23 69 119 255
Global Aggressive Bond Subaccount........ 31 94 160 336
Specialized Asset Allocation Subaccount.. 27 82 140 297
Managed Asset Allocation Subaccount...... 27 81 139 295
Equity Income Subaccount................. 25 77 132 282
High Yield Subaccount.................... 16 50 86 188
Social Awareness Subaccount.............. 23 69 119 255
Value Subaccount......................... 23 72 123 263
Small Cap Subaccount..................... 20 62 107 232
Select 25 Subaccount..................... 25 78 133 283
CONDENSED FINANCIAL INFORMATION
The following condensed financial information presents accumulation unit
values for the years ended December 31, 1998, 1997 and 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.
GROWTH SUBACCOUNT 1996 1997^1 1998
- ----------------- ---- ---- ----
Accumulation unit value:
Beginning of period........... $13.20 $15.96 $20.26
End of period................. 15.96 20.26 25.06
Accumulation units outstanding
at the end of period.............. 1,987,463 3,449,970 4,778,310
GROWTH-INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period.......... $12.70 $14.80 $18.46
End of period................ 14.80 18.46 19.58
Accumulation units outstanding
at the end of period............. 1,388,519 2,571,374 3,161,657
MONEY MARKET SUBACCOUNT
Accumulation unit value:
Beginning of period.......... $10.35 $10.72 $11.12
End of period................ 10.72 11.12 11.51
Accumulation units outstanding
at the end of period............. 1,520,180 1,754,200 2,099,523
WORLDWIDE EQUITY SUBACCOUNT
Accumulation unit value:
Beginning of period.......... $11.42 $13.21 $13.87
End of period................ 13.21 13.87 16.43
Accumulation units outstanding
at the end of period............. 1,183,160 1,835,594 2,293,514
HIGH GRADE INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period.......... $11.56 $11.31 $12.27
End of period................ 11.31 12.27 13.07
Accumulation units outstanding
at the end of period............. 1,631,708 1,607,065 2,409,250
MID CAP SUBACCOUNT
Accumulation unit value:
Beginning of period.......... $11.89 $13.84 $16.37
End of period................ 13.84 16.37 19.04
Accumulation units outstanding
at the end of period............. 772,390 1,234,228 1,468,017
GLOBAL AGGRESSIVE BOND SUBACCOUNT
Accumulation unit value:
Beginning of period.......... $10.67 $11.96 $12.43
End of period................ 11.96 12.43 13.10
Accumulation units outstanding
at the end of period............. 328,077 382,445 364,793
SPECIALIZED ASSET ALLOCATION SUBACCOUNT
Accumulation unit value:
Beginning of period.......... $10.62 $11.96 $12.52
End of period................ 11.96 12.52 13.90
Accumulation units outstanding
at the end of period............. 1,361,078 1,454,825 1,063,148
MANAGED ASSET ALLOCATION SUBACCOUNT
Accumulation unit value:
Beginning of period.......... $10.64 $11.84 $13.82
End of period................ 11.84 13.82 16.14
Accumulation units outstanding
at the end of period............. 715,033 1,213,323 1,927,318
EQUITY INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period.......... $11.61 $13.73 $17.38
End of period................ 13.73 17.38 18.69
Accumulation units outstanding
at the end of period............. 1,764,015 3,117,060 3,562,159
HIGH YIELD SUBACCOUNT
Accumulation unit value:
Beginning of period.......... --- $10.00 11.84
End of period................ --- 11.84 12.36
Accumulation units outstanding
at the end of period............. --- 316,416 945,133
SOCIAL AWARENESS SUBACCOUNT
Accumulation unit value:
Beginning of period.......... $12.56 $14.69 $17.78
End of period................ 14.69 17.78 23.04
Accumulation units outstanding
at the end of period............. 220,549 541,120 1,140,285
VALUE SUBACCOUNT
Accumulation unit value:
Beginning of period.......... --- $10.00 13.01
End of period................ --- 13.01 14.96
Accumulation units outstanding
at the end of period.............. --- 372,693 1,108,840
SMALL CAP SUBACCOUNT
Accumulation unit value:
Beginning of period.......... --- $10.00 9.55
End of period................ --- 9.55 10.50
Accumulation units outstanding
at the end of period............. --- 25,182 280,763
1. High Yield Subaccount and Value Subaccount for the period July 3, 1997
(inception) through December 31, 1997. Small Cap Subaccount for the period
October 15, 1997 (inception) through December 31, 1997.
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND SBL FUND
SECURITY BENEFIT LIFE INSURANCE COMPANY
Security Benefit is a 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.
On July 31, 1998, Security Benefit converted from a mutual life insurance
company to a stock life insurance company ultimately controlled by Security
Benefit Mutual Holding Company, a Kansas mutual holding company. Membership
interests of persons who were Contractowners as of July 31, 1998 became
membership interests in Security Benefit Mutual Holding Company as of that date,
and persons who acquire policies from Security Benefit after that date
automatically become members in the mutual holding company.
Security Benefit offers a complete line of life insurance policies and
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 the end of 1998, The Company had total assets of approximately $7.9
billion. Together with its subsidiaries, The Company has total funds under
management of approximately $8.8 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, a financial services holding company wholly owned by Security
Benefit.
YEAR 2000 COMPLIANCE
Like other insurance companies, as well as other financial and business
organizations around the world, Security Benefit and SBL Fund could be adversely
affected if the computer systems used by Security Benefit or the Fund's
Investment Adviser, and other service providers, in performing their
administrative functions do not properly process and calculate date-related
information and data before, during and after January 1, 2000. Some computer
software and hardware systems currently cannot distinguish between the year 2000
and the year 1900 or some other date because of the way date fields were
encoded. This is commonly known as the "Year 2000 Problem." If not addressed,
the Year 2000 Problem could impact (i) the administrative services provided by
Security Benefit with respect to the Contract and (ii) the management services
provided to SBL Fund by the Investment Adviser, as well as transfer agency,
accounting, custody, distribution and other services provided to the Fund.
Security Benefit and the Investment Adviser have adopted a plan to be "Year
2000 Compliant" with respect to both their internally built systems as well as
systems provided by external vendors. We consider a system Year 2000 Compliant
when it is able to correctly process, provide and/or receive data before, during
and after the Year 2000. Security Benefit and the Investment Adviser's overall
approach to addressing the Year 2000 issue is as follows: (1) to inventory their
internal and external hardware, software, telecommunications and data
transmissions to customers and conduct a risk assessment with respect to the
impact that a failure on any such system would have on its business operations;
(2) to modify or replace their internal systems and obtain vendor certifications
of Year 2000 compliance for systems provided by vendors or replace such systems
that are not Year 2000 Compliant; and (3) to implement and test their systems
for Year 2000 compliance. Security Benefit and the Investment Adviser have
completed the inventory of their internal and external systems and have made
substantial progress toward completing the modification/replacement of its
internal systems as well as toward obtaining Year 2000 Compliant certifications
from its external vendors. Overall systems testing commenced in early 1998 and
will extend into the first six months of 1999.
Although Security Benefit and the Investment Adviser have taken steps to
ensure that their systems will function properly before, during and after the
Year 2000, their key operating systems and information sources are provided by
or through external vendors which creates uncertainty to the extent Security
Benefit and the Investment Adviser are relying on the assurance of such vendors
as to whether their systems will be Year 2000 Compliant. The costs or
consequences of incomplete or untimely resolution of the Year 2000 issue are
unknown to Security Benefit and the Investment Adviser at this time but could
have a material adverse impact on the operations of the Security Benefit, the
separate account, the underlying Fund and the Investment Adviser.
The Year 2000 Problem is also expected to impact companies, which may
include issuers of portfolio securities held by SBL Fund, to varying degrees
based upon various factors, including, but not limited to, the company's
industry sector and degree of technological sophistication. The Fund and the
Investment Adviser are unable to predict what impact, if any, the Year 2000
Problem will have on issuers of the portfolio securities held by the Fund.
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
Security Benefit established the Separate Account under Kansas law on
September 12, 1994. The Contract provides that the income, gains, or losses of
the Separate Account, whether or not realized, are 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 may not be charged 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 seventeen Subaccounts. The
Contract provides that the income, gains and losses, whether or not realized,
are 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 SBL Fund. Security
Benefit may in the future establish additional Subaccounts of the Separate
Account, which may invest in other Series of the SBL 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 is a diversified, open-end management investment company of the
series type. It 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 Fund. SBL Fund currently has seventeen separate portfolios ("Series"),
each of which pursues different investment objectives and policies.
Shares of the Fund currently are offered only for purchase by separate
accounts of Security Benefit to serve as an investment medium for variable life
insurance policies and variable annuity contracts issued by Security Benefit.
Thus, SBL Fund serves as an investment medium for both variable life insurance
policies and variable annuity contracts. This is called "mixed funding." Shares
of SBL 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 SBL Fund serves as an investment medium might at some time be in conflict.
However, Security Benefit, the Fund's Board of Directors, and any other
insurance companies that participate in SBL Fund in the future are required to
monitor events in order to identify any material conflicts that arise from the
use of the Fund for mixed and/or shared funding. SBL 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
SBL Fund. This might force the Fund to sell securities at disadvantageous
prices.
A summary of the investment objective of each Series of SBL Fund is set
forth below. We cannot assure that any Series will achieve its objective. More
detailed information is contained in the accompanying prospectus of SBL Fund,
including information on the risks associated with the investments and
investment techniques of each Series.
SBL FUND'S PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ CAREFULLY
BEFORE INVESTING.
SERIES A (GROWTH SERIES)
Amounts that you allocate 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 that you allocate 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 that you allocate 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 that you allocate 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 that you allocate 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 H (ENHANCED INDEX SERIES)
Amounts that you allocate to the Enhanced Index Subaccount are invested in
Series H. The investment objective of Series H is to seek to outperform the S&P
500 Index through stock selection resulting in different weightings of common
stocks relative to the index.
SERIES I (INTERNATIONAL SERIES)
Amounts that you allocate to the International Subaccount are invested in
Series I. The investment objective of Series I is to seek long-term capital
appreciation by investing primarily in non-U.S. equity securities and other
securities with equity characteristics.
SERIES J (MID CAP SERIES)
Amounts that you allocate to the Mid Cap 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 that you allocate 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 that you allocate 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.
SERIES N (MANAGED ASSET ALLOCATION SERIES)
Amounts that you allocate 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 that you allocate 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 that you allocate 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 that you allocate 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 that you allocate 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 that you allocate 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 $1.2 billion at the time of purchase).
SERIES Y (SELECT 25 SERIES)
Amounts that you allocate to the Select 25 Subaccount are invested in Series
Y. The investment objective of Series Y is to seek long-term growth of capital
by concentrating its investments in a core position of 20-30 common stocks of
growth companies which have exhibited consistent above average earnings growth.
THE INVESTMENT ADVISER
Security Management Company, LLC, 700 SW Harrison Street, Topeka, Kansas
66636, serves as Investment Adviser to each Series of SBL 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, 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 OppenheimerFunds, Inc., Two World Trade
Center, New York, New York 10048-0203, to provide investment advisory services
to Series D; T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore,
Maryland 21202 to provide investment advisory services to Series N and O; and
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
Security Benefit issues the Contract offered by this Prospectus. It is a
flexible purchase payment deferred variable annuity. To the extent that you
allocate all or a portion of your purchase payments 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. When you are ready to begin receiving annuity
payments, the Contract provides several Annuity Options under which Security
Benefit will pay periodic annuity payments on a variable basis, a fixed basis or
both, 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 you have allocated purchase payments and the amount of interest credited
on Contract Value that you have allocated to the Fixed Account.
Security Benefit also issues the Group Contract offered by this Prospectus.
It is identical to the individual form of the Contract in all material respects
except the death benefit and annuity 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 by an individual as a non-tax
qualified retirement plan ("Non-Qualified Plan"). The Contract is also eligible
for purchase in connection with certain tax qualified retirement plans that meet
the requirements of Section 401, 403(b), 408, 408A, 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
If you wish to purchase a Contract, you 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. Thereafter, you may choose the amount and frequency of purchase
payments, except that the minimum subsequent purchase payment is $500. The
minimum subsequent purchase payment if you elect an Automatic Investment Program
is $50. Security Benefit may reduce the minimum purchase payment requirement
under certain circumstances. A purchase payment exceeding $1 million will not be
accepted without prior approval of Security Benefit.
Security Benefit will apply the initial purchase payment not later than the
end of the second Valuation Date after the Valuation Date it is received by
Security Benefit; provided that the purchase payment is preceded or accompanied
by an application that contains sufficient information 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, Security Benefit will notify you that it does not have the
necessary information to issue a Contract. If you do not provide the necessary
information 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 you unless you consent to
Security Benefit retaining the purchase payment until the application is made
complete.
Security Benefit will credit subsequent purchase payments 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, you select the Subaccounts or the Fixed
Account to which purchase payments will be allocated. Purchase payments will be
allocated according to your 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 seventeen Subaccounts and the Fixed Account.
You 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 untilyou submit a change in
instructions to the company. You may make changes in your purchase payment
allocation and changes to an existing Dollar Cost Averaging or Asset
Reallocation Option by telephone provided the Telephone Transfer section of the
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. You may, however, transfer Contract Value among the Subaccounts and the
Fixed Account in the manner described in "Transfers of Contract Value," page 16.
DOLLAR COST AVERAGING OPTION
Prior to the Annuity Start Date, you may dollar cost average your Contract
Value by authorizing Security Benefit to make periodic transfers 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 transfer of Contract Value from one Subaccount to one
or more of the other Subaccounts. Amounts transferred under this option will be
credited at the price of the Subaccount as of the end of the Valuation Dates on
which the transfers are effected. Since the price of a Subaccount's Accumulation
Units will vary, the amounts transferred to a Subaccount will result in the
crediting of a greater number of units when the price is low and a lesser number
of units when the price is high. Similarly, the amounts transferred from a
Subaccount will result in a debiting of a greater number of units when the price
is low and a lesser number of units when the price is high. Dollar cost
averaging does not guarantee profits, nor does it assure that you will not have
losses.
A Dollar Cost Averaging Request form is available upon request. On the form,
you must designate whether Contract Value is to be transferred on the basis of a
specific dollar amount, fixed period or earnings only, the Subaccount or
Subaccounts to and from 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
the amounts you designate from the Subaccount from which transfers are to be
made to the Subaccount or Subaccounts you have chosen. Security Benefit will
effect each transfer on the date you specify or if no date is specified, on the
monthly or quarterly anniversary, whichever corresponds to the period selected,
of the date of receipt at the 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.
You 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 you instruct us otherwise. If
you wish 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 the Home Office. Security Benefit requires that you 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.
You may also dollar cost average Contract Value to or from the Fixed
Account, subject to certain restrictions described under "The Fixed Account,"
page 23.
ASSET REALLOCATION OPTION
Prior to the Annuity Start Date, you may authorize Security Benefit to
automatically transfer Contract Value on a quarterly, semiannual or annual basis
to maintain a particular percentage allocation among the Subaccounts. The
Contract Value allocated to each Subaccount will grow or decline in value at
different rates during the selected period, and Asset Reallocation automatically
reallocates the Contract Value in the Subaccounts to the allocation you selected
on a quarterly, semiannual or annual basis, as you select. 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 you buy low and sell high. This investment method
does not guarantee profits, nor does it assure that you 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, you must indicate the applicable
Subaccounts, the applicable time period and the percentage of Contract Value to
be allocated to each Subaccount.
Upon receipt of the Asset Reallocation Request, Security Benefit will effect
a transfer or, in the case of a new Contract, will allocate the initial purchase
payment, among the Subaccounts based upon the percentages that you selected.
Thereafter, Security Benefit will transfer Contract Value to maintain that
allocation on each quarterly, semiannual or annual anniversary, as applicable,
of the date of Security Benefit's receipt of the Asset Reallocation Request in
proper form. The amounts transferred will be credited at the price of the
Subaccount as of the end of the Valuation Date on which the transfer is
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.
You 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 you instruct us
otherwise. If you wish 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 option, subject to certain restrictions described in "Transfers and
Withdrawals from the Fixed Account," page 24.
TRANSFERS OF CONTRACT VALUE
Prior to the Annuity Start Date, you may transfer Contract Value among the
Subaccounts upon proper written request to Security Benefit's Home Office. You
may make transfers (other than transfers pursuant to the Dollar Cost Averaging
and Asset Reallocation Options) 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.
You may also transfer Contract Value from the Subaccounts to the Fixed
Account; however, transfers from the Fixed Account to the Subaccounts are
restricted as described in "The Fixed Account," page 23.
Security Benefit generally does not limit the frequency of transfers,
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 and the 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 amount of 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. You bear 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 you have allocated
Contract Value, 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 SBL 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 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 you allocate purchase payments to a Subaccount,
your 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 price for the Subaccount as of 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 price of the affected Subaccount. The
price 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 price of each Subaccount's units initially was $10. The price of a
Subaccount on any Valuation Date takes into account the following: (1) the
investment performance of the Subaccount, which is based upon the investment
performance of the corresponding Series of SBL 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 make a partial withdrawal of Contract Value, or
surrender the Contract for its Withdrawal Value. A full or partial withdrawal,
including a systematic withdrawal, may be taken from 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.
Security Benefit requires the signature of all Owners on any request for
withdrawal, and a guarantee of all such signatures to effect the transfer or
exchange of all or part of the Contract for another investment. The signature
guarantee must be provided by an eligible guarantor, such as a bank, broker,
credit union, national securities exchange or savings association. Security
Benefit further requires that any request to transfer or exchange all or part of
the Contract for another investment be made upon a transfer form provided by
Security Benefit which is available upon request.
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.
Security Benefit will deduct the amount of a partial withdrawal 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, Security Benefit will deduct the withdrawal 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, Enhanced Index Subaccount, Growth Subaccount, Select 25 Subaccount,
Value Subaccount, Worldwide Equity Subaccount, International Subaccount, Social
Awareness Subaccount, Mid Cap 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 21.
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 27. The tax consequences of a
withdrawal under the Contract should be carefully considered. See "Federal Tax
Matters," page 27.
SYSTEMATIC WITHDRAWALS
Security Benefit currently offers a feature under which you may select
systematic withdrawals. 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. The
Contractowner may stop or modify systematic withdrawals upon proper written
request 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 terminate if a systematic
withdrawal causes the Contract's Withdrawal Value to equal zero.
Security Benefit will effect each systematic withdrawal 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 deducted 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, Enhanced Index Subaccount, Growth Subaccount, Select 25 Subaccount,
Value Subaccount, Worldwide Equity Subaccount, International Subaccount, Social
Awareness Subaccount, Mid Cap 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. You should consider carefully 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. See "Federal Tax Matters," page 27.
FREE-LOOK RIGHT
You may return a Contract within the Free-Look Period, which is generally a
ten-day period beginning when you receive the Contract. Security Benefit will
then deem void the returned Contract and will refund to you 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
and circumstances that require it to do so.
DEATH BENEFIT
If the Owner dies prior to the Annuity Start Date, 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 prior to the Annuity
Start Date 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 prior to the Annuity Start Date 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, any death benefit will be determined according to the
terms of the Annuity Option. See "Annuity Options," page 22.
The death benefit proceeds will be the death benefit reduced by any
outstanding Contract Debt and any uncollected premium tax. 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:
* The sum of all Purchase Payments, less any reductions caused by previous
withdrawals,
* The Contract Value on the date due proof of death and instructions regarding
payment are received by Security Benefit, o
* The stepped-up death benefit.
The stepped-up death benefit for Contracts issued prior to March 29, 1999 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 attaining age 76, plus (2)
any Purchase Payments made since the applicable anniversary, less (3) any
withdrawals since the applicable anniversary. The stepped-up death benefit for
Contracts issued on or after March 29, 1999 is:
* The largest death benefit on any Contract anniversary that occurs prior to
the oldest Owner attaining age 76, plus
* Any Purchase Payments made since the applicable Contract anniversary, less
* Any 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 and instructions
regarding payment are received by Security Benefit at its Home Office.
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.
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 deduct sales charges from purchase payments before
allocating them to a Contractowner's Contract Value. However, except as set
forth below, Security Benefit may assess a contingent deferred sales charge
(which may also be referred to as a withdrawal charge) on a full or partial
withdrawal, including systematic withdrawals, depending upon the Contract Year
in which the withdrawal is made. Security Benefit will waive the withdrawal
charge on withdrawals to the extent that total withdrawals, including systematic
withdrawals, do not exceed the Free Withdrawal amount. 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 that portion of the withdrawal does not exceed total purchase
payments, reduced by any previous withdrawals (not including free withdrawals).
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:
CONTRACT YEAR WITHDRAWAL CHARGE
1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and later 0%
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. Security Benefit will assess the withdrawal charge
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. 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 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 4) 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 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. Security Benefit currently deducts this charge upon the Annuity Start
Date 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."
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.
SBL FUND EXPENSES
Each Subaccount of the Separate Account purchases shares at the net asset
value of the corresponding Series of SBL 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
SBL Fund's prospectus, are not specified or fixed under the terms of the
Contract.
ANNUITY PERIOD
GENERAL
You select 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 that you start annuity
payments at an earlier age. If you do 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.
If you are a Participant under a Qualified Plan in connection with which a
Group Contract is issued, you 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 you direct
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 your 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. Security Benefit may make
other Annuity Options available upon request. 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 reflect your life
expectancy based upon your age as of the Annuity Start Date and your gender,
unless unisex rates apply. The annuity rates are based upon the 1983(a)
mortality table and are adjusted to reflect an assumed interest rate of 3.5
percent, compounded annually. In the case of Options 5 and 6 as described below,
annuity payments are based upon Contract Value without regard to annuity rates.
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.
You may elect to receive annuity payments 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.
You may designate or change an Annuity Start Date, Annuity Option, or
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 due date of the third
annuity payment, etc. THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER
THIS OPTION. PAYMENTS WILL 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 by the Owner, 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. 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 by the Owner, 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 annuity payments of the amount elected by the Owner 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 by the Owner. 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.
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, compounded annually. Variable annuity
payments generally increase or decrease from one annuity payment date to the
next based upon the performance of the applicable Subaccounts during the interim
period adjusted for the assumed interest rate. If the performance of the
Subaccount selected is equal to the assumed interest rate, the annuity payments
will remain constant. If the performance of the Subaccounts is greater than the
assumed interest rate, the annuity payments will increase and if it is less than
the assumed interest rate, the annuity payments will decline. A higher assumed
interest rate would mean a higher initial annuity payment but the amount of the
annuity payment would increase more slowly in a rising market (or the amount of
the annuity payment would decline more rapidly in a declining market). A lower
assumption would have the opposite effect.
SELECTION OF AN OPTION
You should carefully review the Annuity Options with your financial or tax
advisers. 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 (other than
Life Income) 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
You may allocate all or a portion of your 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 and is also
subject to 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 14.
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
Contract Value allocated to the Fixed Account earns 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 duration. Therefore,
at any time, various portions of your 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," 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 or transfer Contract Value 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, you will not pay directly or indirectly the
investment advisory fees and operating expenses of the SBL Fund to the extent
Contract Value is allocated to the Fixed Account; however, you also will not
participate in the investment experience of the Subaccounts.
TRANSFERS AND WITHDRAWALS FROM THE FIXED ACCOUNT
You may transfer amounts 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, if you desire to implement the
Asset Reallocation Option, you should do so at a time when Contract Value may be
transferred from the Fixed Account to the Subaccounts without violating the
restrictions on transfers from the Fixed Account. Once you implement an Asset
Reallocation Option, the restrictions on transfers will not apply to transfers
made pursuant to the Option.
The minimum amount that you may transfer 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. You 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,
you may only reestablish the option after the expiration of the next monthly or
quarterly anniversary that corresponds to the period selected in establishing
the option.
You may also make full or partial withdrawals to the same extent as if you
had 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," page 17 and
"Systematic Withdrawals," page 18. 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 26.
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 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:
* During which the New York Stock Exchange is closed other than customary
weekend and holiday closings,
* During which trading on the New York Stock Exchange is restricted as
determined by the SEC,
* 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
* 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 you misstate the age or sex of an Annuitant or age of an Owner, 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
If you own a Contract issued in connection with a retirement plan that is
qualified under Section 403(b) of the Internal Revenue Code, you may borrow
money under your Contract using the Contract Value as the only security for the
loan. You may obtain a loan by submitting a proper written request to Security
Benefit. A loan must be taken prior to the Annuity 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 your 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." Amounts allocated to the Loan
Account earn 3 percent, the minimum rate of interest guaranteed under the Fixed
Account. In addition, ten percent of the loaned amount will be held in the Fixed
Account as security for the loan and will earn the Current Rate.
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 (which will earn 3
percent) 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 your principal residence, in which case
the loan must be repaid within 30 years. You must make loan repayments on at
least a quarterly basis, and you may prepay your loan 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 your 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 you do not make any required loan payment 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, your TOTAL OUTSTANDING LOAN
BALANCE will be deemed to be in default for tax reporting purposes. 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. 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 59
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. Because of the adverse tax consequences associated with
defaulting on a loan, you should carefully consider your ability to repay the
loan and should consult with a tax advisor before requesting a loan.
While the amount to secure the loan is held in the Loan Account, you forgoe
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.
You should consult with your 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, if you own a Contract purchased in connection with a
Qualified Plan, you 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, you should refer to the terms of your
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," 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 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.
If you own a Contract purchased as a tax-sheltered Section 403(b) annuity
contract, you 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 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, you should carefully consider the tax consequences of a distribution
or withdrawal under a Contract and you should consult a competent tax adviser.
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 CONTRACT.
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 SBL Fund will be required to adhere to regulations
adopted by the Treasury Department pursuant to Section 817(h) of the Code
prescribing asset 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 SBL 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 30 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 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. 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, and President Clinton's
fiscal-year 1999 Budget proposal includes a provision that, if adopted, would
impose new taxation on owners of variable 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 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 five-year averaging has been repealed for
distributions after 1999.) 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
33.
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 31.
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 33.
3. Sections 408 and 408a
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to establish individual retirement programs through the purchase of
Individual Retirement Annuities ("traditional IRAs"). The Contract may be
purchased as an IRA. The IRAs described in this paragraph are called
"traditional IRAs" to distinguish them from the new "Roth IRAs" which became
available in 1998. (Roth IRAs are described below.)
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 a
traditional 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, traditional 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 traditional
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 31. 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 a traditional IRA may be eligible for a tax-free rollover
to another traditional IRA. In certain cases, a distribution from a traditional
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" on page 33.
ROTH IRAS. Section 408A of the Code permits eligible individuals to
establish a Roth IRA, a new type of IRA which became available in 1998. The
Contract may be purchased as a Roth IRA. Contributions to a Roth IRA are not
deductible, but withdrawals that meet certain requirements are not subject to
federal income tax. Sale of the contract for use with Roth 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
requirements. Unlike a traditional IRA, Roth IRAs are not subject to minimum
required distribution rules during the Contractowner's lifetime. Generally,
however, the amount in a remaining Roth IRA must be distributed by the end of
the fifth year after the death of the Contractowner.
The Internal Revenue Service has not reviewed the Contract for qualification
as a Roth 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
Roth 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 31. 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
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.
Starting January 1, 1998, there are two additional exceptions to the 10 percent
penalty tax on withdrawals from IRAs before age 59 1/2: withdrawals made to pay
"qualified" higher education expenses and withdrawals made to pay certain
"eligible first-time home buyer expenses."
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.
EXCESS DISTRIBUTION/ACCUMULATION TAX. The penalty tax of 15 percent which
was imposed (in addition to any ordinary income tax) on large plan distributions
and the "excess retirement accumulations" of an individual has been repealed,
effective January 1, 1997.
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 SBL FUND SHARES
Security Benefit is the legal owner of the shares of SBL Fund held by the
Subaccounts. Security Benefit will exercise voting rights attributable to the
shares of each Series of the Fund held in the Subaccounts at any regular and
special meetings of the shareholders of the Fund on matters requiring
shareholder voting under the 1940 Act. In accordance with its view of presently
applicable law, Security Benefit will exercise its voting rights based on
instructions received from persons having the voting interest in corresponding
Subaccounts. 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 SBL
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 your Contract Value in the corresponding Subaccount on a
particular date by the net asset value per share of the 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 same date established by
SBL Fund for determining shareholders eligible to vote at the meeting of the
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 SBL Fund.
Voting instructions may be cast in person or by proxy.
Voting rights attributable to your 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 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. Security Benefit generally will exercise
voting rights attributable to shares of the Series of SBL Fund held in its
General Account, if any, in the same proportion as votes cast with respect to
shares of the Series of the 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 SBL Fund should no longer be available for
investment, or if Security Benefit management believes further investment in
shares of any or all of the Series of SBL Fund should become inappropriate in
view of the purposes of the Contract, Security Benefit may substitute shares of
another Series of SBL 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 SBL Fund or in
shares of another investment company, a series thereof, or other suitable
investment vehicle. Security Benefit may establish new Subaccounts in its sole
discretion, and will determine whether to make any new Subaccount available to
existing Owners. 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 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 Security
Benefit believes it 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. The
Separate Account 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
Security Benefit will send you annually a statement 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. Security Benefit will also send confirmations
upon purchase payments, transfers, loans, loan repayments, and full and partial
withdrawals. Security Benefit may confirm certain transactions 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.
You will also receive an annual and semiannual report containing financial
statements for SBL Fund, which will include a list of the portfolio securities
of each Series, as required by the 1940 Act, and/or such other reports as may be
required by federal securities laws.
TELEPHONE TRANSFER PRIVILEGES
You 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 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), you may not be able
to request transfers by telephone and would have to submit written requests.
By authorizing telephone transfers, you authorize Security Benefit to accept
and act upon telephonic instructions for transfers involving your Contract. You
agree that neither Security Benefit, any of its affiliates, nor SBL Fund, will
be liable for any loss, damages, cost, or expense (including attorneys' fees)
arising out of any telephone requests; provided that Security Benefit effects
such request in accordance with its procedures. As a result of this policy on
telephone requests, you bear the risk of loss arising from the telephone
transfer privilege. 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
Amy J. Lee, Esq., Associate General Counsel, Security Benefit, has passed
upon 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.
PERFORMANCE INFORMATION
Performance information for the Subaccounts, including the yield and
effective yield of the 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 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 and may also be obtained from the
SEC's web site (http://www.sec.gov).
FINANCIAL STATEMENTS
Consolidated financial statements of Security Benefit Corp and Subsidiaries,
including Security Benefit, at December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998, and the financial statements
of the Separate Account at December 31, 1998 and for each of the two years in
the period ended December 31, 1998 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 Corp and Subsidiaries. The
Table of Contents of the Statement of Additional Information is set forth below:
TABLE OF CONTENTS
Page
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
<PAGE>
VARIFLEX SIGNATURE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: MAY 1, 1999
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 May 1, 1999, 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>
TABLE OF CONTENTS
PAGE
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
<PAGE>
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 SBL Fund in
non-certificated form, are held separate and apart from the assets of 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.
Section 402(g) generally limits an employee's salary reduction contributions
to a 403(b) annuity to $10,000 a year. The $10,000 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 $10,000 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) $8,000 or (ii) 33 1/3% of the employee's includable
compensation. The $8,000 limit is indexed for inflation (in $500 increments) for
tax years beginning after December 31, 1996; thus the dollar limit is adjusted
only when the sum of the inflation adjustment equals or exceeds $500. If the
employee participates in more than one Section 457 plan, the $8,000 limit
applies to contributions to all such programs. The $8,000 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.
EXPERTS
The consolidated financial statements for Security Benefit Corp. and
Subsidiaries, including Security Benefit, at December 31, 1998, and 1997 and for
each of the three years in the period ended December 31, 1998, and for the
Separate Account at December 31, 1998 and for each of the two years in the
period ended December 31, 1998, 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 7 herein, and are included in
reliance upon such reports 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 and income other than
investment income, 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:
Effective Yield = [(Base Period Return + 1)^365/7] - 1
For the seven-day period ended December 31, 1998, the yield for the Money
Market Series was 7.08% and the effective yield was 7.33%.
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:
YIELD = 2[(a-b + 1)^6 - 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 SBL Fund,
adjusted to reflect the charges imposed under the Contract.
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, the High Yield Subaccount, the Value Subaccount and
the Small Cap 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- and 3-year periods ending December 31, 1998, and the period
between April 4, 1995 (Annuity date of inception) and December 31, 1998,
respectively, the average annual total return was 18.23%, 22.90%, and 25.23% for
the Growth Subaccount; .61%, 14.45% and 17.55% for the Growth-Income Subaccount;
13.04%, 11.75% and 12.67% for the Worldwide Equity Subaccount; 1.12%, 2.79% and
5.58% for the High Grade Income Subaccount; 24.22%, 21.49% and 23.02% for the
Social Awareness Subaccount; and 10.91%, 15.93% and 17.23% for the Mid Cap
Subaccount. For the 1- and 3-year periods ending December 31, 1998, and the
period between June 1, 1995 (Series date of inception) and December 31, 1998,
respectively, the average annual total return was -.01%, 5.54% and 7.03% for the
Global Aggressive Bond Subaccount; 5.70%, 7.96% and 8.89% for the Specialized
Asset Allocation Subaccount; 11.39%, 13.64% and 13.63% for the Managed Asset
Allocation Subaccount; and 2.08%, 15.99% and 18.50% for the Equity Income
Subaccount. For the 1-year period ended December 31, 1998 and the period between
August 5, 1996 (Series date of inception) and December 31, 1998, respectively,
the average annual total return was -1.01% and 7.2% for the High Yield
Subaccount. For the 1-year period ended December 31, 1998, and the period
between May 1, 1997 (Series date of inception) and December 31, 1998,
respectively, the average annual total return was 9.51% and 24.61% for the Value
Subaccount. For the 1-year period ended December 31, 1998, and the period
between October 15, 1997 (Series date of inception) and December 31, 1998,
respectively, the average annual total return was 4.55% and -0.43% for the Small
Cap Subaccount.
Absent deduction of the contingent deferred sales charge, the average annual
total return for the stated periods above would be 23.63%, 19.95% and 17.10% for
the Growth Subaccount; 6.01%, 13.60% and 13.25% for the Growth-Income
Subaccount; 18.44%, 9.78% and 4.22% for the Worldwide Equity Subaccount; and
6.52%, 3.95% and 6.69% for the High Grade Income Subaccount. For the 1- and
5-year periods ended December 31, 1998, and the period between May 1, 1991
(Series date of inception) and December 31, 1998, respectively, the average
annual total return would be 29.62%, 17.02% and 14.95% for the Social Awareness
Subaccount. For the 1- and 5-year periods ended December 31, 1998 and the period
between October 1, 1992 (Series date of inception) and December 31, 1998,
respectively, the average annual total return would be 16.31% and 12.03% and
15.49% for the Mid Cap Subaccount. For the 1-year period ended December 31, 1998
and the period between June 1, 1995 (Series date of inception) and December 31,
1998, respectively, the average annual total return would be 5.39% and 7.83% for
the Global Aggressive Bond Subaccount; 11.10% and 9.66% for the Specialized
Asset Allocation Subaccount; 16.79% and 14.31% for the Managed Asset Allocation
Subaccount; and 7.48% and 19.09% for the Equity Income Subaccount. For the
1-year period ended December 31, 1998 and the period between August 5, 1996
(Series date of inception) and December 31, 1998, respectively, the average
annual total return was 4.39% and 9.19% for the High Yield Subaccount. For the
1-year period ended December 31, 1998 and the period between May 1, 1997 (Series
date of inception) and December 31, 1998, the average annual total return was
14.91% and 27.23% for the Value Subaccount. For the one year period ended
December 31, 1998 and the period between October 15, 1997 (Series date of
inception) and December 31, 1998, the average annual total return was 9.95% and
4.11%. 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.
For the fiscal years ended 1998 through 1988, the total return for each
Subaccount was the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Subaccount.......... 23.63% 26.93% 20.96% 34.91% (3.02)% 12.12% 9.61% 34.18% (11.80)% 33.05% 8.58%
Growth-Income Subaccount... 6.01% 24.80% 16.59% 28.26% (4.33)% 8.08% 4.78% 35.89% (5.79)% 26.61% 17.66%
Money Market Subaccount.... 3.69% 3.73% 3.59% 3.90% 2.28% 1.15% 1.80% 4.18% 6.35% 7.53% 5.68%
Worldwide Equity Subaccount 18.44% 4.91% 15.81% 9.34% 1.31% 29.80% (3.98)% 2.96%(1) --- --- ---
High Grade
Income Subaccount........ 6.52% 8.49% (2.11)% 16.92% (8.23)% 11.06% 5.95% 15.34% 5.19% 10.32% 5.70%
Mid Cap Subaccount......... 16.31% 18.28% 16.38% 17.82% (6.42)% 12.07% 24.34%(2) --- --- --- ---
Global Aggressive
Bond Subaccount.......... 5.39% 3.93% 12.09% 6.74%(3) --- --- --- --- --- --- ---
Specialized Asset
Allocation Subaccount.... 11.10% 4.68% 12.63% 6.23%(3) --- --- --- --- --- --- ---
Managed Asset
Allocation Subaccount.... 16.79% 16.72% 11.21% 6.43%(3) --- --- --- --- --- --- ---
Equity Income Subaccount... 7.48% 26.57% 18.35% 16.05%(3) --- --- --- --- --- --- ---
High Yield Subaccount...... 4.39% 11.70% 6.00%(4) --- --- --- --- --- --- --- ---
Social Awareness Subaccount 29.62% 20.94% 17.15% 26.02% (5.15)% 10.33% 14.76% 4.56%(5) --- --- ---
Value Subaccount........... 14.91% 29.20%(6) --- --- --- --- --- --- --- --- ---
Small Cap Subaccount....... 9.95% (4.50)%(7) --- --- --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
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.
6. From May 1, 1997 to December 31, 1997
7. From October 1, 1997 to December 31, 1997
</FN>
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
FINANCIAL STATEMENTS
The consolidated balance sheets of Security Benefit Corp and Subsidiaries,
including Security Benefit, as of December 31, 1998, and 1997 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, 1998, and the financial
statements of the Separate Account at December 31, 1998, and for each of the two
years ended December 31, 1998, are set forth herein, starting on page 7.
The consolidated financial statements of Security Benefit Corp and
Subsidiaries, 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.
<PAGE>
Variable Annuity Account VIII
Financial Statements
Years ended December 31, 1998 and 1997
CONTENTS
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
<PAGE>
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 Account) (comprised of the individual series as indicated therein) as of
December 31, 1998 and the related statements of operations and changes in net
assets for each of the two years in the period then ended. These financial
statements are the responsibility of the Account'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, 1998 by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the individual series of
Variable Annuity Account VIII at December 31, 1998 and the results of their
operations and changes in their net assets for each of the two years in the
period then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
February 5, 1999
<PAGE>
Variable Annuity Account VIII
Balance Sheet
December 31, 1998
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 3,495,543 shares at net asset value of
$34.27 per share (cost, $106,832).............................. $119,792
Series B (Growth-Income Series) - 1,561,830 shares at net asset
value of $39.68 per share (cost, $63,175)...................... 61,973
Series C (Money Market Series) - 1,928,989 shares at net asset
value of $12.53 per share (cost, $23,996)...................... 24,170
Series D (Worldwide Equity Series) - 5,595,076 shares at net
asset value of $6.74 per share (cost, $35,499)................. 37,711
Series E (High Grade Income Series) - 2,543,247 shares at net
asset value of $12.42 per share (cost, $30,870)................ 31,587
Series J (Emerging Growth Series) - 1,242,678 shares at net asset
value of $22.51 per share (cost, $25,105)...................... 27,973
Series K (Global Aggressive Bond Series) - 500,668 shares at net
asset value of $9.56 per share (cost, $5,110).................. 4,786
Series M (Specialized Asset Allocation Series) - 1,154,461 shares
at net asset value of $12.87 per share (cost, $14,393)......... 14,858
Series N (Managed Asset Allocation Series) - 1,948,794 shares at
net asset value of $16.01 per share (cost, $27,734)............ 31,200
Series O (Equity Income Series) - 3,637,233 shares at net asset
value of $18.35 per share (cost, $62,566)...................... 66,743
Series P (High Yield Series) - 699,609 shares at net asset value
of $16.80 per share (cost, $12,243)............................ 11,753
Series S (Social Awareness Series) - 925,545 shares at net asset
value of $28.40 per share (cost, $22,396)...................... 26,286
Series V (Value Series) - 1,120,393 shares at net asset value of
$14.83 per share (cost, $15,496)............................... 16,616
Series X (Small Cap Series) - 276,392 shares at net asset value
of $10.67 per share (cost, $2,670)............................. 2,949
-------
Total assets $478,397
=======
<PAGE>
LIABILITIES AND NET ASSETS
Mortality guarantee payable $ 13
NET ASSETS
Net assets are represented by (NOTE 3):
-------------------------------------------
NUMBER UNIT
OF UNITS VALUE AMOUNT
-------------------------------------------
Growth Series:
Accumulation units................ 4,778,310 $25.06 $119,750
Annuity units..................... 1,688 25.06 42 119,792
-------
Growth-Income Series:
Accumulation units................ 3,161,657 19.58 61,905
Annuity units..................... 3,481 19.58 68 61,973
-------
Money Market Series:
Accumulation units................ 2,099,523 11.51 24,170
Worldwide Equity Series:
Accumulation units................ 2,293,514 16.43 37,686
Annuity units..................... 1,514 16.43 25 37,711
-------
High Grade Income Series:
Accumulation units................ 2,409,250 13.07 31,485
Annuity units..................... 7,577 13.07 99 31,584
-------
Emerging Growth Series:
Accumulation units................ 1,468,017 19.04 27,954
Annuity units..................... 1,000 19.04 19 27,973
-------
Global Aggressive Bond Series:
Accumulation units................ 364,793 13.10 4,779
Annuity units..................... 552 13.10 7 4,786
-------
Specialized Asset Allocation Series:
Accumulation units................ 1,063,148 13.90 14,782
Annuity units..................... 5,189 13.90 72 14,854
-------
Managed Asset Allocation Series:
Accumulation units................ 1,927,318 16.14 31,102
Annuity units..................... 5,903 16.14 95 31,197
-------
Equity Income Series:
Accumulation units................ 3,562,159 18.69 66,571
Annuity units..................... 9,060 18.69 169 66,740
-------
High Yield Series:
Accumulation units................ 945,133 12.36 11,680
Annuity units..................... 5,958 12.36 74 11,754
-------
Social Awareness Series:
Accumulation units................ 1,140,285 23.04 26,276
Annuity units..................... 421 23.04 10 26,286
-------
Value Series:
Accumulation units................ 1,108,840 14.96 16,587
Annuity units..................... 1,885 14.96 28 16,615
-------
Small Cap Series:
Accumulation units................ 280,763 10.50 2,949
-------
Total net assets.................... 478,384
-------
Total liabilities and net assets.... $478,397
=======
SEE ACCOMPANYING NOTES.
<PAGE>
Variable Annuity Account VIII
Statement of Operations and Changes in Net Assets
Year ended December 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH GLOBAL
GROWTH- MONEY WORLDWIDE GRADE EMERGING AGGRESSIVE
GROWTH INCOME MARKET EQUITY INCOME GROWTH BOND
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions ..................... $ 440 $ 917 $ 984 $ 405 $ 1,364 $ 151 $ 454
Expenses (NOTE 2):
Mortality and expense risk fee ........... (1,133) (733) (327) (402) (319) (297) (64)
Administrative fee ....................... (141) (88) (39) (48) (38) (36) (8)
--------------------------------------------------------------------------------------
Net investment income (loss) ............... (834) 96 618 (45) 1,007 (182) 382
Capital gains distributions ................ 5,587 5,825 - 2,317 - 2,528 83
Realized gain (loss) on investments ........ 5,998 1,868 264 (468) 36 104 (247)
Unrealized appreciation (depreciation) on
investments .............................. 9,164 (4,998) 58 3,458 493 1,426 19
--------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments ........................... 20,749 2,695 322 5,307 529 4,058 (145)
--------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations ............................... 19,915 2,791 940 5,262 1,536 3,876 237
Net assets at beginning of year ............ 69,897 47,476 19,499 25,462 19,711 20,200 4,754
Variable annuity deposits (NOTES 2 AND 3) .. 81,141 28,688 96,514 22,634 27,927 22,014 3,045
Terminations and withdrawals (NOTES 2 AND 3) (51,154) (16,975) (92,783) (15,647) (17,584) (18,116) (3,247)
Annuity payments (NOTES 2 AND 3) ........... (7) (7) - - (3) (1) (3)
Mortality adjustment ....................... - - - - (3) - -
--------------------------------------------------------------------------------------
Net assets at end of year .................. $119,792 $ 61,973 $ 24,170 $ 37,711 $ 31,584 $ 27,973 $ 4,786
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
SPECIALIZED MANAGED
ASSET ASSET EQUITY HIGH SOCIAL SMALL
ALLOCATION ALLOCATION INCOME YIELD AWARENESS VALUE CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions ..................... $ 327 $ 331 $ 847 $ 872 $ 32 $ 71 $ 1
Expenses (NOTE 2):
Mortality and expense risk fee ........... (196) (296) (790) (100) (190) (138) (17)
Administrative fee ....................... (24) (35) (95) (12) (23) (17) (2)
--------------------------------------------------------------------------------------
Net investment income (loss) ............... 107 - (38) 760 (181) (84) (18)
Capital gains distributions ................ 817 207 2,049 76 348 316 -
Realized gain (loss) on investments ........ 864 1,621 6,030 (9) 1,082 201 (9)
Unrealized appreciation (depreciation) on
investments .............................. (64) 1,886 (3,784) (533) 3,200 1,002 276
--------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments .............................. 1,617 3,714 4,295 (466) 4,630 1,519 267
--------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations ............................... 1,724 3,714 4,257 294 4,449 1,435 249
Net assets at beginning of year ............ 18,219 16,746 54,159 3,747 9,621 4,848 241
Variable annuity deposits (NOTES 2 AND 3) .. 3,260 16,210 29,699 12,360 17,562 12,363 2,785
Terminations and withdrawals (NOTES 2 AND 3) (8,344) (5,468) (21,370) (4,645) (5,346) (2,029) (326)
Annuity payments (NOTES 2 AND 3) ........... (1) (2) (2) (2) - (2) -
Mortality adjustment ....................... (4) (3) (3) - - - -
--------------------------------------------------------------------------------------
Net assets at end of year .................. $14,854 $31,197 $ 66,740 $11,754 $26,286 $16,615 $2,949
======================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Variable Annuity Account VIII
Statement of Operations and Changes in Net Assets
Year ended December 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH GLOBAL
GROWTH- MONEY WORLDWIDE GRADE EMERGING AGGRESSIVE
GROWTH INCOME MARKET EQUITY INCOME GROWTH BOND
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions ..................... $ 331 $ 759 $ 893 $ 466 $ 1,148 $ 49 $ 376
Expenses (NOTE 2):
Mortality and expense risk fee ........... (609) (410) (228) (278) (210) (194) (56)
Administrative fee ....................... (75) (49) (27) (33) (25) (23) (7)
--------------------------------------------------------------------------------------
Net investment income (loss) ............... (353) 300 638 155 913 (168) 313
Capital gains distributions ................ 3,092 1,883 - 1,006 - 424 113
Realized gain (loss) on investments ........ 5,030 745 3 769 (47) 1,118 (11)
Unrealized appreciation (depreciation) on
investments .............................. 2,769 4,015 21 (1,388) 449 1,253 (236)
--------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments .............................. 10,891 6,643 24 387 402 2,795 (134)
--------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations ............................... 10,538 6,943 662 542 1,315 2,627 179
Net assets at beginning of year ............ 31,719 20,552 16,299 15,630 18,459 10,687 3,925
Variable annuity deposits (NOTES 2 AND 3) .. 58,190 28,181 62,829 20,102 15,897 19,212 5,137
Terminations and withdrawals (NOTES 2 AND 3) (30,550) (8,200) (60,291) (10,812) (15,960) (12,326) (4,487)
--------------------------------------------------------------------------------------
Net assets at end of year .................. $ 69,897 $47,476 $ 19,499 $ 25,462 $ 19,711 $ 20,200 $ 4,754
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
SPECIALIZED MANAGED
ASSET ASSET EQUITY HIGH SOCIAL SMALL
ALLOCATION ALLOCATION INCOME YIELD AWARENESS VALUE CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions ..................... $ 381 $ 197 $ 369 $ 17 $ 13 $ - $ -
Expenses (NOTE 2):
Mortality and expense risk fee ........... (229) (146) (474) (10) (78) (10) -
Administrative fee ....................... (27) (18) (57) (1) (9) (1) -
--------------------------------------------------------------------------------------
Net investment income (loss) ............... 125 33 (162) 6 (74) (11) -
Capital gains distributions ................ 366 129 526 3 354 - -
Realized gain (loss) on investments ........ 852 555 2,793 19 249 16 -
Unrealized appreciation (depreciation) on
investments .............................. (576) 978 5,601 43 620 118 3
--------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments .............................. 642 1,662 8,920 65 1,223 134 3
--------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations .............................. 767 1,695 8,758 71 1,149 123 3
Net assets at beginning of year ............ 16,285 8,463 24,214 - 3,239 - -
Variable annuity deposits (NOTES 2 AND 3) .. 7,004 9,515 30,843 5,058 7,085 4,871 239
Terminations and withdrawals (NOTES 2 AND 3) (5,837) (2,927) (9,656) (1,382) (1,852) (146) (1)
--------------------------------------------------------------------------------------
Net assets at end of year .................. $18,219 $16,746 $54,159 $ 3,747 $ 9,621 $4,848 $241
======================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Variable Annuity Account VIII
Notes to Financial Statements
December 31, 1998 and 1997
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), Series P (High Yield Series - emphasis on high
current income with secondary emphasis on capital appreciation through
investment in higher yielding, higher risk debt securities), Series S (Social
Awareness Series - emphasis on capital appreciation), Series V (Value Series -
emphasis on long-term growth of capital) and Series X (Small Cap Series -
emphasis on long-term growth of capital).
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company, LLC (SMC), a
limited liability company controlled by its members, SBL and Security Benefit
Group, Inc., a wholly-owned subsidiary of SBL. SMC has engaged T. Rowe Price
Associates, Inc. to provide sub-advisory services for the Managed Asset
Allocation Series and the Equity Income Series and Meridian Investment
Management Corporation to provide sub-advisory services for the Specialized
Asset Allocation Series, and Strong Capital Management, Inc. to provide
sub-advisory services to the Small Cap Series. Lexington Management Corporation
(LMC) served as sub-advisor for the Worldwide Equity Series until November 1,
1998, when LMC was replaced by OppenheimerFunds, Inc. Effective December 31,
1998, LMC resigned as sub-advisor for Global Aggressive Bond Series, which will
be advised by SMC.
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.
The cost of investments purchased and proceeds from investments sold for the
year ended December 31 were as follows:
1998 1997
-----------------------------------------------------
COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
-----------------------------------------------------
(IN THOUSANDS)
Growth Series.............. $94,708 $59,975 $68,072 $37,693
Growth-Income Series....... 39,563 21,936 32,751 10,587
Money Market Series........ 6,261 1,912 68,764 65,588
Worldwide Equity Series.... 28,719 19,460 22,686 12,235
High Grade Income Series... 32,178 20,831 18,198 17,348
Emerging Growth Series..... 26,358 20,115 20,611 13,469
Global Aggressive
Bond Series.............. 4,204 3,944 5,837 4,761
Specialized Asset
Allocation Series........ 5,037 9,198 8,157 6,499
Managed Asset
Allocation Series........ 18,300 7,353 10,263 3,513
Equity Income Series....... 35,664 25,326 32,959 11,408
High Yield Series.......... 14,705 6,157 5,127 1,442
Social Awareness Series.... 19,191 6,808 8,082 2,569
Value Series............... 13,581 3,016 5,281 567
Small Cap Series........... 3,023 581 239 1
ANNUITY RESERVES
Annuity reserves relate to contracts that have matured and are in the payout
stage. Such reserves are 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.
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
The operations of the Account are a part of the operations of SBL. Under current
law, no federal income taxes are allocated by SBL to the operations of 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 net 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.
3. SUMMARY OF UNIT TRANSACTIONS
UNITS
------------------------
YEAR ENDED DECEMBER 31
1998 1997
------------------------
(IN THOUSANDS)
Growth Series:
Variable annuity deposits ......................... 3,638 3,142
Terminations, withdrawals and expense charges ..... 2,308 1,679
Growth-Income Series:
Variable annuity deposits ......................... 1,482 1,672
Terminations, withdrawals and expense charges ..... 889 489
Money Market Series:
Variable annuity deposits ......................... 8,530 5,746
Terminations, withdrawals and expense charges ..... 8,185 5,512
Worldwide Equity Series:
Variable annuity deposits ......................... 1,485 1,411
Terminations, withdrawals and expense charges ..... 1,025 758
High Grade Income Series:
Variable annuity deposits ......................... 2,189 1,362
Terminations, withdrawals and expense charges ..... 1,379 1,386
Emerging Growth Series:
Variable annuity deposits ......................... 1,322 1,285
Terminations, withdrawals and expense charges ..... 1,087 823
Global Aggressive Bond Series:
Variable annuity deposits ......................... 241 424
Terminations, withdrawals and expense charges ..... 258 370
Specialized Asset Allocation Series:
Variable annuity deposits ......................... 240 560
Terminations, withdrawals and expense charges ..... 626 466
Managed Asset Allocation Series:
Variable annuity deposits ......................... 1,084 727
Terminations, withdrawals and expense charges ..... 364 229
Equity Income Series:
Variable annuity deposits ......................... 1,641 1,964
Terminations, withdrawals and expense charges ..... 1,187 611
High Yield Series:
Variable annuity deposits ......................... 1,015 434
Terminations, withdrawals and expense charges ..... 380 117
Social Awareness Series:
Variable annuity deposits ......................... 875 436
Terminations, withdrawals and expense charges ..... 276 115
Value Series:
Variable annuity deposits ......................... 886 384
Terminations, withdrawals and expense charges ..... 148 11
Small Cap Series:
Variable annuity deposits ......................... 292 25
Terminations, withdrawals and expense charges ..... 36 -
<PAGE>
Security Benefit Corp. and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1998, 1997 and 1996
CONTENTS
Report of Independent Auditors............................................. 19
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................................ 20
Consolidated Statements of Income.......................................... 22
Consolidated Statements of Changes in Stockholder's Equity................. 23
Consolidated Statements of Cash Flows...................................... 24
Notes to Consolidated Financial Statements................................. 26
<PAGE>
Report of Independent Auditors
The Board of Directors
Security Benefit Corp.
We have audited the accompanying consolidated balance sheets of Security Benefit
Corp. and Subsidiaries (the Company) as of December 31, 1998 and 1997 and the
related consolidated statements of income, changes in stockholder's equity and
cash flows for each of the three years in the period ended December 31, 1998.
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
Corp. and Subsidiaries at December 31, 1998 and 1997 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
February 5, 1999
<PAGE>
Security Benefit Corp. and Subsidiaries
Consolidated Balance Sheets
DECEMBER 31
1998 1997
---------------------------
(IN THOUSANDS)
ASSETS
Investments:
Securities available-for-sale:
Fixed maturities ............................. $2,120,369 $1,650,324
Equity securities ............................ 158,291 120,508
Fixed maturities held-to-maturity .............. 264,283 452,411
Mortgage loans ................................. 57,400 64,251
Real estate .................................... 2,875 3,056
Policy loans ................................... 88,385 85,758
Cash ........................................... 28,419 30,896
Other invested assets .......................... 49,308 42,395
---------------------------
Total investments ................................ 2,769,330 2,449,599
Accrued investment income ........................ 31,740 30,034
Accounts receivable .............................. 18,616 22,227
Reinsurance recoverable .......................... 407,891 397,519
Property and equipment, net ...................... 20,869 19,669
Deferred policy acquisition costs ................ 168,483 159,441
Other assets ..................................... 17,381 15,537
Separate account assets .......................... 4,416,194 3,716,639
---------------------------
$7,850,504 $6,810,665
===========================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy reserves and annuity account values ..... $2,699,894 $2,439,713
Policy and contract claims ..................... 9,768 10,955
Other policyholder funds ....................... 20,496 21,582
Accounts payable and accrued expenses .......... 47,168 35,343
Income taxes payable ........................... 24,622 10,960
Deferred income tax liability .................. 60,109 58,261
Long-term debt and other borrowings ............ 60,000 65,000
Other liabilities .............................. 14,276 17,331
Separate account liabilities ................... 4,416,194 3,716,639
---------------------------
Total liabilities ................................ 7,352,527 6,375,784
Stockholder's equity:
Preferred stock, $0.001 par value, 10,000,000
shares authorized, no shares issued or
outstanding .................................... - -
Common stock:
Class A shares, $0.001 par value, 200,000,000
shares authorized, no shares issued or
outstanding .................................. - -
Class B shares, $0.001 par value, 50,000,000
shares authorized, 1,000 shares issued and
outstanding .................................. - -
Retained earnings .............................. 467,877 409,432
Accumulated other comprehensive income, net .... 30,100 25,449
---------------------------
Total stockholder's equity ....................... 497,977 434,881
---------------------------
$7,850,504 $6,810,665
===========================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Security Benefit Corp. and Subsidiaries
Consolidated Statements of Income
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------
(IN THOUSANDS)
Revenues:
Insurance premiums and other
considerations ...................... $ 24,187 $ 24,640 $ 28,848
Net investment income ................. 174,048 184,975 194,783
Asset based fees ...................... 88,721 72,025 55,977
Other product charges ................. 7,749 9,163 10,470
Realized gains (losses) on investments. 4,261 4,929 (244)
Other revenues ........................ 17,307 21,389 24,391
------------------------------------
Total revenues .......................... 316,273 317,121 314,225
Benefits and expenses:
Annuity and interest sensitive
life benefits:
Interest credited to account
balances ......................... 94,552 102,640 108,705
Benefit claims in excess of
account balances .................... 4,662 4,985 7,541
Traditional life insurance benefits.... 12,617 17,472 18,222
Supplementary contract payments........ 9,694 9,660 11,121
Increase in traditional life reserves.. 1,699 7,050 8,580
Other benefits ........................ 13,227 7,801 11,416
------------------------------------
Total benefits .......................... 136,451 149,608 165,585
Commissions and other operating expenses. 65,755 59,576 52,044
Amortization of deferred policy
acquisition costs ..................... 25,447 26,179 25,930
Interest expense ........................ 5,075 5,305 4,285
Other expenses .......................... 3,354 3,381 1,667
------------------------------------
Total benefits and expenses ............. 236,082 244,049 249,511
------------------------------------
Income before income taxes .............. 80,191 73,072 64,714
Income taxes ............................ 21,746 21,567 20,871
------------------------------------
Net income .............................. $ 58,445 $ 51,505 $ 43,843
====================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Security Benefit Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE
STOCK EARNINGS INCOME TOTAL
--------------------------------------------
Balance at December 31, 1995 ..... $- $314,084 $11,607 $325,691
Comprehensive income:
Net income ................... - 43,843 - 43,843
Unrealized gains (losses), net - - (12,086) (12,086)
-------
Comprehensive income ........... 31,757
--------------------------------------------
Balance at December 31, 1996 ..... - 357,927 (479) 357,448
Comprehensive income:
Net income ................... - 51,505 - 51,505
Unrealized gains (losses), net - - 25,928 25,928
-------
Comprehensive income ........... 77,433
--------------------------------------------
Balance at December 31, 1997 ..... - 409,432 25,449 434,881
Comprehensive income:
Net income ................... - 58,445 - 58,445
Unrealized gains (losses), net - - 4,651 4,651
-------
Comprehensive income ........... 63,096
--------------------------------------------
Balance at December 31, 1998 ..... $- $467,877 $30,100 $497,977
============================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Security Benefit Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ................................................ $ 58,445 $ 51,505 $ 43,843
Adjustments to reconcile net income to net cash provided by
operating activities:
Annuity and interest sensitive life products:
Interest credited to account balances ............... 94,552 102,640 108,705
Charges for mortality and administration ............ (297) (10,582) (13,115)
Increase (decrease) in traditional life policy reserves 1,699 (3,101) 10,697
Increase (decrease) in accrued investment income ...... (1,706) 2,127 (1,538)
Policy acquisition costs deferred ..................... (34,068) (37,999) (36,865)
Policy acquisition costs amortized .................... 25,447 26,179 25,930
Accrual of discounts on investments ................... (2,708) (2,818) (3,905)
Amortization of premiums on investments ............... 8,452 9,138 11,284
Depreciation and amortization ......................... 4,441 3,959 3,748
Other ................................................. 11,286 (8,444) (3,379)
--------------------------------------
Net cash provided by operating activities ................. 165,543 132,604 145,405
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities available-for-sale ..................... 436,773 368,901 870,240
Fixed maturities held-to-maturity ....................... 157,729 124,013 58,874
Equity securities available-for-sale .................... 13,293 48,495 3,643
Mortgage loans .......................................... 8,924 3,739 12,545
Real estate ............................................. - 946 2,935
Separate account assets ................................. - 9,180 5,214
Other invested assets ................................... 2,929 7,865 26,293
--------------------------------------
619,648 563,139 979,744
Acquisition of investments:
Fixed maturities available-for-sale ..................... (878,753) (219,736) (936,376)
Fixed maturities held-to-maturity ....................... (1,287) (1,188) (52,422)
Equity securities available-for-sale .................... (42,641) (67,004) (68,222)
Mortgage loans .......................................... (2,054) (1,447) (4,538)
Real estate ............................................. (756) (712) (2,637)
Other invested assets ................................... (7,441) (7,518) (22,782)
--------------------------------------
(932,932) (297,605) (1,086,977)
Purchase of property and equipment ........................ (4,617) (4,144) (1,879)
Net increase in policy loans .............................. (2,627) (8,654) (6,370)
Net cash transferred per coinsurance agreement ............ - (218,043) -
--------------------------------------
Net cash provided by (used in) investing activities ....... (320,528) 34,693 (115,482)
FINANCING ACTIVITIES
Issuance of long-term debt ................................ - - 65,000
Repayment of long-term debt ............................... (5,000) - -
Annuity and interest sensitive life products:
Deposits credited to account balances ................... 475,522 167,517 202,129
Withdrawals from account balances ....................... (318,014) (312,228) (305,530)
--------------------------------------
Net cash provided by (used in) financing activities ....... 152,508 (144,711) (38,401)
--------------------------------------
Increase (decrease) in cash ............................... (2,477) 22,586 (8,478)
Cash at beginning of year ................................. 30,896 8,310 16,788
--------------------------------------
Cash at end of year ....................................... $ 28,419 $ 30,896 $ 8,310
======================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest ............................................... $ 5,443 $ 5,307 $ 2,966
======================================
Income taxes ........................................... $ 8,269 $ 27,920 $ 16,213
======================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Security Benefit Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND ORGANIZATION
The operations of Security Benefit Corp. (SBC or the Company) consist primarily
of marketing and distributing annuities, mutual funds, life insurance and
related products throughout the United States. The Company and/or its
subsidiaries offer a diversified portfolio of investment products comprised
primarily of individual and group annuities and mutual fund products through
multiple distribution channels. In recent years, the Company's new business
activities increasingly have been concentrated in the individual flexible
premium variable annuity markets.
The Company was formed on July 31, 1998 in conjunction with the conversion of
Security Benefit Life Insurance Company (SBL) from a mutual life insurance
company to a stock life insurance company under a mutual holding company
structure pursuant to a Plan of Conversion (the Conversion). In connection with
the Conversion, the Company, a Kansas domiciled intermediate stock holding
company, and Security Benefit Mutual Holding Company (SBMHC), a Kansas domiciled
mutual holding company, were formed. On the same date, all of the initial shares
of common stock of SBL, except for shares issued to SBL Directors in accordance
with Kansas law, were issued to SBC. In addition, all of the initially issued
shares of common stock of SBC, consisting of 1,000 shares of Class B common
stock, were issued to SBMHC. As a result of the Conversion, SBMHC indirectly
owned, through its ownership of SBC, all of the issued and outstanding common
stock of SBL (except shares required by law to be held by SBL Directors). In
accordance with Kansas law, SBMHC must at all times hold at least 51% of the
voting stock of SBC. The consolidated financial statements of the Company
reflect the combination of SBC and SBL at historical cost on a basis similar to
a pooling of interest and, accordingly, the accompanying consolidated financial
statements include accounts and operations of SBL for all periods presented.
BASIS OF PRESENTATION
The consolidated financial statements include the operations and accounts of the
Company and its wholly-owned subsidiaries including SBL, Security Management
Company, LLC and Security Benefit Group, Inc. (which includes First Security
Benefit Life Insurance and Annuity Company of New York; Security Distributors,
Inc.; Security Benefit Academy, Inc.; and Creative Impressions, Inc.).
Significant intercompany transactions have been eliminated in consolidation.
ACCOUNTING CHANGE
In 1998, the Company adopted Statement of Financial Accounting Standards (SFAS)
Statement No. 130, "Reporting Comprehensive Income." Statement No. 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or stockholder's equity. Statement No. 130 requires
unrealized gains or losses on the Company's available-for-sale securities, which
prior to adoption were reported separately in equity, to be included in other
comprehensive income.
USE OF ESTIMATES
The preparation of consolidated financial statements requires management to make
estimates and assumptions that affect amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
INVESTMENTS
Fixed maturities are 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. Fixed maturities not
classified as held-to-maturity and equity securities are classified as
available-for-sale. Equity securities are comprised of common stock, preferred
stock and mutual funds.
Securities available-for-sale are reported in the accompanying consolidated
financial statements at fair value. Any valuation changes resulting from changes
in the fair value of these securities are reflected as a component of
accumulated other comprehensive income. These unrealized gains or losses in
accumulated other comprehensive income are reported, net of taxes and
adjustments to deferred policy acquisition costs.
The amortized cost of fixed maturities 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. Distributions
from mutual funds are included in investment income. Realized gains and losses
on sales of investments are recognized in revenues on the
specific-identification method.
Mortgage loans are reported at amortized cost. 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.
The operations of the Company are subject to risk resulting from interest rate
fluctuations to the extent that there is a difference between the amount of the
Company's interest-earning assets and the amount of interest-bearing liabilities
that are prepaid/withdrawn, mature or reprice in specified periods. The
principal objective of the Company's asset/liability management activities is to
provide maximum levels of net investment income while maintaining acceptable
levels of interest rate and liquidity risk and while facilitating the funding
needs of the Company. The Company periodically may use derivative financial
instruments to modify its interest rate sensitivity to levels deemed to be
appropriate based on the Company's current economic outlook.
Such derivative financial instruments are for purposes other than trading and
are classified as available-for-sale in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Accordingly,
these instruments are stated at fair value with the change in fair value
reported as a component of accumulated other comprehensive income.
DEFERRED POLICY ACQUISITION COSTS
To the extent recoverable from future policy revenues and gross profits,
commissions and other policy-issue, underwriting and marketing costs that are
primarily related to the acquisition or renewal of life insurance and deferred
annuity business have been deferred.
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. Deferred policy acquisition costs are adjusted for the impact on
estimated gross profits of net unrealized gains and losses on securities.
PROPERTY AND EQUIPMENT
Property and equipment, including home-office 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,
therefore, are not included in investment earnings in the accompanying
statements of income. Revenues to the Company from the separate accounts consist
principally of contract maintenance charges, administrative fees, and mortality
and expense risk charges.
POLICY RESERVES AND ANNUITY ACCOUNT VALUES
Liabilities for future policy benefits for traditional life products are
computed using a net level-premium method, including assumptions as to
investment yields, mortality and withdrawals, and other assumptions that
approximate expected experience.
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 3.4% to 8%
during 1998, from 3.8% to 7.25% during 1997 and from 3.5% to 7.25% during 1996.
INCOME TAXES
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
unrealized gains and losses on securities available-for-sale).
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: 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 if 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 market
interest rates for similar loans to borrowers with similar credit ratings.
Loans with similar characteristics are aggregated for purposes of the
calculations. The carrying amounts reported in the consolidated balance
sheets approximate their fair values.
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 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, 1998 and 1997 is as follows:
DECEMBER 31, 1998
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------------------------------------------------
(IN THOUSANDS)
AVAILABLE-FOR-SALE
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies ............ $ 204,414 $ 5,254 $ 8 $ 209,660
Obligations of states and
political subdivisions .. 27,583 2,310 - 29,893
Corporate securities ...... 1,053,782 33,400 10,716 1,076,466
Mortgage-backed securities 628,020 12,530 2,550 638,000
Asset-backed securities ... 166,144 2,113 1,907 166,350
--------------------------------------------------
Totals .................... $2,079,943 $55,607 $15,181 $2,120,369
==================================================
Equity securities ......... $ 140,999 $18,271 $ 979 $ 158,291
==================================================
HELD-TO-MATURITY
Obligations of states and
political subdivisions .. 61,473 $ 3,196 $ - $ 64,669
Corporate securities ...... 93,413 7,718 360 100,771
Mortgage-backed securities 96,987 1,640 - 98,627
Asset-backed securities ... 12,410 289 - 12,699
--------------------------------------------------
Totals .................... $ 264,283 $12,843 $ 360 $ 276,766
==================================================
DECEMBER 31, 1997
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------------------------------------------------
(IN THOUSANDS
AVAILABLE-FOR-SALE
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies ............ $ 214,088 $ 3,313 $ - $ 217,401
Obligations of states and
political subdivisions .. 24,008 1,365 8 25,365
Corporate securities ...... 742,123 27,986 1,674 768,435
Mortgage-backed securities 510,991 11,429 2,137 520,283
Asset-backed securities ... 117,907 1,030 97 118,840
--------------------------------------------------
Totals .................... $1,609,117 $45,123 $3,916 $1,650,324
==================================================
Equity securities ......... $ 109,763 $11,220 $ 475 $ 120,508
==================================================
HELD-TO-MATURITY
Obligations of states and
political subdivisions .. $ 74,802 $ 2,094 $ 30 $ 76,866
Corporate securities ...... 108,609 5,295 201 113,703
Mortgage-backed securities 227,131 2,725 364 229,492
Asset-backed securities ... 41,869 297 1 42,165
--------------------------------------------------
Totals .................... $ 452,411 $10,411 $ 596 $ 462,226
==================================================
The prior-year financial statements have been reclassified to conform to the
requirements of FASB Statement No. 130. After making these balance sheet
reclassifications, the following amounts were included in accumulated other
comprehensive income for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996
-------------------------------
Unrealized holding gains (losses) arising
during the year ............................ $10,523 $60,638 $(37,942)
Less: Realized gains (losses) included in
net income ................................. 4,757 4,929 (244)
-------------------------------
Other comprehensive income (loss), before
deferred taxes and the unlocking of
deferred policy acquisition costs ......... 5,766 55,709 (37,698)
Deferred income taxes ........................ (2,033) (13,913) 6,203
Unlocking of deferred policy acquisition costs 918 (15,868) 19,409
-------------------------------
Other comprehensive income (loss), net ....... $ 4,651 $25,928 $(12,086)
===============================
The amortized cost and fair value of fixed maturities at December 31, 1998, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.
AVAILABLE-FOR-SALE HELD-TO-MATURITY
----------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------------------------------------------
(IN THOUSANDS)
Due in one year or less ....... $ 48,041 $ 48,326 $ 1,508 $ 1,528
Due after one year through
five years .................. 176,414 180,716 8,485 8,977
Due after five years through
10 years .................... 567,478 579,461 36,368 38,562
Due after 10 years ............ 493,846 507,516 108,525 116,373
Mortgage-backed securities .... 628,020 638,000 96,987 98,627
Asset-backed securities ....... 166,144 166,350 12,410 12,699
----------------------------------------------
$2,079,943 $2,120,369 $264,283 $276,766
==============================================
The composition of the Company's portfolio of fixed maturities by quality rating
at December 31, 1998 is as follows:
QUALITY RATING CARRYING AMOUNT %
--------------------------------------------------
(IN THOUSANDS)
AAA ................. $1,055,819 44.3%
AA .................. 215,520 9.0
A ................... 469,855 19.7
BBB ................. 422,600 17.7
Noninvestment grade . 220,858 9.3
--------- -----
$2,384,652 100.0%
========= =====
Major categories of net investment income for the years ended December 31, 1998,
1997 and 1996 are summarized as follows:
1998 1997 1996
-----------------------------------
(IN THOUSANDS)
Interest on fixed maturities ............. $154,529 $167,646 $174,592
Dividends and distributions on equity
securities ............................. 10,945 7,358 5,817
Interest on mortgage loans ............... 5,388 6,017 6,680
Interest on policy loans ................. 5,381 6,282 6,372
Interest on short-term investments ....... 2,377 2,221 1,487
Other .................................... 865 (166) 4,199
-----------------------------------
Total investment income .................. 179,485 189,358 199,147
Less investment expenses ................. 5,437 4,383 4,364
-----------------------------------
Net investment income .................... $174,048 $184,975 $194,783
===================================
Proceeds from sales of fixed maturities and equity securities and related
realized gains and losses, including valuation adjustments, for the years ended
December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996
----------------------------------
(IN THOUSANDS)
Proceeds from sales $196,849 $333,498 $393,189
Gross realized gains 9,801 11,889 9,407
Gross realized losses 4,939 6,640 9,723
Net realized gains (losses), net of associated amortization of deferred policy
acquisition costs, for the years ended December 31, 1998, 1997 and 1996 consist
of the following:
1998 1997 1996
--------------------------------
(IN THOUSANDS)
Fixed maturities ............................ $2,976 $ 861 $(1,329)
Equity securities ........................... 1,886 4,388 1,013
Other ....................................... (105) (320) 72
--------------------------------
............................................ 4,757 4,929 (244)
Amortization of deferred policy acquisition
costs ..................................... (496) - -
--------------------------------
Net realized gains (losses) ................. $4,261 $4,929 $ (244)
================================
There were no deferred losses at December 31, 1998 or 1997 resulting from
terminated and expired futures contracts. There were no outstanding agreements
to sell securities at December 31, 1998, 1997 or 1996. The notional amount of
interest rate exchange agreements outstanding at December 31, 1998 was
$88,450,000. These agreements have maturities ranging from September 2002 to
December 2005. Under these agreements, the Company receives variable interest
rates based on the three-month LIBOR rate and pays fixed interest rates ranging
from 5.54% to 7.5%.
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 and southwestern United States with the largest
outstanding balances at December 31, 1998 being in the states of Kansas (31%),
Iowa (16%) and Texas (14%).
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. Plan assets are invested in public mutual funds with
varying investment objectives which are managed by an affiliated entity.
Unrealized gains on plan assets were $669,000 and $628,000 at December 31, 1998
and 1997, respectively.
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 2002 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.
The following table sets forth the plans' funded status and amounts recognized
in the financial statements at December 31 and for the years then ended:
PENSION BENEFITS OTHER BENEFITS
1998 1997 1998 1997
-------------------------------------------
Benefit obligation at year end ... $(13,306) $(12,487) $(4,962) $(4,361)
Fair value of plan assets at year
end ............................ 11,363 11,279 - -
-------------------------------------------
Funded status of the plan ........ $ (1,943) $ (1,208) $(4,962) $(4,361)
===========================================
Accrued benefit cost recognized in
the consolidated balance sheets $ (253) $ (404) $(5,323) $(5,053)
Net periodic benefit cost ........ 719 1,999 474 786
Benefits paid .................... 2,475 1,563 197 170
Contributions .................... 870 865 - -
PENSION BENEFITS OTHER BENEFITS
1998 1997 1998 1997
---------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate ........................ 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets ....... 9.00% 9.00% - -
Rate of compensation increase ........ 4.50% 4.50% - -
The annual assumed rate of increase in the per capita cost of covered benefits
is 8% for 1998 and 9% for 1997, 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, 1998 by $228,000 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for
1998 by $68,000.
The Company has a profit-sharing and savings plan for which substantially all
employees are eligible after one year of employment with the Company. Company
contributions to the profit-sharing and savings plan charged to operations were
$2,176,000, $2,065,000 and $1,783,000 for 1998, 1997 and 1996, respectively.
4. REINSURANCE
The Company assumes and cedes reinsurance with other companies to provide for
greater diversification of business, to allow management to control exposure to
potential losses arising from large risks, and to provide additional capacity
for growth. Life insurance in force ceded at December 31, 1998 and 1997 was $7.0
billion and $7.4 billion, respectively.
Principal reinsurance transactions for the years ended December 31, 1998, 1997
and 1996 are summarized as follows:
1998 1997 1996
------------------------------------------
(IN THOUSANDS)
Reinsurance ceded:
Premiums paid .................. $46,391 $33,872 $25,442
==========================================
Commissions received ........... $ 5,647 $ 5,173 $ 4,669
==========================================
Claim recoveries ............... $20,166 $12,136 $ 5,235
==========================================
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
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, 1998 and
1997, the Company had established receivables totaling $407,891,000 and
$397,519,000, respectively, for reserve credits, reinsurance claims and other
receivables from its reinsurers. Substantially all of these receivables are
collateralized by assets of the reinsurers held in trust. The amount of
reinsurance assumed is not significant.
In 1997, the Company transferred, through a 100% coinsurance agreement, $318
million in policy reserves and claim liabilities reduced by a ceding commission
of $63 million and other related items. The agreement related to a block of
universal life and traditional life insurance business. The Company recorded a
pretax gain of $14.625 million which is deferred in other liabilities and
amortized to income over the estimated life of the business transferred,
estimated to be 15 years. Amortization of this deferred gain during 1998
amounted to $1,358,000.
5. INCOME TAXES
The Company files a life/nonlife consolidated federal income tax return with
SBMHC. 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 gains (losses) on securities
available-for-sale.
Income tax expense (benefit) consists of the following for the years ended
December 31, 1998, 1997 and 1996:
1998 1997 1996
------------------------------------------
(IN THOUSANDS)
Current ........................... $21,931 $ 32,194 $12,528
Deferred .......................... (185) (10,627) 8,343
------------------------------------------
$21,746 $ 21,567 $20,871
==========================================
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.
Net deferred tax assets or liabilities consist of the following:
DECEMBER 31
1998 1997
------------------------
(IN THOUSANDS)
Deferred tax assets:
Future policy benefits ............................ $ 5,432 $ 9,869
Employee benefits ................................. 8,110 6,487
Deferred gain on coinsurance agreement ............ 4,475 4,970
Other ............................................. 11,762 8,747
------------------------
Total deferred tax assets ........................... 29,779 30,073
DECEMBER 31
1998 1997
------------------------
(IN THOUSANDS)
Deferred tax liabilities:
Deferred policy acquisition costs ................ $55,540 $53,173
Net unrealized appreciation on securities
available-for-sale ............................. 20,034 18,115
Deferred gain on investments ..................... 7,772 8,378
Depreciation ..................................... 1,499 1,935
Other ............................................ 5,043 6,733
------------------------
Total deferred tax liabilities ...................... 89,888 88,334
------------------------
Net deferred tax liabilities ........................ $60,109 $58,261
========================
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 deriving conclusions about the Company's business or financial
condition based on the fair value information presented herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Liabilities:
Supplementary contracts without life contingencies $ 27,105 $ 27,353 $ 29,890 $ 30,189
Individual and group annuities ................... 2,147,665 2,005,939 1,894,605 1,713,509
Long-term debt ................................... 60,000 69,909 65,000 71,793
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases various equipment under several operating lease agreements.
Total expense for all operating leases amounted to $1,155,000, $1,018,000 and
$1,108,000 during 1998, 1997 and 1996, respectively. The Company has aggregate
future lease commitments at December 31, 1998 of $4,406,000 for noncancelable
operating leases consisting of $1,272,000 in 1999, $1,231,000 in 2000,
$1,082,000 in 2001, and $821,000 in 2002. There are no noncancelable lease
commitments beyond 2002.
In addition, in 2001, under the terms of one of the operating leases, the
Company has the option to renew the lease for another five years, purchase the
asset for approximately $4.7 million, or return the asset to the lessor and pay
a termination charge of approximately $3.7 million.
In connection with its investments in low-income housing partnerships, the
Company is committed to invest additional capital of $9,190,000
in 1999.
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 no additional reserves for
these insolvencies in 1998. At December 31, 1998, the Company has reserved
$2,142,000 to cover current and estimated future assessments, net of related
premium tax credits.
8. LONG-TERM DEBT AND OTHER BORROWINGS
The Company has a $61.5 million line-of-credit facility from the Federal Home
Loan Bank of Topeka. Any borrowings in connection with this facility bear
interest at 0.1% over the Federal Funds rate. No amounts were outstanding at
December 31, 1998 and 1997.
The Company has two separate $5 million advances from the Federal Home Loan Bank
of Topeka. The advances are due February 26, 1999 and February 28, 2001 and
carry interest rates of 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 net asset values totaling $108,285,000 and $85,950,000 at December 31,
1998 and 1997, respectively. These amounts are included in equity securities on
the consolidated balance sheets.
10. STATUTORY INFORMATION
SBL 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 generally accepted
accounting principles (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. In addition, in
March 1998, the NAIC adopted the codification of Statutory Accounting Principles
(the Codification). Once implemented, the definitions of what comprises
prescribed versus permitted statutory accounting practices may result in changes
to accounting policies that insurance enterprises use to prepare their statutory
financial statements. The implementation date is ultimately dependent on an
insurer's state of domicile. The Company does not expect a material impact on
its statutory financial statements resulting from the implementation of
codification. Statutory capital and surplus of the insurance operations are
$427,350,000 and $382,005,000 at December 31, 1998 and 1997, respectively.
Statutory net income of the insurance operations are $50,371,000, $42,950,000
and $37,946,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
11. IMPACT OF YEAR 2000 (UNAUDITED)
Over the past few years, the Company has been assessing the potential impact of
the year 2000 on its systems, procedures, customers and business processes. The
year 2000 assessment provided information used to determine what system
components needed to be changed or replaced to minimize the impact of the
calendar change from 1999 to 2000.
The Company will continue to use internal and external resources to modify,
replace and test the year 2000 changes. All identified modifications to critical
operating systems have been completed as of December 31, 1998, and the Company
continues to validate completed systems to ensure ongoing compliance. Management
estimates 100% of the identified modifications to other less-important operating
systems will be completed by June 30, 1999. In any event, all identified
modifications are expected to be completed prior to any anticipated impact on
Company operations. Total costs of the modifications have been immaterial to the
Company's operations and have been expensed as incurred.
The Company does face the risk that one or more of its critical suppliers or
customers (external relationships) will not be able to interact with the Company
due to the third party's inability to resolve its own year 2000 issues. The
Company completed an inventory of external relationships, is engaged in
discussions with such third parties and is requesting information as to those
parties' year 2000 plans and states of readiness. The Company, however, is
unable to predict with certainty to what extent its external relationships will
be year 2000 ready. However, third-party vendors of the Company's primary
administrative systems have represented to the Company that the systems are or
will be year 2000 ready.
While the Company believes that it has addressed its year 2000 concerns, the
Company has begun to strengthen its contingency/recovery plans aimed at ensuring
the continuity of critical business functions before, on and after December 31,
1999. The Company expects contingency/recovery planning to be substantially
complete by July 1, 1999. The year 2000 contingency plans will be reviewed
periodically throughout 1999 and revised as needed. The Company believes its
year 2000 contingency plans, coupled with existing disaster recovery and
business resumption plans, minimize the impact year 2000 issues may have on its
business and customers.
<PAGE>
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(c)
(b) Variable Annuity Sales Agreement
(4) (a) Individual Contract (Form V6025 1-97)(c)
(b) Individual Contract-Unisex (Form V6025- 1/97)(d)
(c) Group Unallocated Contract (Form V6320 2-97)(c)
(d) Tax-Sheltered Annuity Endorsement (Form 6832A R9-96)(a)
(e) Withdrawal Charge Waiver Endorsement (Form V6051 3-96)(a)
(f) Waiver of Withdrawal Charge for Terminal Illness
Endorsement (Form V6051 TI 2-97)(a)
(g) Simple Individual Retirement Annuity Endorsement
(Form 4453C-5S 2-97)(a)
(h) Individual Retirement Annuity Endorsement
(Form V6849A 1-97)(d)
(i) Annuity Loan Provisions (Form V6846-1 7-97)(c)
(j) Group Withdrawal Charge Waiver (Form GV6051 3-96)(d)
(k) Group Certificate Loan Endorsement
(Form GV6821 L-4 1-97)(d)
(l) Roth IRA Endorsement (Form V6851 10-97)(d)
(m) Section 457 Endorsement (Form V6054 1-98)(d)
(5) Form of Application (Form V7552 2-97)(c)
(6) (a) Composite of Articles of Incorporation of SBL(e)
(b) Bylaws of SBL(e)
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) Not Applicable
(12) Not Applicable
(13) Schedules of Computation of Performance
(14) Powers of Attorney 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
(15) Not Applicable
(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).
(c) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 1 under the Securities Act of
1933 and Amendment No. 2 under the Investment Company Act of 1940 to
Registration Statement No. 333-23723 (October 15, 1997).
(d) Incorporated herein by reference to the Exhibits filed with Registrant's
Post-Effective Amendment No. 2 under the Securities Act of 1933 and
Amendment No. 3 under the Investment Company Act of 1940 to Registration
Statement 333-23723 (April 30, 1998).
(e) Incorporated herein by reference to Exhibits filed with the Variflex
Separate Account Post-Effective Amendment No. 20 under the Securities Act
of 1933 and Amendment No. 19 under the Investment company Act of 1940 to
Registration Statement No. 2-89328 (November 1, 1998).
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name and Principal
BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR
Howard R. Fricke* Chairman of the Board, 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
200 Gulf Blvd.
Belleair Shore, FL 33786
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
Kris A. Robbins* President and Chief Operating Office
Donald J. Schepker* Senior Vice President, Chief
Financial Officer and Treasurer
Roger K. Viola* Senior Vice President, General
Counsel and Secretary
Malcolm E. Robinson* Senior Vice President and Assistant
to the President
Greg Garvin* Senior Vice President
Richard K Ryan* Senior Vice President
Amy J. Lee* Associate General Counsel,
Vice President and Assistant
Secretary
Venette Davis* Senior Vice President
James R. Schmank* Senior Vice Presiden
J. Craig Anderson* Senior Vice President
*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
wholly owned by Security Benefit Corp., which is wholly owned by
Security Benefit Mutual Holding Company ("SBMHC"). No one person holds
more than approximately 0.0004% of the voting power of SBMHC. 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>
PERCENT OF VOTING
SECURITIES OWNED OR
JURISDICTION OF CONTROLLED BY SBMHC
NAME INCORPORATION (DIRECTLY OR INDIRECTLY)
<S> <C> <C>
Security Benefit Life Insurance Company
(Stock Life Insurance Company) Kansas 100%
Security Benefit Group, Inc. Kansas 100%
(Holding Company)
Security Management Company, LLC Kansas 100%
(Investment Adviser)
Security Distributors, Inc. (Broker/Dealer, Kansas 100%
Principal Underwriter of Mutual Funds)
Security Benefit Academy, Inc. Kansas 100%
(Daycare Company)
Creative Impressions, Inc. Kansas 100%
(Advertising Agency)
First Advantage Insurance Agency, Inc. Kansas 100%
(Insurance Agency)
First Security Benefit Life Insurance and Annuity New York 100%
Company of New York
</TABLE>
SBL is also the depositor of the following separate accounts: SBL
Variable Annuity Accounts I, III, IV, X, 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:
Security Growth and Income Fund 39.4%
Security Ultra Fund 32.0%
SBL Fund 100.0%
ITEM 27. NUMBER OF CONTRACT OWNERS
As of January 31, 1999, there were 737 owners of the Qualified
Contracts and 916 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.
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 Fifth shall not eliminate or limit the liability of a
director for any act or omission occurring prior to the date this
Article Fifth 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, IV, and X, Variflex, SBL Variable Life Insurance Account
Varilife, Security Varilife Separate Account and Parkstone
Variable Annuity Separate 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 Municipal Bond Fund and Security Ultra Fund.
(b) NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
------------------ ------------------
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 and Director
Amy J. Lee Secretary
Brenda M. Harwood Treasurer and Director
William G. Mancuso Regional Vice President
*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.
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 American
Council of Life Insurance, SEC No-Action Letter, [1988-1989
Transfer Binder] Fed. Sec. L. Rep. (CCH) P. 78,904 (Nov. 28,
1988), 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>
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(a) 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 26th day of February, 1999.
SIGNATURES AND TITLES
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, President and (THE DEPOSITOR)
Chief Executive Officer
By: ROGER K. VIOLA
Thomas R. Clevenger -----------------------------------------
Director Roger K. Viola, Senior Vice President,
General Counsel and Secretary as
Sister Loretto Marie Colwell Attorney-In-Fact for the Officers and
Director Directors Whose Names Appear Opposite
John C. Dicus
Director SBL VARIABLE ANNUITY ACCOUNT VIII
(THE REGISTRANT)
Steven J. Douglass
Director By: SECURITY BENEFIT LIFE INSURANCE COMPANY
(THE DEPOSITOR)
William W. Hanna
Director By: HOWARD R. FRICKE
-----------------------------------------
John E. Hayes, Jr. Howard R. Fricke, Chairman of the Board,
Director President, Chief Executive Officer and
Director
Laird G. Noller
Director
By: DONALD J. SCHEPKER
Frank C. Sabatini -----------------------------------------
Director Donald J. Schepker, Senior Vice President
Chief Financial Officer and Treasurer
Robert C. Wheeler
Director
(ATTEST): ROGER K. VIOLA
------------------------------------
Roger K. Viola, Senior Vice
President, General Counsel and
Secretary
Date: February 26, 1999
<PAGE>
EXHIBIT INDEX
(1) None
(2) None
(3) (a) None
(b) Variable Annuity Sales Agreement form 9482 (R7-97)
(4) (a) None
(b) None
(c) None
(d) None
(e) None
(f) None
(g) None
(h) None
(i) None
(j) None
(k) None
(l) None
(5) None
(6) (a) None
(b) None
(7) None
(8) None
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) None
(12) None
(13) Schedules of Computation of Performance
(14) Powers of Attorney
(15) None
<PAGE>
[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
MARKETING ORGANIZATION AGREEMENT
SECURITY BENEFIT LIFE INSURANCE COMPANY
SECURITY DISTRIBUTORS, INC.
PRODUCT AUTHORIZATION
Fixed Products |_|
Variable Products |_|
MARKETING ORGANIZATION: ________________________________________________
This Agreement is entered into between Security Benefit Life Insurance Company,
a Kansas mutual life insurance company, Security Distributors, Inc. (solely in
its capacity as underwriter of the Variable Products), collectively referred to
herein as "SBL," and the undersigned, referred to herein as the "Marketing
Organization."
I. APPOINTMENTS AND DUTIES
A. APPOINTMENT. Subject to the terms and conditions of this contract,
Marketing Organization is appointed to solicit, and to recommend for
appointment Agents/Representatives and Marketing Organizations
(referred to herein as "Marketer(s)") to solicit applications for the
fixed annuity and fixed life insurance contracts ("Fixed Products")
and/or variable annuity and variable life insurance contracts
("Variable Products") more specifically described in the Commission
Schedule(s) attached hereto from time to time and incorporated by
reference (collectively referred to as the "Products"), to deliver the
contracts, to collect the initial premiums thereon, and to service the
business.
Marketing Organization hereby accepts such appointment and confirms
that it will abide by the terms and conditions of this Agreement and
any sales manuals and/or rules and practices of SBL. Marketing
Organization will endeavor to promote SBL's interests and those mutual
interests of Marketing Organization and SBL as contemplated by this
Agreement and shall at all times conduct itself, and insure that its
employees and Marketers conduct themselves so as not to adversely
affect the business reputation or good standing of either the
Marketing Organization or SBL.
B. SALES FORCE. Marketing organization shall have the authority to
recruit, train and supervise Marketers for the sale of the Products.
Appointment of any Marketer shall be subject to prior approval of SBL.
SBL reserves the right to require termination of any Marketer's right
to sell any of the Products and to cancel the appointment of any
Marketer. Marketing Organization shall be responsible for any Marketer
appointed hereunder complying with the terms, conditions, and
limitations as set forth in this Agreement and any sales manuals
and/or rules and practices of SBL.
With respect to sales of Fixed Products, unless otherwise agreed in
writing by the parties, any and all agreements with Marketers shall be
made directly with SBL in writing on SBL's form and shall not become
effective until they are approved and executed by SBL and the Marketer
is licensed in accordance with Section III of this Agreement.
Marketing Organization shall not have authority to modify or amend any
such agreements. With respect to sales of Variable Products, any and
all agreements with Marketers shall be made between the Marketing
Organization and its Marketers, provided however, that SBL reserves
the right to require any Marketer to sign an agreement acknowledging
that no compensation is payable by SBL to the Marketer. SBL may, at
SBL's option, refuse to contract with any proposed Marketer and may at
any time terminate any agreement with any Marketer.
C. INDEPENDENT CONTRACTOR. Marketing Organization will be an independent
contractor and nothing contained herein shall be construed as creating
the relationship of employer-employee between SBL and Marketing
Organization. Marketing Organization will be acting as an independent
contractor only, and not as a partner, associate, or affiliate of SBL.
Marketing Organization will be free to exercise its own judgment as to
the time and manner of performing the services authorized by this
Agreement subject to such rules and regulations as may be adopted from
time to time by SBL.
D. LIMITATIONS OF AUTHORITY. Marketing Organization's authority shall
extend no further than as is stated in this Agreement. Marketing
Organization shall not (1) make, alter, modify, waive or change any
question, statement or answer on any application for insurance, the
terms of any receipt given thereon, or the terms of any policy or
contract; (2) extend or waive any provision of any policy or contract
or the time for payment of premiums; (3) guarantee dividends; (4)
deliver any policy unless the applicant is at the time in good health
and insurable condition; (5) incur any debts or liability for or
against SBL; or (6) receive any money for SBL except as herein stated.
9482 (R7-97) 32-94821-00
<PAGE>
E. COLLECTION OF MONEY. Marketing Organization is not authorized to
accept any premium for SBL except initial policy premiums, unless SBL
provides otherwise in writing. All customer checks should be made
payable directly to SBL. Receipts for premiums must be on the forms
furnished by SBL for that purpose. Marketing Organization shall
immediately remit to SBL all money received or collected on SBL's
behalf, and such money shall be considered as SBL's funds held in
trust by Marketing Organization. SBL will not accept premium payments
in the form of checks drawn on Marketing Organization or Marketer
accounts.
F. RECORDS. Marketing Organization agrees to maintain proper records and
accounts of business transacted under this contract, including but not
limited to, records of all written sales proposals made, applications
taken, money collected, policies issued and delivered, and all service
to policy owners on SBL's behalf. All such records shall be made
available to SBL or SBL's representatives, with or without prior
notice, during business hours.
II. COMPENSATION
A. COMPENSATION TO MARKETING ORGANIZATION. As full compensation, SBL will
pay Marketing Organization or its affiliated insurance agency (if
applicable) commissions as described in the attached Commission
Schedule(s) for policies sold by Marketers assigned to Marketing
Organization. There shall be no additional compensation or
reimbursement to Marketing Organization for services performed or
expenses incurred. Marketing Organization shall be responsible for and
shall pay all expenses Marketing Organization incurs in the
performance of this Agreement. Further, SBL may amend any Commission
Schedule at any time by giving Marketing Organization written notice
of such change. Any changes SBL may make to the Commission Schedule
will apply only to those policies issued on or after the effective
date of the changes.
The rate of commissions or right to receive compensation on any policy
or contract (1) not listed in this Agreement, (2) requiring special
underwriting, or (3) obtained through a lead furnished by SBL, shall
be governed by SBL's rules and practices in effect at that time and
shall eventually be covered by a separate agreement between Marketing
Organization and SBL, by written amendment to this Agreement, or by
written notice to Marketing Organization.
B. COMPENSATION TO MARKETERS. This Agreement is not intended to benefit
in any manner whatsoever the Marketers or any other entity as a
third-party beneficiary. With respect to sales of Fixed Products,
payment of compensation by SBL to Marketers will be made only pursuant
to the terms of a separate written Agreement between SBL and Marketer.
With respect to the sales of Variable Products, SBL will pay no
compensation to Marketers; payment of compensation to Marketers, if
any, will be made only pursuant to the terms of a separate written
Agreement between the Marketing Organization and Marketer.
C. PROVISIONS RELATING TO COMPENSATION. Neither Marketing Organization
nor any Marketer assigned to Marketing Organization shall withhold
compensation from any premiums or contributions submitted to SBL. No
commissions will be payable on premiums or contributions which shall
be refunded for any reason, and Marketing Organization shall refund to
SBL any commission paid to Marketing Organization on any such premiums
or contributions. SBL shall not, under any circumstances whatsoever,
pay or allow any rebate of commissions in any manner, directly or
indirectly.
III. COMPLIANCE
A. GENERAL REQUIREMENTS. Marketing Organization agrees to abide by all
applicable local, state and federal laws and regulations as well as
the rules and regulations of the National Association of Securities
Dealers, Inc. (NASD) and the Securities and Exchange Commission in
conducting business under this Agreement. Marketing Organization shall
insure that all of its Marketers comply with all such rules, laws, and
regulations.
B. LICENSING. Marketing Organization agrees that neither it nor its
Marketers will solicit or submit applications for any of the Products
unless Marketing Organization, its affiliated insurance agency (if
applicable), and its Marketers are properly licensed under all
applicable state insurance laws. Marketing Organization shall be
responsible for each Marketer becoming so licensed and shall notify
SBL if any Marketer ceases to be so licensed.
WITH RESPECT TO SALES OF VARIABLE PRODUCTS: (1) Marketing Organization
hereby confirms that it 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 the
NASD, (2) Marketing Organization agrees to abide by the applicable
Rules of Fair Practice of the NASD which rules are incorporated herein
as if set forth in full, (3) Marketing Organization represents that
the signing of this agreement is a representation to SBL that
Marketing Organization is a properly registered Broker/Dealer under
the Securities Exchange Act of 1934, and (4) Marketing Organization
shall insure that all Marketers recruited by Marketing Organization to
sell the Variable Products shall be duly registered pursuant to
applicable state and federal securities laws and regulations and shall
notify SBL if any Marketer ceases to be so registered.
Marketing Organization will be responsible to secure and provide to
SBL adequate proof of any licenses, securities registration, bonds or
other requirements or qualifications as may be required by SBL or the
state or states where Marketing Organization and its affiliated
insurance agency (if applicable) is authorized to solicit insurance
and securities.
C. PRINTED MATTER. SBL will furnish Marketing Organization all
prospectuses, reports, applications and other printed matter necessary
to conduct the business anticipated hereunder with respect to SBL's
Products. Advertising material of any nature not supplied by SBL shall
be used by Marketing Organization only after Marketing Organization
has received SBL's written approval. Likewise, Marketing Organization
may use SBL's name and trademark, or those of any affiliated
companies, only with SBL's written approval.
IV. SBL'S RIGHT OF ACTION
A. CHANGES. SBL may at any time and from time to time (1) change or
modify this Agreement, (2) modify or amend any prospectus, policy
form, or contract, (3) change sales charges, (4) modify or alter the
conditions or terms under which any Product may be sold or regulate
its sale in any way, (5) discontinue or withdraw any Product from any
state, without prejudice to continue such Product elsewhere or (6)
cease doing business in any state.
B. RIGHTS OF REJECTION AND SETTLEMENT. SBL reserves the right to reject
any application or refund any money submitted by Marketers assigned to
Marketing Organization. In the event of such rejection or refund,
Marketing Organization's commission on such shall be refunded as
described previously by being charged against Marketing Organization's
earnings or, upon demand, by payment directly to SBL. It is the
intention of the parties to this Agreement that Marketing Organization
shall be entitled to receive commissions only upon premiums or
contributions received in cash and retained by SBL.
C. RIGHT OF OFFSET OF INDEBTEDNESS. Any advance, loan, annualization of
compensation, or extension of credit from SBL to Marketing
Organization and to Marketers appointed by or assigned to Marketing
Organization, or any loss or liability incurred by SBL as a result of
the actions of Marketing Organization or its affiliated insurance
agency (if applicable) shall constitute a general indebtedness of
Marketing Organization to SBL. The entire indebtedness, as shown in
SBL's ledger accounts, may be deemed due and payable at any time and
SBL may exercise any rights or remedies to collect such indebtedness,
including but not limited to, charging to Marketing Organization all
attorney's fees or other collection expenses, as permitted by law.
SBL may deduct any amounts Marketing Organization owes SBL now or in
the future, as a result of this or any other contract with the
Company, from any compensation due Marketing Organization. Marketing
Organization hereby assigns, transfers and sets over to SBL any monies
that from time to time may become due to Marketing Organization from
SBL under this contract or otherwise to secure any debt to SBL.
V. TERMINATION
A. VOLUNTARY TERMINATION. Either of the parties hereto may terminate this
Agreement, without stating any cause, by mailing to the other party at
their last known address a notice of termination which shall be
effective fifteen days from mailing.
B. AUTOMATIC TERMINATION. This Agreement terminates automatically (1) if
Marketing Organization is an individual, upon Marketing Organization's
death, (2) if a partnership, upon the death of any partner or change
in the partners composing the firm, or dissolution of the partnership
for any reason, (3) if a corporation, upon Marketing Organization's
dissolution or disqualification to perform the duties anticipated
hereunder, (4) upon revocation, termination, suspension or nonrenewal
of Marketing Organization's securities registration or insurance
licenses by any state in which Marketing Organization is required by
law to maintain such a license in order to perform its duties under
this Agreement, (5) with respect to the Variable Products, upon
Marketing Organization's ceasing to be an NASD registered
broker/dealer in good standing (this includes any suspension of
Marketing Organization's membership), or (5) upon Marketing
Organization's filing a petition for bankruptcy or one being filed for
Marketing Organization, upon Marketing Organization being adjudged
bankrupt, or upon Marketing Organization's executing a general
assignment for the benefit of creditors.
C. TERMINATION FOR CAUSE. Marketing Organization's rights under this
contract, including the right to any further payment of any type of
compensation, either during or after the termination of this contract,
shall automatically and completely cease if any of the following occur
at any time: (1) Marketing Organization violates any of the terms
hereof, (2) Marketing Organization violates any law or regulation
relating to the activities anticipated hereunder, (3) Marketing
Organization induces or attempts to induce any Marketer and/or person
under contract with SBL to terminate the contractual relationship or
cease doing business or producing for SBL, (4) Marketing Organization
initiates or induces any misappropriation or commingling of Marketing
Organization's and SBL's funds, or (5) Marketing Organization engages
in any fraudulent act or misrepresentation. In determining cause for
termination, SBL shall use its sole discretion and shall notify
Marketing Organization in writing of SBL's decision.
D. RETURN OF SBL PROPERTY. Upon termination of this contract, Marketing
Organization agrees to return any equipment, supplies, printed
materials or other property, including, but not limited to,
policyholder lists and policyholder records SBL has furnished
Marketing Organization. Marketing Organization acknowledges that any
policyholder lists or records in Marketing Organization's possession
are SBL's property, and that the Company has a continuing proprietary
interest in the lists and records relating to its policyholders.
VI. THIRD PARTY COMPLAINTS AND LITIGATION
A. NOTIFICATION AND COOPERATION. SBL and Marketing Organization will
promptly notify the other if either of them becomes aware of any
arbitration, litigation, judicial proceeding, insurance department or
other governmental agency inquiry or complaint, regulatory or
administrative investigation or proceeding, or customer complaint or
demand, which directly or indirectly involves the rights and
obligations of the parties under this Agreement. SBL and Marketing
Organization each agree to cooperate fully with the other with respect
to any matter referred to in this Section VI.
B. DEFENSE OF ACTIONS. If any legal action is brought by a third party
against SBL or Marketing Organization, or both, which is based in
whole or in part on any alleged act, fault or failure of Marketing
Organization in connection with this Agreement, SBL may require
Marketing Organization to defend SBL in such action, or, SBL may
defend any such action and expend such sums, including attorneys'
fees, to be reimbursed by Marketing Organization in accordance with
Section VI.E. below.
C. SERVICE OF PROCESS. Marketing Organization shall transmit to the
attention of SBL's Legal Counsel at 700 Harrison, Topeka, Kansas
66636, by certified mail within 24 hours after receipt, any paper
served upon Marketing Organization in connection with any proceeding,
hearing or action, whether legal or otherwise, by or against SBL. Any
failure on Marketing Organization's part to comply with this provision
which causes additional loss or expense to SBL shall be reimbursed by
Marketing Organization to SBL.
D. SETTLEMENT. SBL has the right to settle any claim against SBL, and any
claim made against SBL and Marketing Organization jointly, arising out
of this Agreement or any other agreement between SBL and Marketing
Organization now or hereafter existing, and SBL's determination as to
any such matter will be final and binding. In any action brought
jointly against SBL and Marketing Organization which is based in whole
or in part on any alleged act, fault or failure of Marketing
Organization, Marketing Organization shall not settle such action or
any portion thereof except with the express, written consent of SBL.
E. INDEMNIFICATION. Marketing Organization shall indemnify and hold SBL
harmless from any liability, loss, cost, claim or damaged caused by
the negligence or misconduct of Marketing Organization, its affiliated
insurance agency (if applicable), Marketers and/or either of their
officers, directors and employees. Marketing Organization shall
reimburse SBL for any legal or other expenses reasonably incurred by
SBL in connection with its investigation and defense of any such loss,
cost, claim, damage or liability, or of any proceeding or action
resulting from those matters.
VII. GENERAL PROVISIONS
A. CONFIDENTIALITY. Marketing Organization will treat all matters
relating to SBL's business as confidential information, and not
divulge any information in any way to other entities during or after
the term of this contract.
B. WAIVER. SBL's forbearance or failure to exercise any rights hereunder
or insist upon strict compliance herewith shall not constitute a
waiver of any right, condition, or obligation of Marketing
Organization under this Agreement.
C. PRIOR AGREEMENTS. This Agreement shall supersede any and all prior
agreement(s) between Marketing Organization and SBL in relation to
sales of Products after this Agreement becomes effective; it being
understood, however, that all obligations to SBL previously incurred
or assumed by SBL and liens created in connection therewith still
exist and shall attach hereto.
D. ASSIGNMENT. Neither this Agreement nor any of the benefits to accrue
hereunder shall be assigned or transferred, either in whole or in
part, without SBL's prior written consent. Any assignments shall be
subject to a first lien to SBL for any indebtedness owed to SBL.
E. NOTICES. All notices required or permitted to be given under this
contract shall be in writing and shall be delivered personally or
mailed to an officer of the party receiving such notice at its home
office at the address set forth above.
F. GOVERNING LAW. This contract shall be construed to be in accordance
with the laws of the State of Kansas.
H. ENTIRE AGREEMENT. The foregoing provisions, the attached Commission
Schedules and any rate books, manuals, or bulletins issued by SBL in
connection with this Agreement constitute the entire agreement between
the parties and SBL shall not be bound by any other promise,
agreement, understanding or representation unless it is made by an
instrument in writing, signed by all of the parties or is in the form
of a written notice from SBL to Marketing Organization which expresses
by its terms an intention to modify this Agreement.
I. SEVERABILITY. If it should appear that any term of this contract is in
conflict with any rule of law, statute, or regulation in effect in any
state where Marketing Organization writes or solicits business for
SBL, then any such term shall be deemed inoperative and null and void
insofar as it may be in conflict therewith and shall be deemed
modified to conform to such rule of law, statute or regulation. The
existence of any such apparent conflict shall not invalidate the
remaining provisions of this contract.
J. EFFECTIVE DATE. This Agreement shall take effect shown below, if
Marketing Organization has been duly licensed in the appropriate
jurisdiction(s) to perform the functions anticipated herein.
MARKETING ORGANIZATION SECURITY BENEFIT LIFE INSURANCE COMPANY
By RICHARD K RYAN
- -------------------------------------- ---------------------------------
Print Name of Marketing Organization
|_| Individual |_| Partnership Title SENIOR VICE PRESIDENT
|_| Corporation ---------------------------------
Date
- -------------------------------------- ---------------------------------
Print Name of Principal Officer
if a Partnership or Corporation SECURITY DISTRIBUTORS, INC.
By By RICHARD K RYAN
----------------------------------- ---------------------------------
Signature of Individual
or Principal Officer Title PRESIDENT
---------------------------------
Date Date
--------------------------------- ---------------------------------
APPROVED BY:
- --------------------------------------
Print Name of Sponsoring Marketing
Organization (if applicable)
By
-----------------------------------
Signature of Principal Officer
Effective Date of Agreement __________
32-94821-00
<PAGE>
[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
Marketing Organization:
(Broker/Dealer)
EFFECTIVE DATE OF COMMISSION SCHEDULE:
COMMISSIONS - This Commission Schedule is hereby made a part of and amends your
selling agreement including, but not limited to, the SBL Variable Products Sales
Agreement and/or Marketing Organization Agreement, as applicable, (hereinafter
called 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 A TABLE B
NUMBER OF YEARS SINCE ISSUE AGE 0 - 80 ISSUE AGE 81 - 90
THE CONTRACT DATE COMMISSION RATE* COMMISSION RATE*
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%
*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 A TABLE B
ISSUE AGE 0 - 80 ISSUE AGE 81 - 90
CONTRACT YEAR ANNUAL RATE ANNUAL RATE
1 0% 0%
2 .25% .25%
3 .25% .25%
4 .25% .25%
5 .25% .25%
6 and thereafter 1.00% .80%
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.
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:
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>
[SBG LOGO]
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Security Benefit Life Insurance Company 700 SW Harrison St.
Security Benefit Group, Inc. Topeka, Kansas 66636-0001
Security Distributors, Inc. (785) 431-3000
Security Management Company, LLC
March 1, 1999
Security Benefit Life Insurance Company
700 SW Harrison Street
Topeka, KS 66636-0001
Dear Sir/Madam:
This letter is with reference to the Registration Statement of SBL Variable
Annuity Account VIII of which Security Benefit Life Insurance Company
(hereinafter "SBL") is the Depositor. Said Registration Statement is being filed
with the Securities and Exchange Commission for the purpose of registering the
variable annuity contracts issued by SBL and the interests in SBL Variable
Annuity Account VIII under such variable annuity contracts which will be sold
pursuant to an indefinite registration.
I have examined the Articles of Incorporation and the bylaws of SBL, minutes of
the meetings of its Board of Directors and other records, and pertinent
provisions of the Kansas insurance laws, together with applicable certificates
of public officials and other documents which I have deemed relevant.
Based on the foregoing, it is my opinion that:
1. SBL is duly organized and validly existing as a stock life insurance
company under the laws of the State of Kansas.
2. SBL Variable Annuity Account VIII has been validly created as a Separate
Account in accordance with the pertinent provisions of the insurance laws
of Kansas.
3. SBL has the power, and has validly and legally exercised it, to create and
issue the variable annuity contracts which are administered within and by
means of SBL Variable Annuity Account VIII.
4. The amount of variable annuity contracts to be sold pursuant to the
indefinite registration, when issued, will represent binding obligations of
SBL in accordance with their terms providing said contracts were issued for
the considerations set forth therein and evidenced by appropriate policies
and certificates.
I hereby consent to the inclusion in the Registration Statement of my foregoing
opinion.
Respectfully submitted,
AMY J. LEE
Amy J. Lee
Associate General Counsel and Vice President
Security Benefit Life Insurance Company
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 5, 1999, with respect to the consolidated
financial statements of Security Benefit Corp. and Subsidiaries and the
financial statements of Variable Annuity Account VIII included in Post-Effective
Amendment No. 3 to the Registration Statement under the Securities Act of 1933
(Registration No. 333-23723) and Post-Effective Amendment No. 4 to the
Registration Statement under the Investment Company Act of 1940 (Registration
No. 811-8836) on Form N-4 and the related Statement of Additional Information
accompanying the Prospectus of Security Benefit Variflex Signature Variable
Annuity.
Ernst & Young LLP
Kansas City, Missouri
March 1, 1999
<PAGE>
VARIFLEX SIGNATURE Item 24.b Exhibit (13)
GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 1,182.31
(1+T)^1 = (1.18231)^1
1+T = 1.18231
T = .1823
3 Years
1000 (1+T)^3 = 2,803.54
((1+T)^3)^1/3 = (2.80354)^1/3
1+T = 1.22897
T = .2290
3.74 Years
1000 (1+T)^3.74 = 2,319.69
((1+T)^3.74)^1/3.74 = (2.31969)^1/3.74
1+T = 1.25230
T = .2523
<PAGE>
GROWTH-INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 1,006.10
(1+T)^1 = (1.00610)^1
1+T = 1.00610
T = .0061
3 Years
1000 (1+T)^3 = 1,499.00
((1+T)^3)^1/3 = (1.49900)^1/3
1+T = 1.14446
T = .1445
3.74 Years
1000 (1+T)^3.74 = 1,830.82
((1+T)^3.74)^1/3.74 = (1.83082)^1/3.74
1+T = 1.17551
T = .1755
<PAGE>
MONEY MARKET YIELD
Money Market Series (Series C) as of December 30, 1998
NO ADMINISTRATION FEE
CALCULATION OF CHANGE IN UNIT VALUE:
(Unrounded Unrounded)
( Price Price )
( 12-31-98 - 12-24-98 ) = 11.757211347922 - 11.741276388599 = .001357174365
-------------------------- ---------------------------------
( Unrounded Price ) 11.741276388599
( 12-24-98 )
ANNUALIZED YIELD:
365/7 (.001357174365) = 7.08%
EFFECTIVE YIELD:
(1 + .001357174365)365/7 - 1 = 7.33%
<PAGE>
WORLDWIDE EQUITY SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 1,130.44
(1+T)^1 = (1.13044)^1
1+T = 1.13044
T = (0.1304)
3 Years
1000 (1+T)^3 = 1,395.65
((1+T)^3)^1/3 = (1.39565)^1/3
1+T = 1.11753
T = .1175
3.74 Years (From date of inception May 1, 1991)
1000 (1+T)^3.74 = 1,562.35
((1+T)^3.74)^1/3.74 = (1.56235)^1/3.74
1+T = 1.12671
T = .1267
<PAGE>
HIGH GRADE INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 1,112.10
(1+T)^1 = (1.11210)^1
1+T = 1.11210
T = .1121
3 Years
1000 (1+T)^3 = 1,085.93
((1+T)^3)^1/3 = (1.08593)^1/3
1+T = 1.02786
T = .0279
3.74 Years
1000 (1+T)^3.74 = 1,225.21
((1+T)^3.74)^1/3.74 = (1.22521)^1/3.74
1+T = 1.05581
T = .0558
<PAGE>
SOCIAL AWARENESS SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 1,230.20
(1+T)^1 = (1.23020)^1
1+T = 1.23020
T = .2302
3 Years
1000 (1+T)^3 = 1,793.08
((1+T)^3)^1/3 = (1.79308)^1/3
1+T = 1.21488
T = .2149
3.74 Years (From date of inception May 1, 1991)
1000 (1+T)^3.74 = 2,170.25
((1+T)^3.74)^1/3.74 = (2.17025)^1/3.74
1+T = 1.23020
T = .2302
<PAGE>
EMERGING GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 1,109.10
(1+T)^1 = (1.10910)^1
1+T = 1.10910
T = .1091
3 Years
1000 (1+T)^3 = 1,558.23
((1+T)^3)^1/3 = (1.55823)^1/3
1+T = 1.15934
T = .1593
3.74 Years (From date of inception October 1, 1992)
1000 (1+T)^3.74 = 1,812.02
((1+T)^3.74)^1/3.74 = (1.81202)^1/3.74
1+T = 1.17227
T = .1723
<PAGE>
GLOBAL AGGRESSIVE BOND SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 999.91
(1+T)^1 = (.99991)^1
1+T = .99991
T = -.0001
3 Years
1000 (1+T)^3 = 1,175.54
((1+T)^3)^1/3 = (1.17554)^1/3
1+T = 1.05539
T = .0554
3.58 Years (From date of inception June 1, 1995)
1000 (1+T)^3.58 = 1,275.14
((1+T)^3.58)^1/3.58 = (1.27544)^1/3.58
1+T = 1.07032
T = .0703
<PAGE>
SPECIALIZED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 1,057.02
(1+T)^1 = (1.05702)^1
1+T = 1.05702
T = .0570
3 Years
1000 (1+T)^3 = 1,258.31
((1+T)^3)^1/3 = (1.25831)^1/3
1+T = 1.07960
T = .0796
3.58 Years (from date of inception June 1, 1995)
1000 (1+T)^3.58 = 1,356.45
((1+T)^3.58)^1/3.58 = (1.35645)^1/3.58
1+T = 1.08889
T = .0889
<PAGE>
MANAGED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 1,113.87
(1+T)^1 = (1.11387)^1
1+T = 1.11385
T = .1139
3 Years
1000 (1+T)^3 = 1,467.71
((1+T)^3)1/3 = (1.46771)^1/3
1+T = 1.13644
T = .1364
3.58 Years (from date of inception June 1, 1995)
1000 (1+T)^3.58 = 1,579.98
((1+T)^3.58)^1/3.58 = (1.57998)^1/3.58
1+T = 1.13629
T = .1363
<PAGE>
EQUITY INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 1,020.75
(1+T)^1 = (1.02075)^1
1+T = 1.02075
T = .0208
3 Years
1000 (1+T)^3 = 1,560.37
((1+T)^3)^1/3 = (1.560.37)^1/3
1+T = 1.15987
T = .1599
3.58 Years (from date of inception June 1, 1995)
1000 (1+T)^3.58 = 1,836.39
((1+T)^3.58)^1/3.58 = (1.83639)^1/3.58
1+T = 1.18504
T = .1850
<PAGE>
HIGH YIELD SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 989.91
(1+T)^1 = (.98991)^1
1+T = .98991
T = -.0101
2.41 Years (from date of inception August 5, 1996)
1000 (1+T)^2.41 = 1,183.42
((1+T)^2.41)^1/2.41 = (1.18342)^1/2.41
1+T = 1.07238
T = .0724
<PAGE>
VALUE SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 1,095.12
(1+T)^1 = (1.09512)^1
1+T = 1.09512
T = .0951
1.67 Years (from date of inception May 1, 1997)
1000 (1+T)^1.67 = 1,444.12
((1+T)^1.67)^1/1.67 = (1.44412)^1/1.67
1+T = 1.24615
T = .2462
<PAGE>
SMALL CAP SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year
1000 (1+T)^1 = 1,045.48
(1+T)^1 = (1.04548)^1
1+T = 1.04548
T = .0455
1.21 Years (from date of inception October 15, 1997)
1000 (1+T)^1.21 = 994.84
((1+T)^1.21)^1/1.21 = (.99484)^1/1.21
1+T = .99573
T = -.0043
<PAGE>
GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,236.31
(1+T)^1 = (1.23631)^1
1+T = 1.23631
T = .2363
5 Years
1000 (1+T)^5 = 2,483.71
((1+T)^5)^1/5 = (2.48371)^1/5
1+T = 1.19955
T = .1996
10 Years
1000 (1+T)^10 = 4,847.24
((1+T)^10)^1/10 = (4.84724)^1/10
1+T = 1.17098
T = .1710
<PAGE>
GROWTH-INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,060.10
(1+T)^1 = (1.06010)^1
1+T = 1.06010
T = .0601
5 Years
1000 (1+T)^5 = 1,891.79
((1+T)^5)^1/5 = (1.89179)^1/5
1+T = 1.13599
T = .1360
10 Years
1000 (1+T)^10 = 3,471.65
((1+T)^10)^1/10 = (3.47165)^1/10
1+T = 1.13254
T = .1325
<PAGE>
WORLDWIDE EQUITY SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,184.44
(1+T)^1 = (1.8444)^1
1+T = 1.84440
T = .1844
5 Years
1000 (1+T)^5 = 1,594.54
((1+T)^5)^1/5 = (1.59454)^1/5
1+T = 1.09781
T = .0978
7.67 Years (From date of inception May 1, 1991)
1000 (1+T)^7.67 = 2,047.28
((1+T)^7.67)^1/7.67 = (2.04728)^1/7.67
1+T = 1.09792
T = .0979
<PAGE>
HIGH GRADE INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,065.20
(1+T)^1 = (1.06520)^1
1+T = 1.06520
T = .0652
5 Years
1000 (1+T)^5 = 1,213.56
((1+T)^5)^1/5 = (1.21356)^1/5
1+T = 1.03947
T = .0395
10 Years
1000 (1+T)^10 = 1,910.90
((1+T)^10)^1/10 = (1.91090)^1/10
1+T = 1.06690
T = .0669
<PAGE>
SOCIAL AWARENESS SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,296.23
(1+T)^1 = (1.29623)^1
1+T = 1.29623
T = .2962
5 Years
1000 (1+T)^5 = 2,194.14
((1+T)^5)^1/5 = (2.19414)^1/5
1+T = 1.17018
T = .1702
7.67 Years (From date of inception May 1, 1991)
1000 (1+T)^7.67 = 2,911.61
((1+T)^7.67)^1/7.67 = (2.91161)^1/7.67
1+T = 1.14951
T = .1495
<PAGE>
EMERGING GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,163.10
(1+T)^1 = (1.16310)^1
1+T = 1.16310
T = .1631
5 Years
1000 (1+T)^5 = 1,764.62
((1+T)^5)^1/5 = (1.76462)^1/5
1+T = 1.12029
T = .1203
6.25 Years (From date of inception October 1, 1992)
1000 (1+T)^6.25 = 2,459.95
((1+T)^6.25)^1/6.25 = (2.45995)^1/6.25
1+T = 1.15491
T = .1549
<PAGE>
GLOBAL AGGRESSIVE BOND SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,053.90
(1+T)^1 = (1.05390)^1
1+T = 1.05390
T = .0539
3.58 Years (From date of inception June 1, 1995)
1000 (1+T)^3.58 = 1,309.98
((1+T)^3.58)^1/3.58 = (1.30998)^1/3.58
1+T = 1.07834
T = .0783
<PAGE>
SPECIALIZED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,111.02
(1+T)^1 = (1.111.02)^1
1+T = 1.11102
T = .1110
3.58 Years (from date of inception June 1, 1995)
1000 (1+T)^3.58 = 1,391.01
((1+T)^3.58)^1/3.58 = (1.39101)^1/3.58
1+T = 1.09657
T = .0966
<PAGE>
MANAGED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,167.87
(1+T)^1 = (1.16787)^1
1+T = 1.16787
T = .1679
3.58 Years (from date of inception June 1, 1995)
1000 (1+T)^3.58 = 1,613.99
((1+T)^3.58)^1/3.58 = (1.61399)^1/3.58
1+T = 1.14307
T = .1431
<PAGE>
EQUITY INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 199
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,074.76
(1+T)^1 = (1.07476)^1
1+T = 1.07476
T = .0748
3.58 Years (from date of inception June 1, 1995)
1000 (1+T)^3.58 = 1,868.99
((1+T)^3.58)^1/1.58 = (1.86899)^1/3.58
1+T = 1.19088
T = .1909
<PAGE>
HIGH YIELD SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,043.92
(1+T)^1 = (1.04392)^1
1+T = 1.04392
T = .0439
2.41 Years (from date of inception August 5, 1996)
1000 (1+T)^2.41 = 1,236.01
((1+T)^2.41)^1/2.41 = (1.23601)^1/2.41
1+T = 1.09190
T = .0919
<PAGE>
VALUE SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,149.12
(1+T)^1 = (1.14912)^1
1+T = 1.14912
T = .1491
1.67 Year (from date of inception May 1, 1997)
1000 (1+T)^1.67 = 1,495.00
((1+T)^1.67)^1/1.67 = (1.495)^1/1.67
1+T = 1.27226
T = .2723
<PAGE>
SMALL CAP SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(without deduction of contingent deferred sales charge)
1 Year
1000 (1+T)^1 = 1,099.48
(1+T)^1 = (1.09948)^1
1+T = 1.09948
T = .0995
1.21 Years (from date of inception October 15, 1997)
1000 (1+T)^1.21 = 1,050.00
((1+T)^1.21)^1/1.21 = (1.05)^1/1.21
1+T = 1.04115
T = 0.412
<PAGE>
HIGH GRADE INCOME SERIES
Yield Calculation As Of December 31, 1998 = 6.21%
[ (169,278.16-0.00) ]^6
2[------------------------- + 1 ] - 1
[ (2,368,637.7134)(13.07) ]
[(( 169,278.16 ) )^6]
2[((------------------ ) + 1 ) ] - 1
[(( 30,958,094.91 ) ) ]
2[((.005467977 + 1)6) - 1]
2[(1.005467977)6 - 1]
2[(1.0333 - 1)]
2(.0333)
= .0666
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES A (GROWTH)
Quotation of Total Return for the period of January 1, 1988 to December 31,1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,236.31 - $1,000 $236.31 / $1,000 = 23.63%
1997 1,269.25 - 1,000 269.25 / 1,000 = 26.93%
1996 1,209.59 - 1,000 209.59 / 1,000 = 20.96%
1995 1,349.07 - 1,000 349.07 / 1,000 = 34.91%
1994 969.85 - 1,000 (30.15) / 1,000 = (3.02)%
1993 1,121.23 - 1,000 121.23 / 1,000 = 12.12%
1992 1,096.07 - 1,000 96.07 / 1,000 = 9.61%
1991 1,341.83 - 1,000 341.83 / 1,000 = 34.18%
1990 889.18 - 1,000 (110.82) / 1,000 = (11.08)%
1989 1,330.47 - 1,000 330.47 / 1,000 = 33.05%
1988 1,085.80 - 1,000 85.80 / 1,000 = 8.58%
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES B (GROWTH-INCOME)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,060.10 - $1,000 $60.10 / $1,000 = 6.01%
1997 1,247.97 - 1,000 247.97 / 1,000 = 24.80%
1996 1,165.88 - 1,000 165.88 / 1,000 = 16.59%
1995 1,282.59 - 1,000 282.59 / 1,000 = 28.26%
1994 956.66 - 1,000 (43.34) / 1,000 = (4.33)%
1993 1,080.79 - 1,000 80.79 / 1,000 = 8.08%
1992 1,047.75 - 1,000 47.75 / 1,000 = 4.78%
1991 1,358.86 - 1,000 358.86 / 1,000 = 35.89%
1990 942.10 - 1,000 (57.90) / 1,000 = (5.79)%
1989 1,266.10 - 1,000 266.10 / 1,000 = 26.61%
1988 1,176.57 - 1,000 176.57 / 1,000 = 17.66%
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES C (MONEY MARKET)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,036.87 - $1,000 $36.87 / $1,000 = 3.69%
1997 1,037.31 - 1,000 37.31 / 1,000 = 3.73%
1996 1,035.93 - 1,000 35.93 / 1,000 = 3.59%
1995 1,039.03 - 1,000 39.03 / 1,000 = 3.90%
1994 1,022.81 - 1,000 22.81 / 1,000 = 2.28%
1993 1,011.48 - 1,000 11.48 / 1,000 = 1.15%
1992 1,018.01 - 1,000 18.01 / 1,000 = 1.80%
1991 1,041.77 - 1,000 41.77 / 1,000 = 4.18%
1990 1,063.45 - 1,000 63.45 / 1,000 = 6.35%
1989 1,075.28 - 1,000 75.28 / 1,000 = 7.53%
1988 1,056.78 - 1,000 56.78 / 1,000 = 5.68%
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES D (WORLD WIDE EQUITY)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,184.44 - $1,000 $ 184.44 / $1,000 = 18.44%
1997 1,049.13 - 1,000 49.13 / 1,000 = 4.91%
1996 1,158.13 - 1,000 158.13 / 1,000 = 15.81%
1995 1,093.41 - 1,000 93.41 / 1,000 = 9.34%
1994 1,013.06 - 1,000 13.06 / 1,000 = 1.31%
1993 1,298.00 - 1,000 298.00 / 1,000 = 29.80%
1992 960.22 - 1,000 (39.78) / 1,000 = (3.98)%
1991* 1,029.57 - 1,000 29.57 / 1,000 = 2.96%
*From May 1, 1991 to December 31, 1991.
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES E (HIGH GRADE INCOME)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,065.20 - $1,000 $ 65.20 / $1,000 = 6.52%
1997 1,084.88 - 1,000 84.88 / 1,000 = 8.49%
1996 978.86 - 1,000 (21.14) / 1,000 = (2.11)%
1995 1,169.24 - 1,000 169.24 / 1,000 = 16.92%
1994 917.72 - 1,000 (82.28) / 1,000 = (8.23)%
1993 1,110.56 - 1,000 110.56 / 1,000 = 11.06%
1992 1,059.46 - 1,000 59.46 / 1,000 = 5.95%
1991 1,153.38 - 1,000 153.38 / 1,000 = 15.34%
1990 1,051.87 - 1,000 51.87 / 1,000 = 5.19%
1989 1,103.21 - 1,000 103.21 / 1,000 = 10.32%
1988 1,056.97 - 1,000 56.97 / 1,000 = 5.70%
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES S (SOCIAL AWARENESS)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,296.23 - $1,000 $296.23 / $1,000 = 29.62%
1997 1,209.38 - 1,000 209.38 / 1,000 = 20.94%
1996 1,171.50 - 1,000 171.50 / 1,000 = 17.15%
1995 1,260.22 - 1,000 260.22 / 1,000 = 26.02%
1994 948.48 - 1,000 (51.52) / 1,000 = (5.15)%
1993 1,103.26 - 1,000 103.26 / 1,000 = 10.33%
1992 1,147.64 - 1,000 147.64 / 1,000 = 14.76%
1991* 1,045.58 - 1,000 45.58 / 1,000 = 4.56%
*From May 1, 1991 to December 31, 1991.
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES J (EMERGING GROWTH)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,163.10 - $1,000 $163.10 / $1,000 = 16.31%
1997 1,182.80 - 1,000 182.80 / 1,000 = 18.28%
1996 1,163.82 - 1,000 163.82 / 1,000 = 16.38%
1995 1,178.23 - 1,000 178.23 / 1,000 = 17.82%
1994 935.81 - 1,000 (64.19) / 1,000 = (6.42)%
1993 1,120.74 - 1,000 120.74 / 1,000 = 12.07%
1992* 1,243.40 - 1,000 243.40 / 1,000 = 24.34%
*From October 1, 1992 to December 31, 1992.
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES K (GLOBAL AGGRESSIVE BOND)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,053.90 - $1,000 $ 53.90 / $1,000 = 5.39%
1997 1,039.30 - 1,000 39.30 / 1,000 = 3.93%
1996 1,120.89 - 1,000 120.89 / 1,000 = 12.09%
1995* 1,067.40 - 1,000 67.40 / 1,000 = 6.74%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES M (SPECIALIZED ASSET ALLOCATION)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,111.02 - $1,000 $ 111.02 / $1,000 = 11.10%
1997 1,046.82 - 1,000 46.82 / 1,000 = 4.68%
1996 1,126.29 - 1,000 126.29 / 1,000 = 12.63%
1995* 1,062.32 - 1,000 62.32 / 1,000 = 6.23%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES N (MANAGED ASSET ALLOCATION)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,167.87 - $1,000 $167.87 / $1,000 = 16.79%
1997 1,167.23 - 1,000 167.23 / 1,000 = 16.72%
1996 1,112.10 - 1,000 112.10 / 1,000 = 11.21%
1995* 1,064.28 - 1,000 64.28 / 1,000 = 6.43%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES O (EQUITY INCOME)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,074.76 - $1,000 $ 74.76 / $1,000 = 7.48%
1997 1,265.65 - 1,000 265.65 / 1,000 = 26.57%
1996 1,183.50 - 1,000 183.50 / 1,000 = 18.35%
1995* 1,160.55 - 1,000 160.55 / 1,000 = 16.05%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES P (HIGH YIELD)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,043.92 - $1,000 $ 43.92 / $1,000 = 4.39%
1997 1,116.98 - 1,000 116.98 / 1,000 = 11.70%
1996* 1,060.00 - 1,000 60.00 / 1,000 = 6.00%
*From August 5, 1996 to December 31, 1996.
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES V (VALUE)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,149.12 - $1,000 $149.12 / $1,000 = 14.91%
1997* 1,291.96 - 1,000 291.96 / 1,000 = 29.20%
*From May 1, 1997 to December 31, 1997.
<PAGE>
VARIFLEX SIGNATURE
NON-STANDARDIZED TOTAL RETURN
SERIES X (SMALL CAP)
Quotation of Total Return for the period of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,099.48 - $1,000 $99.48 / $1,000 = 9.95%
1997* 955.00 - 1,000 (45.00) / 1,000 = (4.5)%
*From October 15, 1997 to December 31, 1997.
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SEDGWICK)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Thomas R. Clevenger, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARIABLE ANNUITY ACCOUNT VIII (VARIFLEX
SIGNATURE) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of January, 1999.
THOMAS R. CLEVENGER
-------------------------------------
Thomas R. Clevenger
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
ANNETTE E. CRIPPS
-------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Sister Loretto Marie Colwell, being a Director of SECURITY BENEFIT LIFE
INSURANCE COMPANY, by these presents do make, constitute and appoint Howard R.
Fricke, James R. Schmank and Roger K. Viola, and each of them, my true and
lawful attorneys, each with full power and authority for me and in my name and
behalf to sign Registration Statements, any amendments thereto and any
applications for exemptive relief filed pursuant to the Investment Company Act
of 1940 or the Securities Act of 1933, as amended, and any instrument or
document filed as part thereof, or in connection therewith or in any way related
thereto, in connection with Variable Annuity Contracts offered, issued or sold
by SECURITY BENEFIT LIFE INSURANCE COMPANY and any SECURITY VARIABLE ANNUITY
ACCOUNT VIII (VARIFLEX SIGNATURE) with like effect as though said Registration
Statements and other documents had been signed and filed personally by me in the
capacity aforesaid. Each of the aforesaid attorneys acting alone shall have all
the powers of all of said attorneys. I hereby ratify and confirm all that the
said attorneys, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of January, 1999.
SISTER LORETTO MARIE COLWELL
-------------------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 16th day of January, 1999.
JULIA A. SMRHA
-------------------------------------
Notary Public
My Commission Expires:
7/8/2000
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John C. Dicus, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARIABLE ANNUITY ACCOUNT VIII (VARIFLEX
SIGNATURE) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of January, 1999.
JOHN C. DICUS
-------------------------------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
ANNETTE E. CRIPPS
-------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Steven J. Douglass, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARIABLE ANNUITY ACCOUNT VIII (VARIFLEX
SIGNATURE) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of January, 1999.
STEVEN J. DOUGLASS
-------------------------------------
Steven J. Douglass
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
NANCY A. LEWIS
-------------------------------------
Notary Public
My Commission Expires:
10/16/99
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Howard R. Fricke, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint James R. Schmank and
Roger K. Viola, and each of them, my true and lawful attorneys, each with full
power and authority for me and in my name and behalf to sign Registration
Statements, any amendments thereto and any applications for exemptive relief
filed pursuant to the Investment Company Act of 1940 or the Securities Act of
1933, as amended, and any instrument or document filed as part thereof, or in
connection therewith or in any way related thereto, in connection with Variable
Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE INSURANCE
COMPANY and any SECURITY VARIABLE ANNUITY ACCOUNT VIII (VARIFLEX SIGNATURE) with
like effect as though said Registration Statements and other documents had been
signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of January, 1999.
HOWARD R. FRICKE
-------------------------------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
ANNETTE E. CRIPPS
-------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, W. W. Hanna, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARIABLE ANNUITY ACCOUNT VIII (VARIFLEX
SIGNATURE) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of January, 1999.
W. W. HANNA
-------------------------------------
W. W. Hanna
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
CAROLYN R. SOUDERS
-------------------------------------
Notary Public
My Commission Expires:
7/21/99
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF FLORIDA )
) ss.
COUNTY OF PINELLAS)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John E. Hayes, Jr., being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARIABLE ANNUITY ACCOUNT VIII (VARIFLEX
SIGNATURE) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of January, 1999.
JOHN E. HAYES, JR.
-------------------------------------
John E. Hayes, Jr.
SUBSCRIBED AND SWORN to before me this 27th day of January, 1999.
PAMELA MURRAY
-------------------------------------
Notary Public
My Commission Expires:
3/2/2000
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF DOUGLAS)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Laird G. Noller, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARIABLE ANNUITY ACCOUNT VIII (VARIFLEX
SIGNATURE) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of January, 1999.
LAIRD G. NOLLER
-------------------------------------
Laird G. Noller
SUBSCRIBED AND SWORN to before me this 25th day of January, 1999.
ANNETTE E. CRIPPS
-------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- ----------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Frank C. Sabatini, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARIABLE ANNUITY ACCOUNT VIII (VARIFLEX
SIGNATURE) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of January, 1999.
FRANK C. SABATINI
-------------------------------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 21st day of January, 1999.
PATRICIA A. CLARK
-------------------------------------
Notary Public
My Commission Expires:
3/5/2002
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Robert C. Wheeler, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARIABLE ANNUITY ACCOUNT VIII (VARIFLEX
SIGNATURE) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of January, 1999.
ROBERT C. WHEELER
-------------------------------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
NANCY G. DEBACKER
-------------------------------------
Notary Public
My Commission Expires:
12/15/99
- -----------------------
