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File No. 333-_____
File No. 811-08779
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective
Amendment No.
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Post-Effective Amendment No.
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No.
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(Check appropriate box or boxes)
SBL VARIABLE ANNUITY ACCOUNT X
(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 20006
(Name and address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Title of Securities Being Registered: Interests in a separate account under
individual and group flexible premium deferred variable annuity contracts.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Cross Reference Sheet
Pursuant to Rule 495(a)
Showing Location in Part A (Prospectus) and Part B
(Statement of Additional Information) of Registration
Statement of Information Required by Form N-4
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PART A
ITEM OF FORM N-4 PROSPECTUS CAPTION
1. Cover Page.................................. Cover Page
2. Definitions................................. Definitions
3. Synopsis.................................... Summary; Expense Table;
Contractual Expenses; Annual
Separate Account Expenses;
Annual Mutual Fund Expenses
4. Condensed Financial Information
(a) Accumulated Unit Values................. N/A
(b) Performance Data........................ Performance Information
(c) Additional Financial Information........ Additional Information;
Financial Statements
5. General Description of Registrant,
Depositor, and Portfolio Companies
(a) Depositor.............................. Information about Security
Benefit, the Separate
Account, and the Mutual
Fund; Security Benefit
Life Insurance Company
(b) Registrant............................. Separate Account;
Information about Security
Benefit, the Separate
Account, and the Mutual Fund
(c) Portfolio Company...................... Information about Security
Benefit, the Separate
Account, and the Mutual
Fund; Advisor's Fund; The
Investment Adviser
(d) Fund Prospectus........................ Advisor's Fund
(e) Voting Rights.......................... Voting of Mutual Fund Shares
(f) Administrators......................... Security Benefit Life
Insurance Company
6. Deductions and Expenses
(a) General................................ Charges and Deductions;
Mortality and Expense Risk
Charge; Premium Tax Charge;
Other Charges; Guarantee of
Certain Charges; Mutual Fund
Expenses
(b) Sales Load %........................... N/A
(c) Special Purchase Plan.................. N/A
(d) Commissions............................ N/A
(e) Fund Expenses.......................... Annual Mutual Fund Expenses
(f) Organization Expenses.................. N/A
7. General Description of Contracts
(a) Persons with Rights.................... The Contract; More About the
Contract; Ownership; Joint
Owners; Contract Benefits;
Reports to Owners
(b) (i) Allocation of Purchase Payments. Purchase Payments;
Allocation of Purchase
Payments
(ii) Transfers....................... Transfers of Contract
Value; Telephone Transfer
Privileges; Full and
Partial Withdrawals
(iii) Exchanges....................... N/A
(c) Changes................................ Substitution of Investments;
Changes to Comply with Law
and Amendments
(d) Inquiries.............................. Contacting Security Benefit
8. Annuity Period.............................. Annuity Period; General;
Annuity Options; Selection
of an Option
9. Death Benefit............................... Death Benefit
10. Purchases and Contract Value
(a) Purchases.............................. The Contract; General;
Application for a Contract;
Purchase Payments
(b) Valuation.............................. Contract Value;
Determination of Contract
Value; Transfers of Contract
Value
(c) Daily Calculation...................... Determination of Contract
Value
Underwriter............................ Security Benefit Life
Insurance Company
11. Redemptions
(a) - By Owners............................. Full and Partial
Withdrawals; Systematic
Withdrawals; Payments
from the Separate Account
- By Annuitant.......................... Annuity Options
(b) Texas ORP.............................. N/A
(c) Check Delay............................ N/A
(d) Lapse.................................. Full and Partial Withdrawals
(e) Free Look.............................. Free-Look Right
12. Taxes....................................... Federal Tax Matters;
Introduction; Tax Status of
Security Benefit and the
Separate Account; Income
Taxation of Annuities in
General - Non-Qualified
Plans; Additional
Considerations; Qualified
Plans
13. Legal Proceedings........................... Legal Proceedings; Legal
Matters
14. Table of Contents for the Statement of
Additional Information...................... Statement of Additional
Information
PART B
STATEMENT OF ADDITIONAL
ITEM OF FORM N-4 INFORMATION CAPTION
15. Cover Page.................................. Cover Page
16. Table of Contents........................... Table of Contents
17. General Information and History............. General Information and
History
18. Services
(a) Fees and Expenses of Registrant........ N/A
(b) Management Contracts................... N/A
(c) Custodian.............................. N/A
Independent Public Accountant.......... Experts
(d) Assets of Registrant................... N/A
(e) Affiliated Persons..................... N/A
(f) Principal Underwriter.................. N/A
19. Purchase of Securities Being Offered........ Distribution of the
Contract; Limits on
Purchase Payments Paid
Under Tax-Qualified
Retirement Plans
20. Underwriters................................ Distribution of the Contract
21. Calculation of Performance Data............. Performance Information
22. Annuity Payments............................ N/A
23. Financial Statements........................ Financial Statements
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PCG 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
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
This Prospectus describes the PCG 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 (the "Individual Contracts") as a non-tax qualified retirement
plan ("Non-Qualified Plan") or in connection with an individual retirement
annuity ("IRA") qualified under Section 408 of the Internal Revenue Code. The
Contract is also available to groups (the "Group Contracts") in connection with
a retirement plan qualified under Section 401, 403(b) or 457 of the Internal
Revenue Code. The Contract is designed to give Contractowners flexibility in
planning for retirement and other financial goals.
During the Accumulation Period, the Contract provides for the accumulation of
a Contractowner's value on a variable basis. The Contract also provides several
options for annuity payments on a variable basis beginning on the Annuity Start
Date. The minimum initial purchase payment is $100,000. Purchase payments may be
allocated at the Contractowner's discretion to one or more of the Subaccounts
that comprise a separate account of Security Benefit called the Variable Annuity
Account X (the "Separate Account"). Each Subaccount of the Separate Account
invests in a corresponding portfolio ("Series") of the Advisor's Fund (the
"Mutual Fund"), which currently consists of four Series: (1) PCG Aggressive
Growth Series, (2) PCG Growth Series, (3) SIM Growth Series, and (4) SIM
Conservative Growth Series.
The Contract Value in the Subaccounts under a Contract will vary based on
investment performance of the Subaccounts to which the Contract Value is
allocated. No minimum amount of Contract Value is guaranteed.
A Contract may be returned according to the terms of its Free-Look Right.
(See "Free-Look Right," page 12.)
This Prospectus concisely sets forth information about the Contract and the
Separate Account that a prospective investor should know before purchasing the
Contract. Certain additional information is contained in a "Statement of
Additional Information," dated _________________, 1998, which has been filed
with the Securities and Exchange Commission (the "SEC"). The Statement of
Additional Information, as it may be supplemented from time to time, is
incorporated by reference into this Prospectus and is available at no charge, by
writing Security Benefit at 700 Harrison Street, Topeka, Kansas 66636 or by
calling 1-800-888-2461. The table of contents of the Statement of Additional
Information is set forth on page 19 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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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE ADVISOR'S FUND.
BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THE CONTRACT INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND IS NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THE CONTRACT
IS NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
DATE: __________________________, 1998
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<PAGE>
TABLE OF CONTENTS
Page
DEFINITIONS .............................................................. 5
SUMMARY 5
Purpose of the Contract................................................. 5
The Separate Account and the Mutual Fund................................ 6
Purchase Payments....................................................... 6
Contract Benefits....................................................... 6
Free-Look Right......................................................... 6
Charges and Deductions.................................................. 6
Mortality and Expense Risk 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 ............................................................... 7
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT,
AND THE MUTUAL FUND..................................................... 7
Security Benefit Life Insurance Company................................. 7
Year 2000 Compliance.................................................... 8
Published Ratings....................................................... 8
Separate Account........................................................ 8
Advisor's Fund.......................................................... 9
PCG Aggressive Growth Series.......................................... 9
PCG Growth Series..................................................... 9
SIM Growth Series..................................................... 9
SIM Conservative Growth Series........................................ 9
The Investment Adviser................................................ 10
THE CONTRACT 10
General ............................................................... 10
Application for a Contract.............................................. 10
Purchase Payments....................................................... 10
Allocation of Purchase Payments......................................... 11
Transfers of Contract Value............................................. 11
Contract Value.......................................................... 11
Determination of Contract Value......................................... 11
Full and Partial Withdrawals............................................ 12
Systematic Withdrawals.................................................. 12
Free-Look Right......................................................... 12
Death Benefit........................................................... 13
Distribution Requirements............................................... 13
Death of the Annuitant.................................................. 13
CHARGES AND DEDUCTIONS.................................................... 14
Mortality and Expense Risk Charge....................................... 14
Premium Tax Charge...................................................... 14
Other Charges........................................................... 14
Guarantee of Certain Charges............................................ 14
Mutual Fund Expenses.................................................... 14
ANNUITY PERIOD............................................................ 14
General ............................................................... 14
Annuity Options......................................................... 15
Option 1--Life Income with Guaranteed Payments of 25 Years............ 15
Option 2--Payments for a Specified Period............................. 15
Option 3--Payments of a Specified Amount.............................. 15
Option 4--Age Recalculation........................................... 15
Value of Variable Annuity Payments: Assumed Interest Rate............ 15
Selection of an Option.................................................. 15
MORE ABOUT THE CONTRACT................................................... 16
Ownership............................................................... 16
Joint Owners.......................................................... 16
Designation and Change of Beneficiary................................... 16
Participating........................................................... 16
Payments from the Separate Account...................................... 16
Proof of Age and Survival............................................... 16
Misstatements........................................................... 16
FEDERAL TAX MATTERS....................................................... 17
Introduction............................................................ 17
Tax Status of Security Benefit and the Separate Account................. 17
General............................................................... 17
Charge for Security Benefit Taxes..................................... 18
Diversification Standards............................................. 18
Income Taxation of Annuities in General--Non-Qualified Plans............ 18
Surrenders or Withdrawals Prior to the Annuity Start Date............. 18
Surrenders or Withdrawals on or after Annuity Start Date.............. 19
Penalty Tax on Certain Surrenders and Withdrawals..................... 19
Additional Considerations............................................... 19
Distribution-at-Death Rules........................................... 19
Gift of Annuity Contracts............................................. 19
Contracts Owned by Non-Natural Persons................................ 19
Multiple Contract Rule................................................ 19
Possible Tax Changes.................................................. 19
Transfers, Assignments or Exchanges of a Contract..................... 19
Qualified Plans......................................................... 19
Section 408........................................................... 19
Tax Penalties......................................................... 19
Withholding........................................................... 19
OTHER INFORMATION......................................................... 19
Voting of Mutual Fund Shares............................................ 19
Substitution of Investments............................................. 19
Changes to Comply with Law and Amendments............................... 19
Reports to Owners....................................................... 19
Telephone Transfer Privileges........................................... 19
Legal Proceedings....................................................... 19
Legal Matters........................................................... 19
PERFORMANCE INFORMATION................................................... 19
ADDITIONAL INFORMATION.................................................... 19
Registration Statement.................................................. 19
Financial Statements.................................................... 19
STATEMENT OF ADDITIONAL INFORMATION....................................... 19
IRA DISCLOSURE STATEMENT
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THE CONTRACT IS NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION, THE MUTUAL FUND'S PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION OF THE FUND, OR ANY SUPPLEMENT THERETO.
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<PAGE>
DEFINITIONS
Various terms commonly used in this Prospectus are defined as follows:
ACCUMULATION PERIOD -- The period commencing on the Contract Date and ending
on the Annuity Start Date or, if earlier, when the Contract is terminated,
either through a full withdrawal, payment of charges, or payment of the death
benefit proceeds.
ACCUMULATION UNIT -- A unit of measure used to calculate the value of a
Contractowner's interest in a Subaccount during the Accumulation Period.
ANNUITANT -- The person on whose life annuity payments depend or designated
to receive annuity payments.
ANNUITY -- A series of periodic income payments made by Security Benefit to
an Annuitant, Joint Annuitant, or Beneficiary during the period specified in the
Annuity Option.
ANNUITY OPTIONS -- Options under the Contract that prescribe the provisions
under which a series of annuity payments are made.
ANNUITY PERIOD -- The period during which annuity payments are made.
ANNUITY START DATE -- The date when annuity payments are to begin.
CONTRACT DATE -- The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually the
date that the initial purchase payment is credited to the Contract.
CONTRACTOWNER OR OWNER -- The person entitled to the ownership rights under
the Contract and in whose name the Contract is issued.
CONTRACT VALUE -- The total value of the amounts in a Contract allocated to
the Subaccounts of the Separate Account.
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.
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 participant's interest 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.
MUTUAL FUND -- The Advisor's Fund. The Mutual Fund is a diversified, open-end
management investment company commonly referred to as a mutual fund.
PARTICIPANT -- A Participant under a Qualified Plan.
PURCHASE PAYMENT -- The amounts paid to Security Benefit as consideration for
the Contract.
SEPARATE ACCOUNT -- The Variable Annuity Account X. A separate account of
Security Benefit that consists of accounts, referred to as Subaccounts, each of
which invests in a corresponding Series of the Mutual Fund.
SUBACCOUNT -- A division of the Separate Account of Security Benefit which
invests in a corresponding series of the Mutual Fund.
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 a Contractowner may receive upon full
withdrawal of the Contract, which is equal to Contract Value less any
uncollected premium taxes.
SUMMARY
This summary is intended to provide a brief overview of the more significant
aspects of the Contract. Further detail is provided in this Prospectus, the
Statement of Additional Information, and the Contract.
PURPOSE OF THE CONTRACT
The flexible purchase payment deferred variable annuity contract ("Contract")
described in this Prospectus is designed to give Contractowners flexibility in
planning for retirement and other financial goals. The Contract provides for the
accumulation of values on a variable basis during the Accumulation Period and
provides several options for annuity payments on a variable basis beginning on
the Annuity Start Date. During the Accumulation Period, an Owner can pursue
various allocation options by allocating purchase payments to the various
Subaccounts of the Separate Account. See "The Contract," page 10.
The Contract is eligible for purchase as a non-tax qualified retirement plan
for an individual ("Non-Qualified Plan"). The Contract is also eligible for an
individual in connection with a retirement plan qualified under Section 408 of
the Internal Revenue Code of 1986, as amended and in group form in connection
with a retirement plan qualified under Section 401, 403(b) or 457 of the
Internal Revenue Code. A qualified retirement plan is sometimes referred to in
this Prospectus as a "Qualified Plan."
THE SEPARATE ACCOUNT AND THE MUTUAL FUND
The Separate Account is currently divided into four accounts referred to as
Subaccounts. Each Subaccount invests exclusively in shares of a corresponding
Series of the Mutual Fund. The Series of the Mutual Fund, each of which has a
different investment objective or objectives, are as follows: PCG Aggressive
Growth Series, PCG Growth Series, SIM Growth Series, and SIM Conservative Growth
Series. See "Advisor's Fund," page 9. Amounts held in a Subaccount will increase
or decrease in dollar value depending on the investment performance of the
Series of the Mutual Fund in which such Subaccount invests. The Contractowner
bears the investment risk for amounts allocated to a Subaccount of the Separate
Account.
PURCHASE PAYMENTS
The minimum initial purchase payment is $100,000. Thereafter, the
Contractowner may choose the amount and frequency of purchase payments. See
"Purchase Payments" on page 10.
CONTRACT BENEFITS
During the Accumulation Period, Contract Value may be transferred by the
Contractowner among the Subaccounts of the Separate Account subject to certain
restrictions as described in "The Contract" on page 10.
At any time before the Annuity Start Date, a Contract may be surrendered for
its Withdrawal Value, and partial withdrawals, including systematic withdrawals,
may be taken from the Contract Value. See "Full and Partial Withdrawals," page
12 and "Federal Tax Matters," page 17 for more information about withdrawals,
including the 10 percent penalty tax that may be imposed upon full and partial
withdrawals (including systematic withdrawals) made prior to the Owner attaining
age 59 1/2.
The Contract provides for a death benefit upon the death of the Owner during
the Accumulation Period. A death benefit is not available, however, under a
Group Contract. See "Death Benefit," on page 13 for more information. The
Contract provides for several Annuity Options on a variable basis beginning on
the Annuity Start Date.
FREE-LOOK RIGHT
An Owner may return a Contract within the Free-Look Period, which is
generally a ten-day period beginning when the Owner receives the Contract. In
this event, Security Benefit will refund to the Owner 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 make any deductions for sales load from purchase
payments before allocating them to the Contract Value and no surrender charge is
assessed upon withdrawal or surrender of a Contract. Certain charges will be
deducted in connection with the Contract as described below.
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 .65 percent of each
Subaccount's average daily net assets that fund the Individual Contracts and .80
percent of each Subaccount's average daily net assets that fund the Group
Contracts. See "Mortality and Expense Risk Charge" on page 14.
PREMIUM TAX CHARGE
Security Benefit assesses a premium tax charge to reimburse itself for any
premium taxes that it incurs with respect to a 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 14.
OTHER EXPENSES
The operating expenses of the Separate Account are paid by Security Benefit.
Investment advisory fees and operating expenses of the Mutual Fund are paid by
the Mutual Fund and are reflected in the net asset value of the Mutual Fund
shares. For a description of these charges and expenses, see the Prospectus for
the Mutual Fund.
CONTACTING SECURITY BENEFIT
All written requests, notices, and forms required by the Contract, and any
questions or inquiries should be directed to Security Benefit Life Insurance
Company, P.O. Box 750497, Topeka, Kansas 66675-0497 or by phone by calling (785)
431-3112 or 1-800-888-2461, extension 3112.
EXPENSE TABLE
The purpose of this table is to assist investors in understanding the various
costs and expenses borne directly and indirectly by Owners of the Contracts. The
table reflects any contractual charges, expenses of the Separate Account, and
charges and expenses of the Mutual Fund. The table does not reflect premium
taxes that may be imposed by various jurisdictions. See "Premium Tax Charge," on
page 14.
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," on page 14. For a more complete description of the Mutual
Fund's costs and expenses, see the Advisor's Fund Prospectus, which accompanies
this Prospectus.
CONTRACTUAL EXPENSES
Sales load on purchase payments.......................................... None
Contingent deferred sales charge......................................... None
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
Individual Contracts................................................... .65%
Group Contracts........................................................ .80%
Total Separate Account Annual Expenses
Individual Contracts................................................... .65%
Group Contracts........................................................ .80%
ANNUAL MUTUAL FUND EXPENSES
(AS A PERCENTAGE OF EACH SERIES' AVERAGE DAILY NET ASSETS)
Total
Management Other Mutual Fund
Fee Expenses(1) Expenses
---------- ----------- -----------
PCG Aggressive Growth................. 1.25% .47% 1.72%
PCG Growth............................ 1.25% .47% 1.72%
SIM Growth............................ 1.25% .47% 1.72%
SIM Conservative Growth............... 1.25% .47% 1.72%
1. Other Expenses are based on estimated amounts for the fiscal year ending
April 30, 1999.
EXAMPLES
The example presented below shows expenses that a Contractowner would pay at
the end of one and three years. The information presented applies if, at the end
of those time periods, the Contract is (1) surrendered, (2) annuitized, or (3)
not surrendered or annuitized. The example shows expenses based upon an
allocation of $1,000 to each of the Subaccounts.
THE EXAMPLE BELOW SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE 5
PERCENT RETURN ASSUMED IN THE EXAMPLES IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ACTUAL RETURNS, WHICH MAY BE
GREATER OR LESSER THAN THE ASSUMED AMOUNT.
INDIVIDUAL CONTRACTS
Example-- The Owner of an Individual Contract would pay the expenses shown
below on a $1,000 investment, assuming 5 percent annual return on assets:
1 YEAR 3 YEARS
------ -------
PCG Aggressive Growth Subaccount.............................. $24 $74
PCG Growth Subaccount......................................... 24 74
SIM Growth Subaccount......................................... 24 74
SIM Conservative Growth Subaccount............................ 24 74
GROUP CONTRACTS
Example-- The Owner of a Group Contract would pay the expenses shown below on
a $1,000 investment, assuming a 5 percent annual return on assets:
1 YEAR 3 YEARS
------ -------
PCG Aggressive Growth Subaccount.............................. $26 $78
PCG Growth Subaccount......................................... 26 78
SIM Growth Subaccount......................................... 26 78
SIM Conservative Growth Subaccount............................ 26 78
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND THE MUTUAL FUND
SECURITY BENEFIT LIFE INSURANCE COMPANY
Security Benefit is a mutual life insurance company organized under the laws
of the State of Kansas. It was organized originally as a fraternal benefit
society and commenced business February 22, 1892.
Security Benefit offers variable life insurance policies, fixed and variable
annuity contracts, as well as financial and retirement services. It is admitted
to do business in the District of Columbia, and in all states except New York.
As of December 31, 1997, Security Benefit had total assets of approximately $6.8
billion. Together with its subsidiaries, Security Benefit has total funds under
management of over $7.5 billion.
The Board of Directors and the policyholders of Security Benefit have
approved a Plan of Conversion ("Plan") under which Security Benefit would
convert from a mutual life insurance company to a stock life insurance company
ultimately controlled by a newly-formed mutual holding company to be named
Security Benefit Mutual Holding Company. Under the Plan, membership interests of
current Security Benefit policyholders would become membership interests in
Security Benefit Mutual Holding Company upon conversion. After the conversion,
persons who acquire policies from Security Benefit would automatically be
members in the mutual holding company. The conversion will not increase premiums
or reduce policy benefits, values, guarantees or other policy obligations to
policyholders. The Plan is subject to approval by the Insurance Commissioner of
the State of Kansas, among other approvals and conditions. If the necessary
approvals are obtained and conditions met, the conversion could occur in the
second quarter of 1998.
The Principal Underwriter for the Contracts is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company wholly owned by
Security Benefit.
YEAR 2000 COMPLIANCE
Like other insurance companies, as well as other financial and business
organizations around the world, Security Benefit could be adversely affected if
the computer systems it uses in performing its 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 the Mutual Fund by the
Investment Adviser, as well as transfer agency, accounting, custody,
distribution and other services provided to the Mutual Fund.
Security Benefit has adopted a plan to be "Year 2000 Compliant" with respect
to both its internally built systems as well as systems provided by external
vendors. "Year 2000 Compliant" means that systems and programs which require
modification will have the date fields expanded to include the century
information and that for interfaces to external organizations as well as new
systems, development of the year portion of the date field will be expanded to
four digits using the format YYYYMMDD. Security Benefit's overall approach to
addressing the Year 2000 issue is as follows: (1) to inventory its 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 its 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 its systems for Year 2000
compliance. Security Benefit has completed the inventory of its internal and
external systems and has made substantial progress toward completing the
modification/replacement of its internal systems as well as towards obtaining
Year 2000 Compliant certifications from its external vendors. Overall systems
testing is scheduled to commence in December 1998 and extend into the first six
months of 1999.
Although Security Benefit has taken steps to ensure that its systems will
function properly before, during and after the Year 2000, its key operating
systems and information sources are provided by or through external vendors
which creates uncertainty to the extent Security Benefit is relying on the
assurance of such vendors as to whether its 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 at this time but could have a material
adverse impact on the operations of the Separate Account and administration of
the Contract.
The Year 2000 Problem is also expected to impact companies, which may include
issuers of portfolio securities held by the Mutual Fund, to varying degrees
based upon various factors, including, but not limited to, the company's
industry sector and degree of technological sophistication. Security Benefit is
unable to predict what impact, if any, the Year 2000 Problem will have on
issuers of the portfolio securities held by the Mutual 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 the
Company as measured by Standard & Poor's Insurance Ratings Services may be
referred to in advertisements or sales literature or in reports to Owners. These
ratings are opinions of an operating insurance company's financial capacity to
meet the obligations of its insurance and annuity policies in accordance with
their terms. Such ratings do not reflect the investment performance of the
Separate Account or the degree of risk associated with an investment in the
Separate Account.
SEPARATE ACCOUNT
The Separate Account was established by Security Benefit on March 23, 1998,
under procedures established under Kansas law. The income, gains, or losses of
the Separate Account, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the assets of the Separate Account
without regard to other income, gains, or losses of Security Benefit. K.S.A.
40-436 provides that assets in a separate account attributable to the reserves
and other liabilities under the contracts are not chargeable with liabilities
arising from any other business that the insurance company conducts if, and to
the extent the contracts so provide, the Contract contains such a provision.
Security Benefit owns the assets in the Separate Account and is required to
maintain sufficient assets in the Separate Account to meet all Separate Account
obligations under the Contracts. Security Benefit may transfer to its General
Account assets that exceed anticipated obligations of the Separate Account. All
obligations arising under the Contracts are general corporate obligations of
Security Benefit. Security Benefit may invest its own assets in the Separate
Account for other purposes, but not to support contracts other than variable
annuity contracts, and may accumulate in the Separate Account proceeds from
Contract charges and investment results applicable to those assets.
The Separate Account is currently divided into four Subaccounts. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to, or charged against, the assets of each Subaccount
without regard to the income, gains or losses in the other Subaccounts. Each
Subaccount invests exclusively in shares of a specific Series of the Mutual
Fund. Security Benefit may in the future establish additional Subaccounts of the
Separate Account, which may invest in other Series of the Mutual Fund or in
other securities, mutual funds, or investment vehicles.
The Separate Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with the
SEC does not involve supervision by the SEC of the administration or investment
practices of the Separate Account or of Security Benefit.
ADVISOR'S FUND
Advisor's Fund (the "Mutual Fund") is a diversified, open-end management
investment company of the series type. The Mutual Fund is registered with the
SEC under the 1940 Act. Such registration does not involve supervision by the
SEC of the investments or investment policy of the Mutual Fund. The Mutual Fund
currently has four separate portfolios ("Series"), each of which pursues
different investment objectives and policies.
Shares of the Mutual Fund currently are offered only for purchase by the
Separate Account which serves as an investment medium for variable annuity
contracts issued by Security Benefit, and in the future may serve as an
investment medium for variable life insurance policies. When a mutual fund
serves as an investment medium for both variable life insurance policies and
variable annuity contracts it is called "mixed funding." Shares of the Mutual
Fund may also be sold in the future to separate accounts of other insurance
companies, both affiliated and not affiliated with Security Benefit. This is
called "shared funding." Security Benefit currently does not foresee any
disadvantages to Contractowners arising from either mixed or shared funding;
however, due to differences in tax treatment or other considerations, it is
theoretically possible that the interests of owners of various contracts for
which the Mutual Fund serves as an investment medium might at some time be in
conflict. However, Security Benefit, the Mutual Fund's Board of Directors, and
any other insurance companies that participate in the Mutual Fund in the future
are required to monitor events in order to identify any material conflicts that
arise from the use of the Mutual Fund for mixed and/or shared funding. The
Mutual Fund's Board of Directors are required to determine what action, if any,
should be taken in the event of such a conflict. If such a conflict were to
occur, Security Benefit might be required to withdraw the investment of one or
more of its separate accounts from the Mutual Fund. This might force the Mutual
Fund to sell securities at disadvantageous prices.
A summary of the investment objective of each Series of the Mutual Fund is
described below. There can be no assurance that any Series will achieve its
objective. More detailed information is contained in the accompanying prospectus
of the Mutual Fund, including information on the risks associated with the
investments and investment techniques of each Series.
THE MUTUAL FUND'S PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
PCG AGGRESSIVE GROWTH SERIES
The investment objective of the PCG Aggressive Growth Series is capital
appreciation through investment in a diversified portfolio of small and
medium-size companies.
PCG GROWTH SERIES
The investment objective of the PCG Growth Series is long-term growth of
capital through investment in a diversified portfolio of equity securities.
SIM GROWTH SERIES
The investment objective of the SIM Growth Series is long-term growth of
capital primarily through investment in a portfolio of publicly traded mutual
funds.
SIM CONSERVATIVE GROWTH SERIES
The investment objective of the SIM Conservative Growth Series is total
return, primarily through investment in a portfolio of publicly traded mutual
funds.
THE INVESTMENT ADVISER
Private Consulting Group, Inc. (the "Investment Adviser") located at 4650 SW
Macadam, Portland, Oregon 97201 serves as investment adviser to each Series of
the Mutual Fund. The Investment Adviser is registered with the SEC as an
investment adviser. The Investment Adviser formulates and implements continuing
programs for the purchase and sale of securities in compliance with the
investment objectives, policies, and restrictions of each Series, and is
responsible for the day to day decisions to buy and sell securities for each
Series except the PCG Aggressive Growth Series. The Investment Adviser has
engaged Mench Financial, Inc., ____________________________, Cincinnati, Ohio
____________ to provide investment advisory services to the PCG Aggressive
Growth Series.
THE CONTRACT
GENERAL
The Contract offered by this Prospectus is a flexible purchase payment
deferred variable annuity that is issued by Security Benefit. The Contract is
significantly different from a fixed annuity contract in that it is the Owner
under a Contract who assumes the risk of investment gain or loss rather than
Security Benefit. Upon the maturity of a Contract, the Contract provides several
Annuity Options on a variable basis, under which Security Benefit will pay
periodic annuity payments beginning on the Annuity Start Date. The amount that
will be available for annuity payments will depend on the investment performance
of the Subaccounts to which purchase payments have been allocated.
The Group Contract offered by this prospectus is identical to the individual
form of the Contract in all material respects except the death benefit and
annuity option provisions. The Group Contract does not provide a death benefit
and makes annuity options available to Participants only upon receipt of certain
distributions from the Qualified Plan. The annuity rates available to
Participants are guaranteed in the Group Contract. An individual annuity
Contract will be issued to a Participant who elects to apply a distribution from
the Plan to purchase an annuity from Security Benefit.
The Contract is available for purchase as a non-tax qualified retirement plan
("Non-Qualified Plan") by an individual. The Contract is also eligible for use
by an individual in connection with a tax qualified retirement plan that meets
the requirements of Section 408 of the Internal Revenue Code and in group form
in connection with a retirement plan qualified under Section 401, 403(b) 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) annuity purchase plans of public school
systems and certain tax-exempt organizations under Section 403(b) or (4)
deferred compensation plans for employees established by a unit of a state or
local government or by a tax-exempt organization under Section 457. Joint Owners
are permitted only on a contract issued pursuant to a Non-Qualified Plan.
APPLICATION FOR A CONTRACT
Any person wishing to purchase a Contract may submit an application and an
initial purchase payment to Security Benefit, as well as any other form or
information that Security Benefit may require. Security Benefit reserves the
right to reject an application or purchase payment for any reason, subject to
Security Benefit's underwriting standards and guidelines and any applicable
state or federal law relating to nondiscrimination.
The maximum age of an Owner or Annuitant for which a Contract will be issued
is 90. 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
$100,000 for both Non-Qualified and Qualified Plans. Thereafter, the
Contractowner may choose the amount and frequency of purchase payments. With
respect to the Individual Contract, cumulative purchase payments exceeding $5
million will not be accepted without prior approval of Security Benefit.
An initial purchase payment will be applied not later than the end of the
second Valuation Date after the Valuation Date it is received by Security
Benefit at its Home Office if the purchase payment is preceded or accompanied by
an application that contains sufficient information necessary to establish an
account and properly credit such purchase payment. The application form will be
provided by Security Benefit. If Security Benefit does not receive a complete
application, the applicant will be notified by Security Benefit that it does not
have the necessary information to issue a Contract. If the necessary information
is not provided to Security Benefit within five Valuation Dates after the
Valuation Date on which Security Benefit first receives the initial purchase
payment or if Security Benefit determines it cannot otherwise issue the
Contract, Security Benefit will return the initial purchase payment to the
applicant unless the applicant consents to Security Benefit retaining the
purchase payment until the application is made complete.
Subsequent purchase payments will be credited as of the end of the Valuation
Period in which they are received by Security Benefit at its Home Office.
Purchase payments after the initial purchase payment may be made at any time
prior to the Annuity Start Date, so long as the Owner is living. Subsequent
purchase payments under a Qualified Plan may be limited by the terms of the plan
and provisions of the Internal Revenue Code.
ALLOCATION OF PURCHASE PAYMENTS
In an application for a Contract, the Contractowner selects the Subaccounts
to which purchase payments will be allocated. Purchase payments will be
allocated according to the Contractowner's instructions contained in the
application or more recent instructions received, if any, except that no
purchase payment allocation is permitted that would result in less than 1
percent of each payment being allocated to any one Subaccount. The allocations
must be whole percentages and must total 100 percent.
A Contractowner may change the purchase payment allocation instructions by
submitting a proper written request to Security Benefit's Home Office. A proper
change in allocation instructions will be effective upon receipt by Security
Benefit at its Home Office and will continue in effect until subsequently
changed. Changes in purchase payment allocation may be made 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. Such Contract Value, however, may be
transferred among the Subaccounts of the Separate Account in the manner
described in "Transfers of Contract Value" on page 11.
TRANSFERS OF CONTRACT VALUE
During the Accumulation Period, Contract Value may be transferred among the
Subaccounts by the Contractowner upon proper written request to Security
Benefit's Home Office. Transfers may be made by telephone if the Telephone
Transfer section of the application or an Authorization for Telephone Requests
form has been properly completed, signed and filed at Security Benefit's Home
Office. There is no minimum transfer amount.
The frequency of transfers generally is not limited, although Security
Benefit reserves the right at a future date to limit the number of transfers to
14 in a Contract Year. Security Benefit also reserves the right to limit the
size and frequency of such transfers, and to discontinue telephone transfers.
CONTRACT VALUE
The Contract Value is the sum of the amounts under the Contract held in each
Subaccount of the Separate Account as of any Valuation Date.
On each Valuation Date, the portion of the Contract Value allocated to any
particular Subaccount will be adjusted to reflect the investment experience of
that Subaccount. See "Determination of Contract Value," below. No minimum amount
of Contract Value is guaranteed. A Contractowner bears the entire investment
risk relating to the Contract.
DETERMINATION OF CONTRACT VALUE
The Contract Value will vary to a degree that depends upon several factors,
including investment performance of the Subaccounts to which Contract Value has
been allocated, payment of purchase payments, partial withdrawals, and the
charges assessed in connection with the Contract. The amounts allocated to the
Subaccounts will be invested in shares of the corresponding Series of the Mutual
Fund. The investment performance of the Subaccounts will reflect increases or
decreases in the net asset value per share of the corresponding Series and any
dividends or distributions declared by a Series. Any dividends or distributions
from any Series of the Mutual Fund will be automatically reinvested in shares of
the same Series, unless Security Benefit, on behalf of the Separate Account,
elects otherwise.
Assets in the Subaccounts are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's
interest in a Subaccount. When a Contractowner allocates purchase payments to a
Subaccount, the Contract is credited with Accumulation Units. The number of
Accumulation Units to be credited is determined by dividing the dollar amount
allocated to the particular Subaccount by the Accumulation Unit value for the
Subaccount at the end of the Valuation Period in which the purchase payment is
credited. In addition, other transactions including full or partial withdrawals,
transfers, and assessment of certain charges against the Contract affect the
number of Accumulation Units credited to a Contract. The number of units
credited or debited in connection with any such transaction is determined by
dividing the dollar amount of such transaction by the unit value of the affected
Subaccount. The Accumulation Unit value of each Subaccount is determined on each
Valuation Date. The number of Accumulation Units credited to a Contract shall
not be changed by any subsequent change in the value of an Accumulation Unit,
but the dollar value of an Accumulation Unit may vary from Valuation Date to
Valuation Date depending upon the investment experience of the Subaccount and
charges against the Subaccount.
The Accumulation Unit value of each Subaccount's unit initially was $10. The
unit value of a Subaccount on any Valuation Date is calculated by dividing the
value of each Subaccount's net assets by the number of Accumulation Units
credited to the Subaccount on that date. Determination of the value of the net
assets of a Subaccount takes into account the following: (1) the investment
performance of the Subaccount, which is based upon the investment performance of
the corresponding Series of the Mutual Fund, (2) any dividends or distributions
paid by the corresponding Series, (3) the charges, if any, that may be assessed
by Security Benefit for taxes attributable to the operation of the Subaccount,
and (4) the mortality and expense risk charge under the Contract.
FULL AND PARTIAL WITHDRAWALS
A Contractowner may obtain proceeds from a Contract by surrendering the
Contract for its Withdrawal Value or by making a partial withdrawal. A full or
partial withdrawal, including a systematic withdrawal, may be taken from the
Contract Value at any time while the Owner is living and before the Annuity
Start Date, subject to limitations under the applicable plan for Qualified Plans
and applicable law. A full or partial withdrawal request will be effective as of
the end of the Valuation Period that a proper written request is received by
Security Benefit at its Home Office. A proper written request must include the
written consent of any effective assignee or irrevocable Beneficiary, if
applicable.
The proceeds received upon a full withdrawal will be the Contract's
Withdrawal Value. The Withdrawal Value is equal to the Contract Value as of the
end of the Valuation Period during which a proper withdrawal request is received
by Security Benefit at its Home Office, minus any uncollected premium taxes. A
partial withdrawal may be requested for a specified percentage or dollar amount
of Contract Value. A request for a partial withdrawal will result in a payment
by Security Benefit in accordance with the amount specified in the partial
withdrawal request. Upon payment, the Contract Value will be reduced by an
amount equal to the payment and any applicable premium tax. If a partial
withdrawal is requested that would leave the Withdrawal Value in the Contract
less than $5,000, then Security Benefit reserves the right to treat the partial
withdrawal as a request for a full withdrawal.
The amount of a partial withdrawal will be allocated from the Contract Value
among the Subaccounts according to the Contractowner's instructions to Security
Benefit.
A full or partial withdrawal, including a systematic withdrawal, 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 "Premium Tax Charge," on page 14.
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 16. The tax consequences of a
withdrawal under the Contract should be carefully considered. See "Federal Tax
Matters" on page 17.
SYSTEMATIC WITHDRAWALS
Security Benefit currently offers a feature under which systematic
withdrawals may be elected. Under this feature, a Contractowner may elect to
receive systematic withdrawals 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, as a fixed period, as a specified dollar amount,
as all earnings in the Contract, or as based upon the life expectancy of the
Owner or the Owner and a Beneficiary. A Contractowner may also designate the
desired frequency of the systematic withdrawals, which may be monthly,
quarterly, semiannually or annually. Systematic withdrawals may be stopped or
modified upon proper written request by the Contractowner received by Security
Benefit at its Home Office at least 30 days in advance of the requested date of
termination or modification. A proper request must include the written consent
of any effective assignee or irrevocable Beneficiary, if applicable.
Each systematic withdrawal must be at least $100. Upon payment, the
Contractowner's Contract Value will be reduced by an amount equal to the payment
proceeds plus any applicable 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.
Each systematic withdrawal will be effected as of the end of the Valuation
Period during which the withdrawal is scheduled. The deduction caused by the
systematic withdrawal will be allocated from the Contractowner's Contract Value
in the Subaccounts as directed by the Contractowner.
Security Benefit may, at any time, discontinue, modify, suspend or charge a
fee for systematic withdrawals. The tax consequences of a systematic withdrawal,
including the 10 percent penalty tax which may be imposed on withdrawals made
prior to the Owner attaining age 59 1/2, should be carefully considered. See
"Federal Tax Matters" on page 17.
FREE-LOOK RIGHT
An Owner may return a Contract within the Free-Look Period, which is
generally a ten-day period beginning when the Owner receives the Contract. The
returned Contract will then be deemed void and Security Benefit will refund the
Contract Value in the Subaccounts as of the end of the Valuation Period during
which the returned Contract is received by Security Benefit. Security Benefit
will refund purchase payments allocated to the Subaccounts rather than Contract
Value in those states that require it to do so.
DEATH BENEFIT
If the Owner dies during the Accumulation Period, Security Benefit will pay
the death benefit proceeds to the Designated Beneficiary upon receipt of due
proof of the Owner's death and instructions regarding payment to the Designated
Beneficiary. If there are Joint Owners, the death benefit proceeds will be
payable upon receipt of due proof of death of either Owner during the
Accumulation Period and instructions regarding payment. If the surviving spouse
of the deceased Owner is the sole Designated Beneficiary, such spouse may elect
to continue the Contract in force, subject to certain limitations. See
"Distribution Requirements," page 13. If the Owner is not a natural person, the
death benefit proceeds will be payable upon receipt of due proof of death of the
Annuitant during the Accumulation Period and instructions regarding payment.
Additionally, if the Owner is not a natural person, the amount of the death
benefit will be based on the age of the oldest annuitant on the date the
Contract was issued. If the death of the Owner occurs on or after the Annuity
Start Date, no death benefit proceeds will be payable under the Contract, except
that any guaranteed payments remaining unpaid will continue to be paid to the
Annuitant pursuant to the Annuity Option in force at the date of death.
The death benefit proceeds will be the death benefit reduced by any
uncollected premium taxes. If an Owner dies during the Accumulation Period and
the age of each Owner was 75 or younger on the date the Contract was issued, the
amount of the death benefit will be the greatest of (1) the Contract Value on
the date due proof of death is received by Security Benefit, less any
uncollected premium tax, or (2) the Guaranteed Death Benefit defined below. The
Guaranteed Death Benefit is the sum of all Purchase Payments paid under the
Contract reduced, as described below, for each partial withdrawal and reduced
for any uncollected premium tax. The Guaranteed Death Benefit after each partial
withdrawal is calculated according to the following formula:
B
A x --- = D
C
where A is equal to the Guaranteed Death Benefit immediately prior to the
partial withdrawal, B is equal to the Contract Value immediately after the
partial withdrawal, and C is equal to the Contract Value immediately prior to
the partial withdrawal.
If an Owner dies during the Accumulation Period and the age of any Owner was
76 or greater on the date the Contract was issued, or if due proof of death
(regardless of the age of any Owner on the date the Contract was issued) and
instructions regarding payment are not received by Security Benefit at its Home
Office within six months of the date of the Owner's death, the death benefit
will be the Contract Value on the date due proof of death is received by
Security Benefit at its Home Office less any uncollected premium tax.
The death benefit proceeds will be paid to the Designated Beneficiary in a
single sum or under one of the Annuity Options, as directed by the Owner or as
elected by the Designated Beneficiary. If the Designated Beneficiary is to
receive annuity payments under the 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" on page 17
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
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 under the Individual Contracts is equal to an annual rate of .65
percent of each Subaccount's average daily net assets that fund the Individual
Contracts. 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 mortality and expense risk charge under the Group Contracts is equal to
an annual rate of .80 percent of each Subaccount's average daily net assets that
fund the Group Contracts. This amount is intended to compensate Security Benefit
for certain mortality and expense risks Security Benefit assumes in offering and
administering the Group 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 Option in the Contract. Security Benefit also assumes a
mortality risk in connection with the death benefit under the Individual
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.
PREMIUM TAX CHARGE
Various states and municipalities impose a tax on premiums on annuity
contracts received by insurance companies. Whether or not a premium tax is
imposed will depend upon, among other things, the Owner's state of residence,
the Annuitant's state of residence, and the insurance tax laws and Security
Benefit's status in a particular state. Security Benefit assesses a premium tax
charge to reimburse itself for premium taxes that it incurs in connection with a
Contract. This charge is currently deducted upon annuitization or upon full or
partial withdrawal if a premium tax was incurred and is not refundable. Security
Benefit reserves the right to deduct premium taxes when due or any time
thereafter. Premium tax rates currently range from 0 percent to 3.5 percent, but
are subject to change by a governmental entity.
OTHER CHARGES
Security Benefit may charge the Separate Account or the Subaccounts for the
federal, state, or local taxes incurred by Security Benefit that are
attributable to the Separate Account or the Subaccounts, or to the operations of
Security Benefit with respect to the Contracts, or that are attributable to
payment of premiums or acquisition costs under the Contracts. No such charge is
currently assessed. See "Tax Status of Security Benefit and the Separate
Account" and "Charge for Security Benefit Taxes."
GUARANTEE OF CERTAIN CHARGES
Security Benefit guarantees that the charge for mortality and expense risks
will not exceed an annual rate of .65 percent under the Individual Contracts and
.80 percent under the Group Contracts.
MUTUAL FUND EXPENSES
Each Subaccount of the Separate Account purchases shares at the net asset
value of the corresponding Series of the Mutual Fund. Each Series' net asset
value reflects the investment advisory fee and other expenses that are deducted
from the assets of the Series. These fees and expenses are not deducted from the
Subaccounts, but are paid from the assets of the corresponding Series. As a
result, the Owner indirectly bears a pro rata portion of such fees and expenses.
The advisory fees and other expenses, if any, which are more fully described in
the Mutual Fund's prospectus, are not specified or fixed under the terms of the
Contract.
ANNUITY PERIOD
GENERAL
The Contractowner of an Individual Contract selects the Annuity Start Date at
the time of application. The Annuity Start Date may not be prior to the first
annual Contract anniversary and may not be deferred beyond the Annuitant's 95th
birthday, although the terms of a Qualified Plan and the laws of certain states
may require annuitization at an earlier age. If the Contractowner does not
select an Annuity Start Date, the Annuity Start Date will be the later of the
Annuitant's 95th birthday or the tenth annual Contract Anniversary. If there are
Joint Annuitants, the birthdate of the older Annuitant will be used to determine
the latest Annuity Start Date.
A Participant under a Qualified Plan in connection with which a Group
Contract is issued may elect to use an eligible rollover distribution (or with
respect to a Section 457 Plan, any distribution) from the Plan to purchase an
annuity contract from Security Benefit that offers the annuity options and rates
set forth in the Contract. The Participant's purchase payment and application
must be acceptable to Security Benefit under its rules and practices and the
provisions of the Contract. On the Annuity Start Date, the proceeds under the
Contract (or in the case of a Group Contract, the distribution from the Plan)
will be applied to provide an annuity under one of the options described below.
Because annuity payments are based on the performance of the underlying mutual
funds, annuity payments will fluctuate. The proceeds under the Contract will be
equal to the Contractowner's Contract Value in the Subaccounts as of the Annuity
Start Date, reduced by any applicable premium taxes.
The Contracts provide for four Annuity Options. Other Annuity Options may be
available upon request at the discretion of Security Benefit. Annuity payments
under Option 1 are based on annuity rates. The annuity rates will vary based on
the age and sex of the Annuitant, except that unisex rates are available where
required by law. The annuity rates are based upon an assumed interest rate of
3.5 percent, compounded annually. In the case of Options 2, 3 and 4 as described
below, annuity rates are not used to calculate annuity payments. If no Annuity
Option has been selected, annuity payments will be made to the Annuitant under
an automatic option which shall be an annuity payable for a fixed period of 10
years under Option 2.
Annuity payments can be made on a monthly, quarterly, semiannual, or annual
basis, although no payments will be made for less than $100. If the frequency of
payments selected would result in payments of less than $100, Security Benefit
reserves the right to change the frequency.
An Owner may designate or change an Annuity Start Date, Annuity Option, and
Annuitant, provided proper written notice is received by Security Benefit at its
Home Office at least 30 days prior to the Annuity Start Date set forth in the
Contract. The date selected as the new Annuity Start Date must be at least 30
days after the date written notice requesting a change of Annuity Start Date is
received at Security Benefit's Home Office.
Once annuity payments have commenced, 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.
ANNUITY OPTIONS
OPTION 1 -- LIFE INCOME WITH GUARANTEED PAYMENTS OF 25 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 twenty-five years, annuity payments will be continued during the
remainder of such period to the Designated Beneficiary.
OPTION 2 -- PAYMENTS FOR SPECIFIED PERIOD
Periodic annuity payments will be made for a fixed period, which may be from
five to twenty years, as elected, with the guarantee that, if, at the death of
all Annuitants, payments have been made for less than the selected fixed period,
the remaining unpaid payments will be paid to the Designated Beneficiary.
OPTION 3 -- PAYMENTS OF A SPECIFIED AMOUNT
Periodic payments of the amount elected will be made until the amount applied
and earnings 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 4 -- AGE RECALCULATION
Periodic annuity payments will be made based upon the Annuitant's life
expectancy, or the joint life expectancies of the Annuitant and a beneficiary,
at the Annuitant's attained age (and the beneficiary's attained age or adjusted
age, if applicable) each year. The payments are computed by reference to
actuarial tables prescribed by the Treasury Secretary, until the amount applied
is exhausted. This option should be elected only under Contracts funding
Qualified Plans.
VALUE OF VARIABLE ANNUITY PAYMENTS: ASSUMED INTEREST RATE
The annuity table in the Contract which is used to calculate the first
variable annuity payment for Annuity Option 1 is based on an "assumed interest
rate" of 3.5 percent. If the actual investment performance of the Subaccount
selected is such that the net investment return is 3.5 percent per annum,
payments under Option 1 will remain constant. If the net investment return
exceeds 3.5 percent, the payments will increase and if the return is less than
3.5 percent, the payments will decline. Use of a higher assumed interest rate
would mean a higher initial payment but a more slowly rising series of
subsequent payments in a rising market (or a more rapidly falling series of
subsequent payments in a declining market). A lower assumption would have the
opposite effect.
SELECTION OF AN OPTION
Contractowners should carefully review the Annuity Options with their
financial or tax advisers, and, for Contracts used in connection with a
Qualified Plan, reference should be made to the terms of the particular plan and
the requirements of the Internal Revenue Code for pertinent limitations
respecting annuity payments and other matters. For instance, Qualified Plans
generally require that annuity payments begin no later than April 1 of the
calendar year following the year in which the Annuitant reaches age 70 1/2. In
addition, under Qualified Plans, the period elected for receipt of annuity
payments under Annuity Options generally may be no longer than the joint life
expectancy of the Annuitant and Beneficiary in the year that the Annuitant
reaches age 70 1/2, and must be shorter than such joint life expectancy if the
Beneficiary is not the Annuitant's spouse and is more than ten years younger
than the Annuitant. For Non-Qualified Plans, SBL does not allow annuity payments
to be deferred beyond the Annuitant's 95th birthday.
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 17.
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 on the Valuation Date a proper request is
received at Security Benefit's Home Office. However, Security Benefit can
postpone the calculation or payment of such a payment or transfer of amounts
from the Subaccounts to the extent permitted under applicable law, which is
currently permissible only for any period: (a) during which the New York Stock
Exchange is closed other than customary weekend and holiday closings, (b) during
which trading on the New York Stock Exchange is restricted as determined by the
SEC, (c) during which an emergency, as determined by the SEC, exists as a result
of which (i) disposal of securities held by the Separate Account is not
reasonably practicable, or (ii) it is not reasonably practicable to determine
the value of the assets of the Separate Account, or (d) for such other periods
as the SEC may by order permit for the protection of investors.
PROOF OF AGE AND SURVIVAL
Security Benefit may require proof of age or survival of any person on whose
life annuity payments depend.
MISSTATEMENTS
If the age or sex of an Annuitant or age of an Owner has been misstated, the
correct amount paid or payable by Security Benefit under the Contract shall be
such as the Contract Value would have provided for the correct age or sex
(unless unisex rates apply).
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS
Generally, a Qualified Plan may not provide for the distribution or
withdrawal of amounts accumulated under such Qualified Plan until after a fixed
number of years, the attainment of a stated age or upon the occurrence of a
specific event such as hardship, disability, retirement, death or termination of
employment. Therefore, the Owner of a contract purchased in connection with a
Qualified Plan may not be entitled to make a full or partial withdrawal, as
described in this Prospectus, unless one of the above-described conditions has
been satisfied. For this reason reference should be made to the terms of the
particular Qualified Plan, the Internal Revenue Code and other applicable law
for any limitation or restriction on distributions and withdrawals, including
the 10 percent penalty tax that may be imposed in the event of a distribution
from a Qualified Plan before the participant reaches age 59 1/2. See the
discussion under "Tax Penalties" on page 19.
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 distribution.
An Owner of a Contract purchased as a tax-sheltered Section 403(b) annuity
contract will not, therefore, be entitled to make a full or partial withdrawal,
as described in this Prospectus, in order to receive proceeds from the Contract
attributable to contributions under a salary reduction agreement or any gains
credited to such Contract after December 31, 1988 unless one of the
above-described conditions has been satisfied. In the case of transfers of
amounts accumulated in a different Section 403(b) contract to this Contract
under a Section 403(b) program, the withdrawal constraints described above would
not apply to the amount transferred to the Contract attributable to the Owner's
December 31, 1988 account balance under the old contract, provided the amounts
transferred between contracts qualified as a tax-free exchange under the
Internal Revenue Code. An Owner of a Contract may be able to transfer the
Contract's Full Withdrawal Value to certain other investment alternatives
meeting the requirements of Section 403(b) that are available under an
employer's Section 403(b) arrangement.
The distribution or withdrawal of amounts under a Contract purchased in
connection with a Qualified Plan may result in the receipt of taxable income to
the Owner or Annuitant and in some instances may also result in a penalty tax.
Therefore, the tax consequences of a distribution or withdrawal under a Contract
should be carefully considered and a competent tax adviser should be consulted.
See "Federal Tax Matters" below.
FEDERAL TAX MATTERS
INTRODUCTION
The Individual Contract described in this Prospectus is designed for use by
individuals as a non-tax qualified retirement plan and as an individual
retirement annuity under Section 408 of the Internal Revenue Code ("Code"). The
Group Contract described in this Prospectus is designed for use in connection
with a Qualified Plan under Section 401, 403(b) or 457 of the Code. The ultimate
effect of federal income taxes on the amounts held under a Contract, on annuity
payments, and on the economic benefits to the Owner, the Annuitant, and the
Beneficiary or other payee will depend upon the type of retirement plan, if any,
for which the Contract is purchased, the tax and employment status of the
individuals involved and a number of other factors. The discussion contained
herein and in the Statement of Additional Information is general in nature and
is not intended to be an exhaustive discussion of all questions that might arise
in connection with a Contract. It is based upon Security Benefit's understanding
of the present federal income tax laws as currently interpreted by the Internal
Revenue Service ("IRS"), and is not intended as tax advice. No representation is
made regarding the likelihood of continuation of the present federal income tax
laws or of the current interpretations by the IRS or the courts. Future
legislation may affect annuity contracts adversely. Moreover, no attempt has
been made to consider any applicable state or other laws. Because of the
inherent complexity of the tax laws and the fact that tax results will vary
according to the particular circumstances of the individual involved and, if
applicable, the Qualified Plan, a person should consult with a qualified tax
adviser regarding the purchase of a Contract, the selection of an Annuity Option
under a Contract, the receipt of annuity payments under a Contract or any other
transaction involving a Contract. SECURITY BENEFIT DOES NOT MAKE ANY GUARANTEE
REGARDING THE TAX STATUS OF, OR TAX CONSEQUENCES ARISING FROM, ANY CONTRACT OR
ANY TRANSACTION INVOLVING THE CONTRACTS.
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT
GENERAL
Security Benefit intends to be taxed as a life insurance company under Part
I, Subchapter L of the Code. Because the operations of the Separate Account form
a part of Security Benefit, Security Benefit will be responsible for any federal
income taxes that become payable with respect to the income of the Separate
Account and its Subaccounts.
CHARGE FOR SECURITY BENEFIT TAXES
A charge may be made for any federal taxes incurred by Security Benefit that
are attributable to the Separate Account, the Subaccounts or to the operations
of Security Benefit with respect to the Contracts or attributable to payments,
premiums, or acquisition costs under the Contracts. Security Benefit will review
the question of a charge to the Separate Account, the Subaccounts or the
Contracts for Security Benefit's federal taxes periodically. Charges may become
necessary if, among other reasons, the tax treatment of Security Benefit or of
income and expenses under the Contracts is ultimately determined to be other
than what Security Benefit currently believes it to be, if there are changes
made in the federal income tax treatment of variable annuities at the insurance
company level, or if there is a change in Security Benefit's tax status.
Under current laws, Security Benefit may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, Security Benefit reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS
Each Series of the Mutual Fund will be required to adhere to regulations
adopted by the Treasury Department pursuant to Section 817(h) of the Code
prescribing asset 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 policyowner), rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example, the Contractowner has additional flexibility in allocating purchase
payments and Contract Values. These differences could result in a Contractowner
being treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, Security Benefit does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Security Benefit therefore reserves the right to
modify the Contract, as it deems appropriate, to attempt to prevent a
Contractowner from being considered the owner of a pro rata share of the assets
of the Separate Account. Moreover, in the event that regulations or rulings are
adopted, there can be no assurance that the Series will be able to operate as
currently described in the Prospectus, or that the Mutual Fund will not have to
change any Series' investment objective or investment policies.
INCOME TAXATION OF ANNUITIES IN GENERAL -- NON-QUALIFIED PLANS
Section 72 of the Code governs the taxation of annuities. In general, a
Contractowner is not taxed on increases in value under an annuity contract until
some form of distribution is made under the contract. However, the increase in
value may be subject to tax currently under certain circumstances. See
"Contracts Owned by Non-Natural Persons" on page 19 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.
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.
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.
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
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 Beneficiary is the deceased owner's
spouse.
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.
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.
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.
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 taxes on owners of variable annuities. Although as of the date of
this Prospectus, it does not appear that Congress is considering any legislation
regarding the taxation of annuities, there is always the possibility that the
tax treatment of annuities could change by legislation or other means (such as
IRS regulations, revenue rulings, and judicial decisions). Moreover, although
unlikely, it is also possible that any legislative change could be retroactive
(that is, effective prior to the date of such change).
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 Group Contract may be used with Qualified Plans that meet the
requirements of Section 401, 403(b), or 457 of the Code and the Individual
Contract may be used with Qualified Plans that meet the requirements of Section
408 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:
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 or her entire investment, the unrecovered
investment will be allowed as a deduction on the employee's final return. If the
employee made no contributions that were taxable when made, the full amount of
each annuity payment is taxable 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
19.
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 Group 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 19.
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 19.
SECTIONS 408
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to establish individual retirement programs through the purchase of
Individual Retirement Annuities. The Individual Contract may be purchased as an
IRA.
IRAs are subject to limitations on the amount that may be contributed, the
persons who may be eligible and on the time when distributions must commence.
Depending upon the circumstances of the individual, contributions to an IRA may
be made on a deductible or non-deductible basis. IRAs may not be transferred,
sold, assigned, discounted or pledged as collateral for a loan or other
obligation. The annual premium for an IRA may not be fixed and may not exceed
$2,000 (except in the case of a rollover contribution). Any refund of premium
must be applied to the payment of future premiums or the purchase of additional
benefits.
Sale of the Individual Contract for use with IRAs may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the
Individual Contract for such purposes will be provided with such supplementary
information as may be required by the Internal Revenue Service or other
appropriate agency, and will have the right to revoke the Contract under certain
circumstances. See the IRA Disclosure Statement that accompanies this
Prospectus.
In general, IRAs are subject to minimum distribution requirements similar to
those applicable to retirement plans qualified under Section 401 of the Code;
however, the required beginning date for IRAs is generally the date that the
Contractowner reaches age 70 1/2--the Contractowner's retirement date, if any,
will not affect his or her required beginning date. See "Section 401" on page
19. Distributions from IRAs are generally taxed under Code Section 72. Under
these rules, a portion of each distribution may be excludable from income. The
amount excludable from the individual's income is the amount of the distribution
which bears the same ratio as the individual's nondeductible contributions bears
to the expected return under the IRA.
Distributions from an IRA may be eligible for a tax-free rollover to another
IRA. In certain cases, a distribution from an IRA may be eligible to be rolled
over to a retirement plan qualified under Code Section 401(a) or a Section
403(b) annuity contract. See "Rollovers" on page 19.
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 the Group Contract 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 19. 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.
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.
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.
WITHHOLDING
Periodic distributions (e.g., annuities and installment payments) from a
Qualified Plan that will last for a period of ten or more years are generally
subject to voluntary income tax withholding. The amount withheld on such
periodic distributions is determined at the rate applicable to wages. The
recipient of a periodic distribution may generally elect not to have withholding
apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than ten years) from a Qualified Plan (other than IRA and
Section 457 plans) are generally subject to mandatory 20 percent income tax
withholding. However, no withholding is imposed if the distribution is
transferred directly to another eligible Qualified Plan. Nonperiodic
distributions from an IRA are subject to income tax withholding at a flat 10
percent rate. The recipient of such a distribution may elect not to have
withholding apply.
The above description of the federal income tax consequences of the different
types of Qualified Plans which may be funded by the Contract offered by this
Prospectus is only a brief summary and is not intended as tax advice. The rules
governing the provisions of Qualified Plans are extremely complex and often
difficult to comprehend. Anything less than full compliance with the applicable
rules, all of which are subject to change, may have adverse tax consequences. A
prospective Contractowner considering adoption of a Qualified Plan and purchase
of a Contract in connection therewith should first consult a qualified and
competent tax adviser, with regard to the suitability of the Contract as an
investment vehicle for the Qualified Plan.
OTHER INFORMATION
VOTING OF MUTUAL FUND SHARES
Security Benefit is the legal owner of the shares of the Mutual Fund held by
the Subaccounts of the Separate Account. Security Benefit will exercise voting
rights attributable to the shares of each Series of the Mutual Fund held in the
Subaccounts at any regular and special meetings of the shareholders of the
Mutual Fund on matters requiring shareholder voting under the 1940 Act. In
accordance with its view of presently applicable law, Security Benefit will
exercise these voting rights based on instructions received from persons having
the voting interest in corresponding Subaccounts of the Separate Account.
However, if the 1940 Act or any regulations thereunder should be amended, or if
the present interpretation thereof should change, and as a result Security
Benefit determines that it is permitted to vote the shares of the Mutual Fund in
its own right, it may elect to do so.
The person having the voting interest under a Contract is the Owner. Unless
otherwise required by applicable law, the number of shares of a particular
Series as to which voting instructions may be given to Security Benefit is
determined by dividing a Contractowner's Contract Value in a Subaccount on a
particular date by the net asset value per share of that Series as of the same
date. Fractional votes will be counted. The number of votes as to which voting
instructions may be given will be determined as of the date coincident with the
date established by the Mutual Fund for determining shareholders eligible to
vote at the meeting of the Mutual Fund. If required by the SEC, Security Benefit
reserves the right to determine in a different fashion the voting rights
attributable to the shares of the Mutual Fund. Voting instructions may be cast
in person or by proxy.
Voting rights attributable to the Contractowner's Contract Value in a
Subaccount for which no timely voting instructions are received will be voted by
Security Benefit in the same proportion as the voting instructions that are
received in a timely manner for all Contracts participating in that Subaccount.
Security Benefit will also exercise the voting rights from assets in each
Subaccount that are not otherwise attributable to Contractowners, if any, in the
same proportion as the voting instructions that are received in a timely manner
for all Contracts participating in that Subaccount and generally will exercise
voting rights attributable to shares of the Series of the Mutual Fund held in
its General Account, if any, in the same proportion as votes cast with respect
to shares of the Series of the Mutual Fund held by the Separate Account and
other separate accounts of Security Benefit, in the aggregate.
SUBSTITUTION OF INVESTMENTS
Security Benefit reserves the right, subject to compliance with the law as
then in effect, to make additions to, deletions from, substitutions for, or
combinations of the securities that are held by the Separate Account or any
Subaccount or that the Separate Account or any Subaccount may purchase. If
shares of any or all of the Series of the Mutual Fund should no longer be
available for investment, or if, in the judgment of Security Benefit management,
further investment in shares of any or all of the Series of the Mutual Fund
should become inappropriate in view of the purposes of the Contract, Security
Benefit may substitute shares of another Series of the Mutual Fund or of a
different fund for shares already purchased, or to be purchased in the future
under the Contract. Security Benefit may also purchase, through the Subaccount,
other securities for other classes or contracts, or permit a conversion between
classes of contracts on the basis of requests made by Owners.
In connection with a substitution of any shares attributable to an Owner's
interest in a Subaccount or the Separate Account, Security Benefit will, to the
extent required under applicable law, provide notice, seek Owner approval, seek
prior approval of the SEC, and comply with the filing or other procedures
established by applicable state insurance regulators.
Security Benefit also reserves the right to establish additional Subaccounts
of the Separate Account that would invest in a new Series of the Mutual Fund or
in shares of another investment company, a series thereof, or other suitable
investment vehicle. New Subaccounts may be established in the sole discretion of
Security Benefit, and any new Subaccount will be made available to existing
Owners on a basis to be determined by Security Benefit. Security Benefit may
also eliminate or combine one or more Subaccounts if, in its sole discretion,
marketing, tax, or investment conditions so warrant.
Subject to compliance with applicable law, Security Benefit may transfer
assets to the General Account. Security Benefit also reserves the right, subject
to any required regulatory approvals, to transfer assets of any Subaccount of
the Separate Account to another separate account or Subaccount.
In the event of any such substitution or change, Security Benefit may, by
appropriate endorsement, make such changes in these and other contracts as may
be necessary or appropriate to reflect such substitution or change. If deemed by
Security Benefit to be in the best interests of persons having voting rights
under the Contracts, the Separate Account may be operated as a management
investment company under the 1940 Act or any other form permitted by law; it may
be deregistered under that Act in the event such registration is no longer
required; or it may be combined with other separate accounts of Security Benefit
or an affiliate thereof. Subject to compliance with applicable law, Security
Benefit also may combine one or more Subaccounts and may establish a committee,
board, or other group to manage one or more aspects of the operation of the
Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
Security Benefit reserves the right, without the consent of Owners, to
suspend sales of the Contract as presently offered and to make any change to the
provisions of the Contracts to comply with, or give Owners the benefit of, any
federal or state statute, rule, or regulation, including but not limited to
requirements for annuity contracts and retirement plans under the Internal
Revenue Code and regulations thereunder or any state statute or regulation.
Security Benefit also reserves the right to limit the amount and frequency of
subsequent purchase payments.
REPORTS TO OWNERS
A statement will be sent annually to each Contractowner setting forth a
summary of the transactions that occurred during the year, and indicating the
Contract Value as of the end of each year. In addition, the statement will
indicate the allocation of Contract Value among the Subaccounts and any other
information required by law. Confirmations will also be sent out upon purchase
payments, transfers, and full and partial withdrawals. Certain transactions may
be confirmed on a quarterly basis. These transactions include systematic
withdrawals and annuity payments.
Each Contractowner will also receive an annual and semiannual report
containing financial statements for the Mutual Fund, which will include a list
of the portfolio securities of the Mutual Fund, as required by the 1940 Act,
and/or such other reports as may be required by federal securities laws.
TELEPHONE TRANSFER PRIVILEGES
A Contractowner may request a transfer of Contract Value 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), Contractowners
might not be able to request transfers by telephone and would have to submit
written requests.
By authorizing telephone transfers, a Contractowner authorizes Security
Benefit to accept and act upon telephonic instructions for transfers involving
the Contractowner's Contract, and agrees that neither Security Benefit, nor any
of its affiliates, nor the Mutual Fund, will be liable for any loss, damages,
cost, or expense (including attorneys' fees) arising out of any requests
effected in accordance with the Telephone Authorization and believed by Security
Benefit to be genuine, provided that Security Benefit has complied with its
procedures. As a result of this policy on telephone requests, the Contractowner
may bear the risk of loss arising from the telephone transfer privileges.
Security Benefit may discontinue, modify, or suspend the telephone transfer
privilege at any time.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Separate Account is a
party, or which would materially affect the Separate Account.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Contracts
described in this Prospectus, Security Benefit's authority to issue the
Contracts under Kansas law, and the validity of the forms of the Contracts under
Kansas law have been passed upon by Amy J. Lee, Esq., Associate General Counsel,
Security Benefit.
PERFORMANCE INFORMATION
Performance information for the Subaccounts of the Separate Account,
including the yield of the Subaccounts, and the total return of the Subaccounts
may appear in advertisements, reports, and promotional literature to current or
prospective Owners.
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 applicable mortality and expense risk charge and may simultaneously be
shown for other periods.
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 Life Insurance Company
at December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997, are contained in the Statement of Additional
Information. Financial statements for the Separate Account are not yet available
as it did not begin operations until _________________________, 1998.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to Security Benefit. The Table of Contents of
the Statement of Additional Information is set forth below:
TABLE OF CONTENTS
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........................................................ 4
<PAGE>
PCG VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: _______________ 1, 1998
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 PCG Variable Annuity
dated _______________, 1998, 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...................................................... 4
<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 the Mutual
Fund in non-certificated form, are held separate and apart from the assets of
the Security Benefit's General Account and its other separate accounts.
DISTRIBUTION OF THE CONTRACT
Security Distributors, Inc. ("SDI") is Principal Underwriter of the Contract.
SDI is registered as a broker/dealer with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. ("NASD"). The offering of the
Contracts is continuous.
Subject to arrangements with Security Benefit, the Contract is sold by
independent broker/dealers who are members of the NASD and who become licensed
to sell variable annuities for SBL, and by certain financial institutions. SDI
acts as principal underwriter on behalf of Security Benefit for the distribution
of the Contract. SDI is not compensated under its Distribution Agreement with
Security Benefit.
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 Life Insurance
Company and Subsidiaries at December 31, 1997, and 1996 and for each of the
three years in the period ended December 31, 1997, appearing in this Statement
of Additional Information have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing on page 5 herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing. Financial statements for the Separate
Account are not yet available as it did not begin operations until
_______________, 1998.
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 Subaccounts 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 the Mutual
Fund, adjusted to reflect the charges imposed under the Contract.
Average annual total return figures reflect the deduction of the applicable
mortality and expense risk charge.
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).
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
Security Benefit Life Insurance Company's consolidated balance sheets as of
December 31, 1997, and 1996 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, 1997, are set forth starting on page 5.
The consolidated financial statements of Security Benefit Life Insurance
Company, which are included in this Statement of Additional Information, should
be considered only as bearing on the ability of the Company to meet its
obligations under the Contracts. They should not be considered as bearing on the
investment performance of the assets held in the Separate Account.
<PAGE>
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
CONTENTS
PAGE
Report of Independent Auditors........................................... 6
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................ 7
Consolidated Statements of Income...................................... 8
Consolidated Statements of Changes in Equity........................... 9
Consolidated Statements of Cash Flows.................................. 10
Notes to Consolidated Financial Statements............................. 12
<PAGE>
Report of Independent Auditors
The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying consolidated balance sheets of Security Benefit
Life Insurance Company and Subsidiaries (the Company) as of December 31, 1997
and 1996, 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,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security Benefit
Life Insurance Company and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 6, 1998
<PAGE>
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
DECEMBER 31
1997 1996
--------------------------
(IN THOUSANDS)
ASSETS
Investments:
Securities available-for-sale:
Fixed maturities............................... $1,650,324 $1,805,066
Equity securities.............................. 120,508 89,188
Fixed maturities held-to-maturity................ 452,411 528,045
Mortgage loans................................... 64,251 66,611
Real estate...................................... 3,056 4,000
Policy loans..................................... 85,758 106,822
Cash and cash equivalents........................ 30,896 8,310
Other invested assets............................ 42,395 40,531
--------------------------
Total investments.................................. 2,449,599 2,648,573
Accrued investment income.......................... 30,034 32,161
Accounts receivable................................ 6,278 4,256
Reinsurance recoverable............................ 408,096 92,197
Property and equipment, net........................ 19,669 18,592
Deferred policy acquisition costs.................. 159,441 216,918
Other assets....................................... 20,909 24,939
Separate account assets............................ 3,716,639 2,802,927
--------------------------
$6,810,665 $5,840,563
==========================
LIABILITIES AND EQUITY
Liabilities:
Policy reserves and annuity account values....... $2,439,713 $2,497,998
Policy and contract claims....................... 10,955 10,607
Other policyholder funds......................... 21,582 24,073
Accounts payable and accrued expenses............ 23,576 18,003
Income taxes payable:
Current........................................ 10,960 6,686
Deferred....................................... 58,261 54,847
Long-term debt and other borrowings.............. 65,000 65,000
Other liabilities................................ 29,098 11,990
Separate account liabilities..................... 3,716,639 2,793,911
--------------------------
Total liabilities.................................. 6,375,784 5,483,115
Equity:
Retained earnings................................ 409,432 357,927
Unrealized gain (loss) on securities
available-for-sale, net........................ 25,449 (479)
--------------------------
Total equity....................................... 434,881 357,448
==========================
$6,810,665 $5,840,563
==========================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Statements of Income
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------
(IN THOUSANDS)
Revenues:
Insurance premiums and other
considerations.................. $ 24,640 $ 28,848 $ 49,608
Net investment income............. 184,975 194,783 182,012
Asset based fees.................. 72,025 55,977 40,652
Other product charges............. 9,163 10,470 10,412
Realized gains (losses) on
investments..................... 4,929 (244) 3,876
Other revenues.................... 21,389 24,391 22,164
-----------------------------------------
Total revenues...................... 317,121 314,225 308,724
Benefits and expenses:
Annuity and interest sensitive
life benefits:
Interest credited to account
balances.................... 102,640 108,705 113,700
Benefit claims in excess of
account balances............ 4,985 7,541 6,808
Traditional life insurance
benefits........................ 3,966 6,474 7,460
Supplementary contract payments... 9,660 11,121 11,508
Increase in traditional life
reserves........................ 7,050 8,580 13,212
Dividends to policyholders........ 1,608 2,374 2,499
Other benefits.................... 19,699 20,790 22,379
-----------------------------------------
Total benefits...................... 149,608 165,585 177,566
Commissions and other operating
expenses.......................... 56,933 52,044 48,305
Amortization of deferred policy
acquisition costs................. 26,179 25,930 26,628
Interest expense.................... 5,305 4,285 7
Restructuring expenses.............. 2,643 --- ---
Other expenses...................... 3,381 1,667 1,099
-----------------------------------------
Total benefits and expenses......... 244,049 249,511 253,605
-----------------------------------------
Income before income taxes.......... 73,072 64,714 55,119
Income taxes........................ 21,567 20,871 17,927
-----------------------------------------
Net income.......................... $ 51,505 $ 43,843 $ 37,192
=========================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Equity
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------
(IN THOUSANDS)
Retained earnings:
Beginning of year................. $357,927 $314,084 $276,892
Net income........................ 51,505 43,843 37,192
-----------------------------------------
End of year....................... 409,432 357,927 314,084
Unrealized gain (loss) on securities
available-for-sale, net:
Beginning of year............... (479) 11,607 (48,466)
Change in unrealized gain
(loss) on securities
available-for-sale, net....... 25,928 (12,086) 60,073
-----------------------------------------
End of year..................... 25,449 (479) 11,607
-----------------------------------------
Total equity........................ $434,881 $357,448 $325,691
=========================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income.......................... $ 51,505 $ 43,843 $ 37,192
Adjustments to reconcile net income
to net cash provided by operating
activities:
Annuity and interest sensitive
life products:
Interest credited to account
balances.................. 102,640 108,705 113,700
Charges for mortality and
administration............ (10,582) (13,115) (16,585)
(Decrease) increase in traditional
life policy reserves............ (3,101) 10,697 2,142
Decrease (increase) in accrued
investment income............... 2,127 (1,538) (4,573)
Policy acquisition costs deferred. (37,999) (36,865) (33,021)
Policy acquisition costs amortized 26,179 25,930 26,628
Accrual of discounts on
investments..................... (2,818) (3,905) (3,421)
Amortization of premiums on
investments..................... 9,138 11,284 9,782
Depreciation and amortization..... 3,959 3,748 3,750
Other............................. (8,444) (3,379) (4,225)
-----------------------------------------
Net cash provided by operating
activities........................ 132,604 145,405 131,369
INVESTING ACTIVITIES
Sale, maturity or repayment of
investments:
Fixed maturities
available-for-sale............ 368,901 870,240 517,480
Fixed maturities
held-to-maturity.............. 124,013 58,874 59,873
Equity securities
available-for-sale............ 48,495 3,643 10,242
Mortgage loans.................. 3,739 12,545 23,248
Real estate..................... 946 2,935 3,173
Short-term investments.......... --- 20,069 229,871
Separate account assets......... 9,180 5,214 -
Other invested assets........... 7,865 6,224 22,839
-----------------------------------------
563,139 979,744 866,726
Acquisition of investments:
Fixed maturities
available-for-sale.............. (219,736) (936,376) (591,121)
Fixed maturities held-to-maturity. (1,188) (52,422) (125,276)
Equity securities
available-for-sale.............. (67,004) (68,222) (7,500)
Mortgage loans.................... (1,447) (4,538) (4,179)
Real estate....................... (712) (2,637) (1,511)
Short-term investments............ --- (19,070) (180,259)
Separate account assets........... --- --- (12,000)
Other invested assets............. (7,518) (3,712) (31,861)
Purchase of property and equipment (4,144) (1,879) (2,036)
Net increase in policy loans...... (8,654) (6,370) (8,058)
Net cash transferred per
coinsurance agreement........... (218,043) --- (16,295)
-----------------------------------------
Net cash provided by (used in)
investing activities.............. 34,693 (115,482) (113,370)
FINANCING ACTIVITIES
Issuance of long-term debt.......... --- 65,000 ---
Annuity and interest sensitive
life products:
Deposits credited to account
balances...................... 167,517 202,129 234,321
Withdrawals from account
balances...................... (312,228) (305,530) (251,647)
-----------------------------------------
Net cash used in financing
activities........................ (144,711) (38,401) (17,326)
-----------------------------------------
Increase (decrease) in cash and cash
equivalents....................... 22,586 (8,478) 673
Cash and cash equivalents at
beginning of year................. 8,310 16,788 16,115
=========================================
Cash and cash equivalents at end of
year.............................. $ 30,896 $ 8,310 $ 16,788
=========================================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest.......................... $ 5,307 $ 2,966 $ 120
=========================================
Income taxes...................... $ 27,920 $ 16,213 $ 11,551
=========================================
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Conversion of mortgage loans to real
estate owned...................... $ --- $ 844 $ ---
=========================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Security Benefit Life Insurance Company (SBL or the Company) is a
Kansas-domiciled mutual life insurance company whose insurance operations are
licensed to sell insurance products in 50 states. The Company offers a
diversified portfolio comprised primarily of individual and group annuities and
mutual fund products through multiple distribution channels. In recent years,
the Company's new business activities have increasingly been concentrated in the
individual flexible premium variable annuity markets.
The Company intends to modify its organizational structure by forming a
Kansas mutual holding company to be named Security Benefit Mutual Holding
Company. The Company will convert to a stock life insurance company and continue
to operate under its current name. All capital stock shares of the reorganized
stock life insurance company will be issued to and owned by a newly created
intermediate stock holding company Security Benefit Corporation. Initially,
Security Benefit Mutual Holding Company will own all of the voting stock of
Security Benefit Corporation. Kansas law requires that Security Benefit Mutual
Holding Company hold at least 51% of the outstanding voting stock of the stock
life insurance company (except to the extent qualifying shares are required by
the Kansas Insurance Code to be held by directors of an insurance company
admitted and authorized to do business in Kansas). The conversion plan is
subject to approval of the Kansas Insurance Department and the policyholders of
the Company.
BASIS OF PRESENTATION
The consolidated financial statements include the operations and accounts of
Security Benefit Life Insurance Company and its wholly-owned subsidiaries,
including Security Benefit Group, Inc., First Security Benefit Life Insurance
and Annuity Company of New York, Security Management Company, LLC, Security
Distributors, Inc., Security Benefit Academy, Inc. and Creative Impressions,
Inc. Significant intercompany transactions have been eliminated in
consolidation.
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. Such amortization and accrual
on these securities are included in investment income. Fixed maturities not
classified as held-to-maturity are classified as available-for-sale.
Available-for-sale fixed maturities are stated at fair value with any unrealized
gain or loss, net of deferred policy acquisition costs (DPAC) and deferred
income taxes, reported as a separate component of equity. The DPAC offsets to
the unrealized gain or loss represent valuation adjustments or restatements of
DPAC that would have been required as a charge or credit to operations had such
unrealized amounts been realized. The amortized cost of fixed maturities
classified as available-for-sale is adjusted for amortization of premiums and
accrual of discounts. Premiums and discounts are recognized over the estimated
lives of the assets adjusted for prepayment activity.
Equity securities consisting of common stocks, mutual funds and nonredeemable
preferred stock are classified as available-for-sale and stated at fair value.
Mortgage loans and short-term investments 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. Realized gains and losses on sales of
investments are recognized in revenues on the specific identification method.
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 facilitating the
funding needs of the Company. The Company periodically may use derivative
financial instruments to modify its interest 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
classified as available-for-sale in accordance with Statement of Financial
Accounting Standards (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 separate component of equity.
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 traditional life insurance,
interest sensitive life 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.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers
certificates of deposits with original maturities of 90 days or less to be cash
equivalents.
PROPERTY AND EQUIPMENT
Property and equipment, including 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 are,
therefore, 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 and reinsurance
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
3.8% to 7.25% during 1997, 3.5% to 7.25% during 1996 and 4% to 7.75% during
1995.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
SFAS No. 109, "Accounting for Income Taxes." Under that method, deferred tax
assets and liabilities are determined based on differences between the financial
reporting and income tax bases of assets and liabilities and are measured using
the enacted tax rates and laws. Deferred income tax expenses or credits
reflected in the Company's statements of income are based on the changes in
deferred tax assets or liabilities from period to period (excluding 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.
RESTRUCTURING EXPENSES
Restructuring expenses include costs relating to the mutual holding company
conversion and termination benefits provided to certain associates under an
early retirement program.
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 and cash equivalents: 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.
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, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-------------------------------------------------------
AVAILABLE-FOR-SALE (IN THOUSANDS)
<S> <C> <C> <C> <C>
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... 23,753 1,320 8 25,065
Special revenue and assessment..................... 255 45 --- 300
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
=======================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-------------------------------------------------------
AVAILABLE-FOR-SALE (IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies........ $ 173,884 $ 414 $ 1,431 $ 172,867
Obligations of states and political subdivisions... 23,244 361 705 22,900
Special revenue and assessment..................... 330 --- --- 330
Corporate securities............................... 863,124 13,758 18,651 858,231
Mortgage-backed securities......................... 627,875 9,091 9,308 627,658
Asset-backed securities............................ 122,523 832 275 123,080
-------------------------------------------------------
Totals............................................. $1,810,980 $24,456 $30,370 $1,805,066
=======================================================
Equity securities.................................. $ 86,991 $ 2,422 $ 225 $ 89,188
=======================================================
HELD-TO-MATURITY
Obligations of states and political subdivisions... $ 81,791 $ 463 $ 1,036 $ 81,218
Special revenue and assessment..................... 420 --- --- 420
Corporate securities............................... 128,487 2,003 1,830 128,660
Mortgage-backed securities......................... 264,155 2,121 1,347 264,929
Asset-backed securities............................ 53,192 382 97 53,477
-------------------------------------------------------
Totals............................................. $ 528,045 $ 4,969 $ 4,310 $ 528,704
=======================================================
</TABLE>
The change in the Company's unrealized gain (loss) on fixed maturities was
$56,277,000, $(51,773,000) and $220,048,000 during 1997, 1996 and 1995,
respectively; the corresponding amounts for equity securities were $8,588,000,
$1,595,000 and $1,034,000 during 1997, 1996 and 1995, respectively.
The amortized cost and fair value of fixed maturities at December 31, 1997,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------------------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less................. $ 33,328 $ 33,578 $ --- $ ---
Due after one year through five years... 202,757 206,870 6,821 6,947
Due after five years through 10 years... 455,242 466,263 37,726 38,995
Due after 10 years...................... 288,892 304,490 138,864 144,627
Mortgage-backed securities.............. 510,991 520,283 227,131 229,492
Asset-backed securities................. 117,907 118,840 41,869 42,165
------------------------------------------------------
$1,609,117 $1,650,324 $452,411 $462,226
======================================================
</TABLE>
Major categories of net investment income for the years ended December 31,
1997, 1996 and 1995 are summarized as follows:
1997 1996 1995
-----------------------------------
(IN THOUSANDS)
Interest on fixed maturities.............. $167,646 $174,592 $165,684
Dividends on equity securities............ 7,358 5,817 1,309
Interest on mortgage loans ............... 6,017 6,680 7,876
Interest on policy loans.................. 6,282 6,372 5,927
Interest on short-term investments........ 2,221 1,487 2,625
Other..................................... (166) 4,199 2,740
-----------------------------------
Total investment income................... 189,358 199,147 186,161
Investment expenses....................... 4,383 4,364 4,149
-----------------------------------
Net investment income..................... $184,975 $194,783 $182,012
===================================
Proceeds from sales of fixed maturities and equity securities and related
realized gains and losses, including valuation adjustments, for the years ended
December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
----------------------------------
(IN THOUSANDS)
Proceeds from sales....................... $333,498 $393,189 $310,590
Gross realized gains...................... 11,889 9,407 5,901
Gross realized losses..................... 6,640 9,723 3,361
Net realized gains (losses) for the years ended December 31, 1997, 1996 and
1995 consist of the following:
1997 1996 1995
-------------------------------
(IN THOUSANDS)
Fixed maturities.............................. $ 861 $(1,329) $1,805
Equity securities............................. 4,388 1,013 735
Other......................................... (320) 72 1,336
-------------------------------
Total realized gains (losses)................. $4,929 $ (244) $3,876
===============================
There were no deferred losses at December 31, 1997, and $2.2 million at
December 31, 1996, resulting from terminated and expired futures contracts.
These are included in fixed maturities and amortized as an adjustment to net
investment income. There were no outstanding agreements to sell securities at
December 31, 1997 or 1996.
The composition of the Company's portfolio of fixed maturities by quality
rating at December 31, 1997 is as follows:
QUALITY RATING CARRYING AMOUNT %
------------------- --------------- -------
(IN THOUSANDS)
AAA $1,024,624 48.73%
AA 161,469 7.68
A 396,387 18.85
BBB 329,371 15.66
Noninvestment grade 190,884 9.08
---------- -------
$2,102,735 100.00%
========== =======
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, 1997 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. The Company
records pension cost in accordance with the provisions of SFAS No. 87,
"Employers' Accounting for Pensions."
Pension cost for the plan for the years ended December 31, 1997, 1996 and
1995 is summarized below and includes termination benefit costs, a significant
portion of which were reflected as a reduction of the gain recognized upon the
sale of the block of life insurance business described in Note 4.
1997 1996 1995
----------------------------------
(IN THOUSANDS)
Service cost............................... $ 641 $ 670 $ 528
Interest cost.............................. 721 587 508
Actual return on plan assets............... (1,892) (1,064) (1,568)
Net amortization and deferral.............. 990 284 900
Termination benefits....................... 1,539 --- ---
----------------------------------
Net pension cost........................... $ 1,999 $ 477 $ 368
==================================
The funded status of the plan as of December 31, 1997 and 1996 was as
follows:
DECEMBER 31
1997 1996
----------------------
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefit obligation............................ $ (8,191) $(6,059)
Non-vested benefit obligation........................ (865) (202)
----------------------
Accumulated benefit obligation....................... (9,056) (6,261)
Excess of projected benefit obligation over
accumulated benefit obligation..................... (3,431) (2,961)
----------------------
Projected benefit obligation......................... (12,487) (9,222)
Plan assets, at fair market value...................... 11,279 10,085
----------------------
Plan assets greater than (less than) projected
benefit obligation................................... (1,208) 863
Unrecognized net loss.................................. 1,819 1,007
Unrecognized prior service cost........................ 642 700
Unrecognized net asset established at the date
of initial application............................... (1,657) (1,841)
----------------------
Net (accrued) prepaid pension cost..................... $ (404) $ 729
======================
Assumptions were as follows:
1997 1996 1995
--------------------
Weighted average discount rate........................... 7.25% 7.75% 7.5%
Weighted average rate of increase in compensation for
participants age 45 and older.......................... 4.5 4.5 4.5
Weighted average expected long-term return on plan assets 9.0 9.0 9.0
Compensation rates that vary by age for participants under age 45 were used
in determining the actuarial present value of the projected benefit obligation
in 1997. Plan assets are invested in a diversified portfolio of affiliated
mutual funds that invest in equity and debt securities.
In addition to the Company's defined benefit pension plan, the Company
provides certain medical and life insurance benefits to full-time employees who
have retired after the age of 55 with five years of service. The plan is
contributory, with retiree contributions adjusted annually and contains other
cost-sharing features such as deductibles and coinsurance. Contributions vary
based on the employee's years of service earned after age 40. The Company's
portion of the costs is frozen after 1996 with all future cost increases passed
on to the retirees. Retirees in the plan prior to July 1, 1993 are covered 100%
by the Company.
Retiree medical care and life insurance cost for the total plan for the years
ended December 31, 1997, 1996 and 1995 is summarized below and includes
termination benefit costs, a significant portion of which were reflected as a
reduction of the gain recognized upon the sale of the block of life insurance
business described in NOTE 4.
1997 1996 1995
-----------------------
(IN THOUSANDS)
Service cost.......................................... $155 $157 $151
Interest cost......................................... 291 280 305
Net amortization...................................... (32) --- ---
Termination benefits.................................. 372 --- ---
-----------------------
$786 $437 $456
=======================
The funded status of the plan as of December 31, 1997 and 1996 was as
follows:
1997 1996
---------------------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees.............................................. $(2,595) $(2,498)
Active participants:
Retirement eligible................................... (666) (568)
Others................................................ (1,100) (1,023)
---------------------
(4,361) (4,089)
Unrecognized net gain................................... (692) (348)
---------------------
Accrued postretirement benefit cost..................... $(5,053) $(4,437)
=====================
The annual assumed rate of increase in the per capita cost of covered
benefits is 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, 1997 by
$201,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1997 by $55,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.25%, 7.75% and 7.5% at December 31, 1997, 1996 and 1995,
respectively.
The Company has a profit-sharing and savings plan for which substantially all
employees are eligible after one year of employment with the Company.
Contributions for profit sharing are based on a formula established by the Board
of Directors with pro rata allocation among employees based on salaries. The
savings plan is a tax-deferred, 401(k) retirement plan. Employees may contribute
up to 10% of their eligible compensation. The Company matches 50% of the first
6% of the employee contributions. Employee contributions are fully vested, and
Company contributions are vested over a five-year period. Company contributions
to the profit-sharing and savings plan charged to operations were $1,857,000,
$1,783,000 and $1,567,000 for 1997, 1996 and 1995, respectively.
4. REINSURANCE
The Company assumes and cedes reinsurance with other companies to provide for
greater diversification of business, allow management to control exposure to
potential losses arising from large risks, and provide additional capacity for
growth. The Company's maximum retention on any one life is $500,000. The Company
does not use financial or surplus relief reinsurance. Life insurance in force
ceded at December 31, 1997 and 1996 was $7.4 billion and $4 billion,
respectively.
Principal reinsurance transactions for the years ended December 31, 1997,
1996 and 1995 are summarized as follows:
1997 1996 1995
------------------------------
(IN THOUSANDS)
Reinsurance ceded:
Premiums paid................................ $33,872 $25,442 $5,305
==============================
Commissions received......................... $ 4,636 $ 4,669 $ 230
==============================
Claim recoveries............................. $14,581 $ 5,235 $3,089
==============================
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, 1997 and
1996, the Company had established a receivable totaling $408,096,000 and
$92,197,000 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, though 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 $14,625,000 which is deferred in other liabilities and amortized
to income over the estimated life of the business transferred.
In prior years, the Company was involved in litigation arising out of its
participation from 1986 to 1990 in a reinsurance pool. The litigation related to
the pool manager and a reinsurance intermediary placing major medical business
in the pool without authorization. During 1993, the Company settled the major
medical portion of the pool's activity with no significant adverse effect on the
Company. The nonmajor medical business placed in the pool has experienced
significant losses. At December 31, 1997, the Company believes adequate
provision has been made for such losses.
5. INCOME TAXES
The Company files a life/nonlife consolidated federal income tax return. The
provision for income taxes includes current federal income tax expense or
benefit and deferred income tax expense or benefit due to temporary differences
between the financial reporting and income tax bases of assets and liabilities.
Such differences relate principally to liabilities for future policy benefits
and accumulated contract values, deferred compensation, deferred policy
acquisition costs, postretirement benefits, deferred selling commissions,
depreciation expense and unrealized gains (losses) on securities
available-for-sale.
Income tax expense consists of the following for the years ended December 31,
1997, 1996 and 1995:
1997 1996 1995
---------------------------------
(IN THOUSANDS)
Current..................................... $ 32,194 $12,528 $15,200
Deferred.................................... (10,627) 8,343 2,727
---------------------------------
$ 21,567 $20,871 $17,927
=================================
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
1997 1996
-------------------
(IN THOUSANDS)
Deferred tax assets:
Future policy benefits.................................. $ 9,869 $20,487
Net unrealized depreciation on securities
available-for-sale.................................... --- 1,409
Guaranty fund assessments............................... 1,250 1,400
Employee benefits....................................... 6,487 4,852
Deferred gain on coinsurance agreement.................. 4,970 ---
Other................................................... 7,497 4,620
-------------------
Total deferred tax assets................................. 30,073 32,768
Deferred tax liabilities:
Deferred policy acquisition costs....................... 53,173 69,647
Net unrealized appreciation on securities
available-for-sale.................................... 18,115 ---
Deferred gain on investments............................ 8,378 10,446
Depreciation............................................ 1,935 2,061
Other................................................... 6,733 5,461
-------------------
Total deferred tax liabilities............................ 88,334 87,615
-------------------
Net deferred tax liabilities.............................. $58,261 $54,847
===================
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, 1997 DECEMBER 31, 1996
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------------------- -----------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investments:
Mortgage loans................... $ 64,251 $ 66,454 $ 66,611 $ 69,004
Policy loans..................... 85,758 85,993 106,822 108,685
Liabilities:
Supplementary contracts
without life contingencies..... 29,890 30,189 33,225 33,803
Individual and group annuities... 1,894,605 1,713,509 1,942,697 1,767,692
Long-term debt................... 65,000 71,793 65,000 67,683
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases various equipment under several operating lease
agreements. Total expense for all operating leases amounted to $1,018,000,
$1,108,000 and $802,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company has aggregate future lease commitments at December 31,
1997 of $3,906,000 for noncancelable operating leases consisting of $1,158,000
in 1998, $1,026,000 in 1999, $940,000 in 2000, $782,000 in 2001. There are no
noncancelable lease commitments beyond 2001.
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 $4,008,000 and $9,190,000
in 1998 and 1999, respectively.
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 1997. Additional accruals in the amount of $1,574,000 and
$2,302,000 were recorded during 1996 and 1995, respectively. At December 31,
1997, the Company has reserved $3,573,000 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 .1% over the Federal Funds rate. No amounts were outstanding at
December 31, 1997 and 1996.
In February 1996, the Company negotiated three separate $5 million advances
with the Federal Home Loan Bank of Topeka. The advances are due February 27,
1998, February 26, 1999 and February 28, 2001 and carry interest rates of 5.59%,
5.76% and 6.04%, respectively.
In May 1996, the Company issued $50 million of 8.75% surplus notes maturing
on May 15, 2016. The surplus notes were issued pursuant to Rule 144A under the
Securities Act of 1933. The surplus notes have repayment conditions and
restrictions whereby each payment of interest on or principal of the surplus
notes may be made only with the prior approval of the Kansas Insurance
Commissioner and only out of surplus funds that the Kansas Insurance
Commissioner determines to be available for such payment under the Kansas
Insurance Code.
9. RELATED PARTY TRANSACTIONS
The Company owns shares of mutual funds managed by Security Management
Company, LLC with net asset values totaling $85,950,000 and $60,559,000 at
December 31, 1997 and 1996, respectively.
10. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets were as follows:
DECEMBER 31,
1997 1996
-------------------------
(IN THOUSANDS)
Premium and annuity considerations for the variable
annuity products and variable universal life
product for which the contractholder, rather
than the Company, bears the investment risk....... $3,716,639 $2,793,911
Assets of the separate accounts owned by the
Company, at fair value............................ --- 9,016
-------------------------
$3,716,639 $2,802,927
=========================
11. STATUTORY INFORMATION
The Company and its insurance subsidiary prepare statutory-basis financial
statements in accordance with accounting practices prescribed or permitted by
the Kansas and New York Insurance regulatory authorities, respectively.
Accounting practices used to prepare statutory-basis financial statements for
regulatory filings of life insurance companies differ in certain instances from
generally accepted accounting principles (GAAP). Prescribed statutory accounting
practices include a variety of publications of the National Association of
Insurance Commissioners, as well as state laws, regulations and general
administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed; such practices may differ from state to
state, may differ from company to company within a state and may change in the
future. Statutory capital and surplus of the insurance operations are
$382,005,000 and $286,689,000 at December 31, 1997 and 1996, respectively.
12. IMPACT OF YEAR 2000 (UNAUDITED)
Some of the Company's computer systems were written using two digits rather
than four to define the applicable year. As a result, those computer systems
will not recognize the year 2000 which, if not corrected, could cause
disruptions of operations, including, among other things, an inability to
process transactions or engage in similar normal business activities.
The Company has completed an assessment of its systems which will need to be
modified or replaced to function properly in the year 2000. Based on this
assessment, the Company does not believe that the costs to complete such system
modifications or replacements will be material to the Company's financial
statements. The Company has been in the process of converting existing products
to a new administration system during the past few years, and all new products
during this conversion period have been placed on the new system.
The modification or replacement of the Company's computer systems not
currently year 2000 ready is estimated to be completed not later than March 31,
1999, which is prior to any anticipated impact on its operating systems. The
Company believes that with modifications to existing software and conversions to
new software, the year 2000 issue will not pose significant operational problems
for its computer systems. However, if such modifications and conversions are not
made or are not completed timely, the year 2000 issue could have a material
impact on the operations of the Company.
The Company has initiated formal communications with significant third
parties which provide the Company with information to determine the extent to
which the Company's interface systems are vulnerable to those third parties'
failure to solve their own year 2000 issues. There is no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems.
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.
The costs of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to convert
to year 2000 ready systems and similar uncertainties.
<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
(2) Not Applicable
(3) (a) Service Facilities Agreement
(b) Distribution Agreement*
(4) (a) Individual Contract*
(b) Group Contract*
(c) Individual Retirement Annuity Endorsement*
(d) 457 Plan Endorsement*
(5) Sample Application*
(6) (a) Composite of Articles of Incorporation of SBL
(b) Bylaws of SBL
(7) Form of Reinsurance Agreement*
(8) Not Applicable
(9) Opinion of Counsel*
(10) Consent of Independent Auditors
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Powers of Attorneys of Howard R. Fricke, Thomas R.
Clevenger, Sister Loretto Marie Colwell, John C. Dicus,
Steven J. Douglass, John E. Hayes, Jr., Laird G. Noller,
Frank C. Sabatini and Robert C. Wheeler
*To be filed by amendment.
<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
818 Kansas Avenue
Topeka, Kansas 66612
Laird G. Noller Director
2245 Topeka Boulevard
Topeka, Kansas 66611
Frank C. Sabatini Director
120 SW 6th Street
Topeka, Kansas 66603
Robert C. Wheeler Director
P.O. Box 148
Topeka, Kansas 66601
Kris A. Robbins* President and Chief Operating Officer
Donald J. Schepker* Senior Vice President,
Chief Financial Officer and Treasurer
Roger K. Viola* Senior Vice President,
General Counsel and Secretary
T. Gerald Lee* Senior Vice President and
Chief Administrative Officer
Malcolm E. Robinson* Senior Vice President and
Assistant to the President
Donald E. Caum* Senior Vice President and
Chief Marketing Officer
Richard K Ryan* Senior Vice President
Amy J. Lee* Associate General Counsel, Vice
President and Assistant Secretary
Venette K. Davis* Senior Vice President - Market
Implementation
James R. Schmank* Senior Vice President
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
controlled by its policy owners. No one person holds more than
approximately 0.0004% of the voting power of SBL. The Registrant is a
segregated asset account of SBL.
The following chart indicates the persons controlled by or under
common control with SBL Variable Annuity Account X or SBL:
<TABLE>
<CAPTION>
PERCENT OF VOTING
JURISDICTION OF SECURITIES OWNED OR
NAME INCORPORATION CONTROLLED BY SBL
<S> <C> <C>
Security Benefit Life Insurance Company Kansas ---
(Mutual Life Insurance Company)
Security Benefit Group, Inc. Kansas 100%
(Holding Company)
Security Management Company, LLC Kansas 100%
(Investment Adviser)
Security Distributors, Inc. (Broker/Dealer, Kansas 100%
Principal Underwriter of Mutual Funds)
Security Benefit Academy, Inc. Kansas 100%
(Daycare Company)
Creative Impressions, Inc. Kansas 100%
(Advertising Agency)
Security Benefit Clinic and Hospital Kansas 100%
(Nonprofit provider of hospital benevolences
for fraternal certificate holders)
First Advantage Insurance Agency, Inc. Kansas 100%
(Insurance Agency)
First Security Benefit Life Insurance New York 100%
and Annuity Company of New York
</TABLE>
SBL is also the depositor of the following separate accounts: SBL
Variable Annuity Accounts I, III, IV, and Variflex, SBL Variable
Annuity Account VIII (Variflex LS and Variflex Signature), 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 40.2%
Security Ultra Fund 34.0%
SBL Fund 100.0%
ITEM 27. NUMBER OF CONTRACT OWNERS
As of May 11, 1998, there were 0 owners of SBL Variable Annuity
Account X 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 Eighth shall not eliminate or limit the liability of a
director for any act or omission occurring prior to the date this
Article Eighth becomes effective.
Insofar as indemnification for a liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Depositor has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
Securities being registered, the Depositor will, unless in the opinion
of its counsel the matter has been settled by a controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Security Distributors, Inc. ("SDI"), a subsidiary of SBL, acts as
distributor of the SBL Variable Annuity Account X contracts. SDI
receives no compensation for its distribution function. SDI
performs similar functions for SBL Variable Annuity Accounts I,
III and IV, Variflex, Variable Annuity Account VIII (Variflex LS
and Variflex Signature), 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, an affiliate of SBL, 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
BUSINESS ADDRESS* POSITION AND OFFICES 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
William G. Mancuso Regional Vice President
Susan L. Tully Regional Vice President
Donald E. Caum Director
*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
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 X, 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) paragraph 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(b) for effectiveness of this Registration Statement and has caused this
Registration Statement to be signed on its behalf, in the City of Topeka, and
State of Kansas on this 1st day of May, 1998.
SIGNATURES AND TITLES
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of the Board (The Depositor)
and Chief Executive Officer
By: ROGER K. VIOLA
Thomas R. Clevenger ------------------------------------------
Director Roger K. Viola, Senior Vice President,
General Counsel and Secretary as
Attorney-In-Fact for the Officers and
Sister Loretto Marie Colwell Directors Whose Names Appear Opposite
Director
SBL VARIABLE ANNUITY ACCOUNT X
John C. Dicus (The Registrant)
Director
By: SECURITY BENEFIT LIFE INSURANCE COMPANY
(The Depositor)
Steven J. Douglass
Director
By: HOWARD R. FRICKE
------------------------------------------
William W. Hanna Howard R. Fricke, Chairman of the Board
Director and Chief Executive Officer
John E. Hayes, Jr. By: DONALD J. SCHEPKER
Director ------------------------------------------
Donald J. Schepker, Senior Vice President,
Chief Financial Officer and Treasurer
Laird G. Noller
Director
(ATTEST): ROGER K. VIOLA
------------------------------------
Frank C. Sabatini Roger K. Viola, Senior Vice
Director President, General Counsel and
Secretary
Robert C. Wheeler Date: May 1, 1998
Director
<PAGE>
EXHIBIT INDEX
(1) Resolution Establishing Separate Account
(2) None
(3) (a) Service Facilities Agreement
(b) None
(4) None
(5) None
(6) (a) Articles of Incorporation
(b) Bylaws
(7) None
(8) None
(9) None
(10) Consent of Independent Auditors
(11) None
(12) None
(13) None
(14) None
(15) Powers of Attorneys
<PAGE>
Item 24.b Exhibit (1)
CERTIFICATION
The undersigned hereby certifies that he is the duly elected and acting
Secretary of Security Benefit Life Insurance Company, a corporation organized
and existing under the laws of the State of Kansas; that the following is a true
and accurate copy of a resolution unanimously adopted by all members of the
Executive Committee of the Board of Directors of Security Benefit Life Insurance
Company at a meeting held February 23, 1998; that passage of said resolution was
in all respects legal; and that said resolution is in full force and effect and
has not been modified or repealed.
WHEREAS, Security Benefit Life Insurance Company, a
Kansas-domiciled life insurance company (the "Company" or "SBL"),
anticipates developing a new variable annuity product;
WHEREAS, it is desired that the Company establish a funding
vehicle for said variable annuity policies;
WHEREAS, such funding vehicle should be established in compliance
with Kansas law;
WHEREAS, Kansas Statutes Annotated Sections 40-436 and 40-437
permit the establishment of one or more separate accounts;
NOW, THEREFORE, BE IT RESOLVED, that the Company shall establish
a separate account referred to as Variable Annuity Account X, or such
other appropriate designation as may be determined by the appropriate
officers of SBL (hereinafter referred to as the "Separate Account") in
accordance with and under the provisions of Sections 40-436 and 40-437
of the Kansas Statutes Annotated, and that hereafter the Separate
Account shall be deemed to be and shall be established as a separate
account in accordance with and under the provisions of said Sections
40-436 and 40-437, as heretofore or hereafter amended.
FURTHER RESOLVED, that the Separate Account is hereby empowered
to:
(a) the extent required by the Investment Company Act of 1940,
register under such Act and make applications for such exemptions or
orders under such provisions thereof as may appear to be necessary or
desirable;
(b) the extent required by the Securities Act of 1933, effect one or
more registrations thereunder and, in connection with such
registrations, file one or more registration statements thereunder, or
amendments thereto, including any documents or exhibits required as a
part thereof;
(c) provide for the sale of policies issued by the Company as the
officers of the Company may deem necessary and appropriate, to the
extent such policies provide for allocation of amounts to the Separate
Account;
(d) provide for custodial or depository arrangements for assets
allocated to the Separate Account as the officers of the Company may
deem necessary and appropriate including self custodianship or
safekeeping arrangements by the Company;
(e) select an independent public accountant to audit the books and
records of the Separate Account;
(f) invest or reinvest the assets of the Separate Account in shares of
registered investment companies or such other securities or
investments as the appropriate officers of SBL may from time to time
determine;
(g) divide the Separate Account into subaccounts with each subaccount
investing in shares of designated classes or series of designated
investment companies or other appropriate securities or investments;
and
(h) perform such additional functions and take such additional action
as may be necessary or desirable to carry out the foregoing and the
intent and purpose thereof.
FURTHER RESOLVED, that the assets of the Separate Account shall
be derived solely from (a) the sale of variable annuity products, (b)
funds corresponding to dividend accumulation with respect to
investment of such assets, and (c) advances made by the Company in
connection with the operation of the Separate Account;
FURTHER RESOLVED, that pursuant to Kansas Statutes Annotated
Section 40-436 the assets of the Separate Account (as well as the
assets of each subaccount) shall be legally segregated and, to the
extent so provided in the applicable agreements, shall not be
chargeable with liabilities arising out of any other business of the
Company;
FURTHER RESOLVED, that the Company shall maintain in the Separate
Account, assets with a fair market value at least equal to the
statutory valuation reserves for the variable annuity policies;
FURTHER RESOLVED, that assets allocated to the Separate Account
shall be valued at their market value in accordance with the terms of
the variable annuity policies issued by the Company providing for
allocation to the Separate Account;
FURTHER RESOLVED, that the officers of the Company be, and each
of them hereby is, authorized in their discretion as they may deem
appropriate from time to time in accordance with applicable laws and
regulations (a) to divide the separate account into subaccounts, (b)
to modify or eliminate any such subaccounts, (c) to change the
designation of the Separate Account to another designation, (d) to
designate further any subaccount thereof, and (e) to de-register the
Separate Account under the Investment Company Act of 1940 and to
de-register the policies or units of interest thereunder under the
Securities Act of 1933;
FURTHER RESOLVED, that the officers of the Company be, and each
of them hereby is, authorized to invest cash from the Company's
general account in the Separate Account or in any division thereof as
may be deemed necessary or appropriate to facilitate the commencement
of the Separate Account's operations or to meet any minimum capital
requirements under applicable law, and to transfer cash or securities
from time to time between the Company's general account and Separate
Account as deemed necessary or appropriate so long as such transfers
are not prohibited by law and are consistent with the terms of the
variable annuity policies issued by the Company providing for
allocations to the Separate Account;
FURTHER RESOLVED, that pursuant to the Kansas Statutes Annotated
Section 40-436(c) the income, gains and losses (whether or not
realized) from assets allocated to the Separate Account or any
subaccount shall, in accordance with any variable annuity policies
issued by the Company providing for allocations to the Separate
Account and subaccounts thereof, be credited to or charged against
such Separate Account of subaccount without regard to other income,
gains or losses of the Company;
FURTHER RESOLVED, that the appropriate officers of the Company
be, and they hereby are, authorized in their discretion to adopt
procedures providing for, among other things, criteria by which the
Company shall institute procedures to provide for a pass-through of
voting rights to the owners of variable annuity policies issued by the
Company providing for allocation to the Separate Account with respect
to the shares of any investment companies which are held in Separate
Account;
FURTHER RESOLVED, that the officers of the Company are authorized
and directed, with the assistance of accountants, legal counsel, and
other consultants, to prepare and execute any necessary agreements to
enable the Separate Account to invest and reinvest the assets of the
Separate Account in securities issued by any investment company
registered under the Investment Company Act of 1940, or other
appropriate securities or investments as the officers of the Company
may designate pursuant to the provisions of the variable annuity
policies issued by the Company providing for allocations to the
Separate Account;
FURTHER RESOLVED, that the fiscal year of the Separate Account
shall end on the 31st day of December each year;
FURTHER RESOLVED, that the officers of the Company, with the
assistance of accountants, legal counsel, and other consultants, are
authorized to prepare, execute, and file all periodic reports required
under the Investment Company Act of 1940 and the Securities Exchange
Act of 1934;
FURTHER RESOLVED, that the Company may, to the extent it may be
deemed necessary, register under the Securities Act of 1933 variable
annuity policies, or units of interest thereunder, under which amounts
will be allocated by the Company to the Separate Account to support
reserves for such policies and, in connection therewith, that the
officers of the Company be, and each of them hereby is, authorized,
with the assistance of accountants, legal counsel, and other
consultants, to prepare, execute, and file with the Securities and
Exchange Commission, in the name and on behalf of the Company,
registration statements under the Securities Act of 1933, including
prospectuses, supplements, exhibits, and other documents relating
thereto, and amendments to the foregoing, in such form as the officer
executing the same may deem necessary or appropriate;
FURTHER RESOLVED, that the officers of the Company be, and they
hereby are, authorized in their discretion to operate the Separate
Account in the form of either a unit investment trust or a management
investment company, and that said officers be, and each of them hereby
is, authorized, to the extent it may be deemed necessary, with the
assistance of accountants, legal counsel, and other consultants, to
take all actions necessary to register the Separate Account as a unit
investment trust or as a management investment company under the
Investment Company Act of 1940 and to take such related actions as
they deem necessary and appropriate to carry out the foregoing;
FURTHER RESOLVED, that the President of the Company, or in his or
her absence, a Senior Vice President, be and each of them is hereby
authorized, empowered and directed, to the extent it may be deemed
necessary, to sign a form of Notification of Registration under the
1940 Act, and such Registration Statement as may be required by the
1940 Act and the 1933 Act, in the name of the Separate Account by the
Company as sponsor and depositor, and that the appropriate officers of
the Company be, and they hereby are, fully authorized, empowered and
directed, to the extent it may be deemed necessary, to execute and
cause to be filed for and on behalf of the Separate Account and the
Company said Notification of Registration and said Registration
Statement, and the appropriate officers are empowered to execute and
cause to be filed, for and on behalf of the Separate Account and the
Company, and the President and each Senior Vice President of the
Company hereby is fully authorized and the Company be, and hereby is,
fully authorized and empowered to execute in the name of the Separate
Account and the Company, such amendments to, and such instruments,
exhibits and documents in connection with, said Notification of
Registration and Registration Statement, as they, or any of them may
upon advice of counsel, deem necessary or advisable;
FURTHER RESOLVED, that the officers of the Company be, and each
of them hereby is, authorized to prepare, execute, and file, with the
assistance of accountants, legal counsel, and other consultants, with
the Securities and Exchange Commission applications and amendments
thereto for such exemptions from or orders under the Investment
Company Act of 1940, and to request from the Securities and Exchange
Commission no action and interpretative letters, as they may from time
to time deem necessary or desirable;
FURTHER RESOLVED, that the General Counsel, an Associate Counsel
or an Assistant Counsel of the Company may be appointed as agent for
service under any such registration statement and are duly authorized
to receive communications and notices from the Securities and Exchange
Commission with respect thereto and to exercise powers given to such
agent by the Securities Act of 1933 and the rules thereunder, and any
other necessary acts;
FURTHER RESOLVED, that the officers of the Company be, and each
of them hereby is, authorized, with the assistance of accountants,
legal counsel, and other consultants, to effect in the name of and on
behalf of the Company all such registrations, filings, and
qualifications under blue sky or other applicable securities laws and
regulations and under insurance laws and regulations of such states
and other jurisdictions, as they may deem necessary or appropriate
with respect to the Company and with respect to any variable annuity
policies under which amounts will be allocated by the Company to the
Separate Account to support reserves for such policies; such
authorization shall include registration, filing, and qualification of
the Company and of said policies, as well as registration, filing, and
qualification of officers, employees, and agents of the Company as
brokers, dealers, agents, salespersons, or otherwise; and such
authorization shall also include, in connection therewith, authority
to prepare, execute, acknowledge, and file all such applications,
applications for exemptions, certificates, affidavits, covenants,
consents to service of process, and other instruments and to take all
such action as the officer executing the same or taking such action
may deem necessary or desirable;
FURTHER RESOLVED, that the officers of the Company be, and each
of them hereby is, authorized to execute and deliver all such
documents and papers and to do or cause to be done all such acts and
things as they may deem necessary or desirable to carry out the
foregoing resolutions and the intent and purpose thereof.
Dated this 7th day of May, 1998.
ROGER K. VIOLA
------------------------------
Roger K. Viola
Senior Vice President, General
Counsel and Secretary
<PAGE>
Item 24.b Exhibit (3)(a)
SERVICE FACILITIES AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of April, 1987, by and
between Security Distributors, Inc., and Security Benefit Life Insurance
Company, both Kansas corporations.
WITNESSETH:
WHEREAS, Security Distributors, Inc. is a wholly-owned subsidiary of Security
Management Company, which is a wholly-owned subsidiary of Security Benefit
Group, Inc., which in turn is a wholly-owned subsidiary of Security Benefit Life
Insurance Company; and
WHEREAS, one of the purposes of Security Distributors, Inc., is to act as a
broker/dealer and principal underwriter pursuant to the requirements of the
Securities Act of 1934 for the offering and selling of Variable Annuity
Contracts and Variable Life Insurance Policies to be issued by Security Benefit
Life Insurance Company for investment in the various SBL Variable Annuity and
Variable Life Separate Accounts; and
WHEREAS, because Security Benefit Life Insurance Company has facilities for the
handling of the recordkeeping and other related administrative duties of
Security Distributors, Inc. pertaining to the sale of Variable Annuity Contracts
and Variable Life Insurance Policies;
NOW, THEREFORE, IT IS MUTUALLY AGREED between Security Distributors, Inc. and
Security Benefit Life Insurance Company, both Kansas corporations, that for and
in consideration of the principal underwriting and broker/dealer services
rendered and to be rendered by Security Distributors, Inc. relating to Security
Benefit Life Insurance Company's Variable Annuity and Variable Life operations,
Security Benefit Life Insurance Company convenants and agrees that it will
furnish services and facilities to Security Distributors, Inc. as hereinafter
set forth:
1. Administrative and clerical personnel as may be needed from time to time to
properly carry out the functions and duties of Security Distributors, Inc.
relating to the Variable Annuity and Variable Life operations.
2. Maintain all books and records of Security Distributors, Inc. in connection
with persons offering and selling Variable Annuity Contracts and Variable
Life Insurance Policies funded by various separate accounts of Security
Benefit Life Insurance Company who are licensed as insurance agents of
Security Benefit Life Insurance Company and are also Registered
Representatives of independent broker/dealers which have Selling Agreements
with Security Distributors, Inc. Such books and records to be maintained
and preserved in conformity with the requirements of Rule 17(a)-3 and
17(a)-4 of the Securities Act of 1934 to the extent that such requirements
are applicable to Variable Annuity Contracts and Variable Life Insurance
Policies.
3. All such books and records are to be maintained and held by Security
Benefit Life Insurance Company on behalf of and as agent for Security
Distributors, Inc. and such books and records shall remain the sole
property of Security Distributors, Inc.
1
<PAGE>
4. Such books and records shall at all times be subject to inspection by the
Securities and Exchange Commission in accordance with Section 17(a) of the
Securities Act of 1934 and the National Association of Securities Dealers,
Inc.
5. It is further understood and agreed that the making of any payments by
Security Benefit Life Insurance Company to registered representatives of
independent broker/dealers which have Selling Agreements with Security
Distributors, Inc. are performed as purely as administerial service and
that the records in respect thereof are properly reflected on the books and
records maintained by or for Security Distributors, Inc.
6. Since the crediting of a payment made by a participant (applicant of owner)
of a Variable Annuity Contract or by an owner of a Variable Life Insurance
Policy on the books and records maintained by or for Security Distributors,
Inc. constitutes the sale of a security, and, therefore, a "transaction" as
that term is used in Rule 15(c) 1-4 under the Securities Act of 1934, a
confirmation for each such transaction will be sent to the participant at
or before the completion of the transaction, and such confirmation shall
reflect the facts of the transaction, and the form thereof will show that
it is being sent on behalf of Security Distributors, Inc. and acting in the
capacity of agent for Security Benefit Life Insurance Company.
7. Security Distributors, Inc. has and does assume full responsibility for the
securities activities of all persons associated with it who are engaged
directly or indirectly in the Variable Annuity and/or Variable Life
operation of Security Benefit Life Insurance Company, each such person
being a "person associate" of Security Distributors, Inc. as defined in
Section 3(a)-18 of the Securities Act of 1934, and, therefore, a person for
whom Security Distributors, Inc. has full responsibility in connection with
training, supervision and control as contemplated by Section 15(b)(5)(E) of
the Securities Act of 1934, provided, however, Security Distributors, Inc.
shall not be responsible for persons not associated with it that are
registered broker/dealers or who are offering or selling Variable Annuity
Contracts or Variable Life Policies and are affiliated and registered with
a broker/dealer for such purposes.
ANY CHANGES in this Agreement shall be mutually agreed to by both parties and
shall be in writing.
THIS AGREEMENT shall be in effect as of April 1, 1987, and shall remain in
effect until otherwise terminated by either party upon thirty (30) days written
notice to the other party at that party's last known address as reflected on the
records of the terminating party.
2
<PAGE>
IN WITNESS WHEREOF, the parties by their duly authorized officers have executed
this Agreement on this 1st day of April, 1987.
SECURITY BENEFIT LIFE INSURANCE COMPANY
By: ARCHIE R. DYKES
---------------------------------------------
Archie R. Dykes, President
ATTEST:
ROGER K. VIOLA
- -------------------------------------------------
Roger K. Viola, General Counsel and Secretary
SECURITY DISTRIBUTORS, INC.
By: WINSLOW H. ADAMS
---------------------------------------------
Winslow H. Adams, President
ATTEST:
BARBARA W. RANKIN
- -------------------------------------------------
Barbara W. Rankin, Secretary
3
<PAGE>
Item 24.b Exhibit (6)(a)
RESTATED ARTICLES OF INCORPORATION
OF
SECURITY BENEFIT LIFE INSURANCE COMPANY
(The Corporation was originally incorporated under the name
of "The National Council of The Knights and Ladies of
Security" which was later changed to "The Security Benefit
Association." Its original Articles of Incorporation were
filed with the Kansas Secretary of State on February 22,
1892.)
FIRST.
The name of this Corporation shall be SECURITY BENEFIT LIFE INSURANCE COMPANY.
SECOND.
The Company is organized not for profit and is formed to make insurance upon the
lives of persons and every insurance appertaining thereto or connected
therewith, and to grant, purchase or dispose of annuities; to make insurance on
the health of individuals, against accidental personal injury, disablement or
death, and against loss, liability or expense on account thereof; and to provide
benefits for its policy holders in the case of illness or injury.
THIRD.
The location of its registered office in the State of Kansas is at 700 Harrison
Street in the City of Topeka, State of Kansas; and the name and address of its
resident agent is Security Benefit Life Insurance Company, 700 Harrison Street,
Topeka, Shawnee County, Kansas 66636.
FOURTH.
The term for which the Company is to exist is perpetual.
FIFTH.
The Board of Directors shall consist of ten persons.
SIXTH.
The Company shall operate on the mutual plan and shall have no capital stock.
<PAGE>
SEVENTH.
The conditions of membership in the company shall be fixed by the Board of
Directors.
EIGHTH.
A Director shall not be personally liable to the Corporation or to its
policyholders for monetary damages for breach of fiduciary duty as a director,
provided that this sentence shall not eliminate nor limit the liability of a
director.
A. for any breach of his or her duty of loyalty to the Corporation or its
policyholders;
B. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
C. under the provisions of K.S.A. 17-6424 and amendments thereto; or
D. for any transaction from which the director derived an improper
personal benefit.
This Article Eighth shall not eliminate or limit the liability of a
director for any act or omission occurring prior to the date this Article Eighth
becomes effective.
IT IS HEREBY CERTIFIED that the foregoing Restated Articles of
Incorporation only restate and integrate and do not further amend the provisions
of the Corporation's articles of incorporation as theretofore amended or
supplemented, and that there is no discrepancy between those provisions and the
provisions of the restated articles.
IT IS FURTHER CERTIFIED that the Restated Articles of Incorporation
were duly set forth, proposed, approved, and declared advisable by a resolution
duly adopted by the Board of Directors of the Corporation at a regular meeting
held on September 23/24, 1996, in accordance with the provisions of K.S.A.
17-6605 and amendments thereto, and the General Corporation Code of the State of
Kansas, and that these Restated Articles of Incorporation constitute all of the
Articles of Incorporation of the Corporation and do hereby supersede the
Corporation's Articles of Incorporation originally filed as formerly
supplemented or amended.
<PAGE>
IN WITNESS WHEREOF, I have hereunto subscribed my name at Topeka,
Kansas, on this 31st day of October, 1996.
HOWARD R. FRICKE
-----------------------------------------
Howard R. Fricke, President
ATTEST:
ROGER K. VIOLA
- ---------------------------------
Roger K. Viola, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
The foregoing instrument was acknowledged before me this 31st day of
October, 1996, by Howard R. Fricke and Roger K. Viola, president and secretary,
respectively, of Security Benefit Life Insurance Company, a Kansas corporation,
on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal at Topeka, Kansas, on this 31st day of October, 1996.
L. CHARMAINE LUCAS
-------------------------------------
Notary Public
My Appointment Expires: 04/01/98
Approved for filing.
KATHLEEN SEBELIUS
- -----------------------------
Kathleen Sebelius
Commissioner of Insurance
Date: 11-12-96
-------------------------
<PAGE>
Item 24.b Exhibit (6)(b)
BYLAWS OF
SECURITY BENEFIT LIFE INSURANCE COMPANY
KNIGHTS & LADIES OF SECURITY - FEBRUARY 22, 1892
SECURITY BENEFIT ASSOCIATION - SEPTEMBER 24, 1919
SECURITY BENEFIT LIFE INSURANCE COMPANY - JANUARY 2, 1950
<PAGE>
BYLAWS OF
SECURITY BENEFIT LIFE INSURANCE COMPANY
ARTICLE I - OFFICES
1. The Home Office and principal place of business of the Company shall be
in the city of Topeka, state of Kansas. The Company may also establish
branch offices at such other places as the Board of Directors may from
time to time determine.
ARTICLE II - MEETINGS OF POLICYHOLDERS
1. A meeting of the policyholders for the election of directors shall be
held annually at the home office of the company at two o'clock p.m. on
the first Tuesday in June. The first annual meeting shall be held on the
first Tuesday in June in the year 1952. Subsequent annual meetings shall
be held on the first Tuesday in June in each year thereafter.
2. Notice of the time and place of the annual meeting shall be given by
imprinting the same on either premium notices, premium receipts, premium
record stubs, or on annual reports mailed to the policyholders.
3. Special meetings of policyholders may be called at any time, for any
purpose or purposes whatsoever, by the President, the Chief Executive
Officer, the Chairman of the Board or by the vote of a majority of the
entire number of the members of the board of directors.
4. Notice of the time and place of any special meeting shall be given to all
policyholders who were shown on the records of the Company to be
policyholders on the date fixed by the Board for the purpose of
determining the members entitled to notice of and to vote at the special
meeting (the "Record Date"), which date shall be not less than 10 nor
more than 90 days before the date of such meeting, in writing and mailed
to the policyholder at his or her last known address as indicated by the
Company's records. Notice of any special meeting shall specify the place,
the day and the hour of the meeting and the general nature of the
business to be transacted. Such notice shall be given not less than 10
nor more than 60 days before the date of the meeting.
ARTICLE III - VOTING
1. The qualified voters of the company shall consist of every policyholder.
For the purpose of this section the term "policyholder" shall mean (1)
the person insured under an individual policy of insurance issued upon
the application of such person; (2) the person who effectuates any such
policy upon the life of another; (3) the person to whom any annuity or
pure endowment is presently or prospectively payable by the terms of an
individual annuity or pure endowment policy, except where the policy
declares some other person to be the owner thereof, in which case such
owner shall be deemed to be the policyholder; or (4) the employer, firm,
group or association to whom or in whose name a master policy or contract
of group insurance or other from of group hospital or disability
insurance, including group
<PAGE>
annuity, shall have been issued and held, which employer, firm, group or
association shall be deemed to be one policyholder within the meaning of
this section. No other person shall be deemed to be a "policyholder" for
the purpose of this section. A policyholder as defined in this section
shall be entitled to only one vote regardless of the number or size of
his policies or contracts. The policyholder may vote in person; or may
vote by proxy signed by the person legally entitled to vote the same,
provided the proxy shall be received by the Company by the close of
business on the day preceding the date of the meeting at which such proxy
is to be voted.
2. The qualified policyholders present, in person or by proxy, at any annual
or special meeting shall constitute a quorum and any matter properly
before the meeting shall be decided by a majority of the policyholders
present, unless a different percentage is prescribed by law.
3. Each qualified policyholder present at the annual meeting shall have the
right to cast as many votes in the aggregate as shall equal the number of
directors to be regularly elected. Each qualified policyholder, in person
or by proxy, may cast the whole number of votes for one candidate or may
divide his votes among two or more candidates.
4. Notwithstanding any inconsistent provisions of this section, if the
company by action of its directors establishes one or more separate
accounts for purposes of issuing contracts providing benefits which vary
directly according to the investment experience of such separate account
or accounts, the directors, upon approval of the rules and regulations
for each separate account will set forth the special voting rights and
procedures for owners of variable contracts under such separate account
relating to investment policy, investment advisory services, selection of
independent public accountants, and such other matters as they deem
appropriate in relation to the administration of the assets of such
separate account.
ARTICLE IV - BOARD OF DIRECTORS
1. The management of all the affairs, property and business of the company
shall be vested in and exercised by a board of directors of ten (10)
persons, all of whom shall be policyholders in the company. The board of
directors may from time to time appoint an executive committee and other
committees with such powers as it may see fit, subject to such conditions
as may be prescribed by the board. All committees so appointed shall
report their acts and doings to the board of directors at its next
meeting. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at
the meeting in the place of any such absent or disqualified member.
2. The directors now in office shall continue to hold office for the
remainder of the terms for which they were severally elected.
<PAGE>
3. At each annual meeting there shall be elected not less than one-fifth nor
more than one-third of the members of the board of directors to serve for
not more than five years nor more than three years respectively.
4. The board of directors shall, at least ninety days prior to any annual
meeting, nominate candidates for each vacancy in the board to be filled
at such annual meeting.
5. Any group of qualified policyholders equal in number to or greater in
number than one percent of the total number of policies of the company in
force may make other nominations for one or more vacancies in the board
of directors by filing with the secretary, at least ninety days prior to
any annual meeting, a duly signed and acknowledged certificate giving the
names and addresses of the candidates nominated. Upon receiving such
certificate, the secretary shall thereupon report the receipt thereof to
the board of directors at its first regular meeting following receipt of
such certificate.
6. Should the board of directors fail to nominate candidates for vacancies
in the board of directors to be filled at the annual meeting as provided
in Section 4 hereof, and should the policyholders fail to nominate
candidates for vacancies in the board of directors to be filled at the
annual meeting then, and in such case, vacancies to be filled at the
annual meeting may be filled by the policyholders.
7. Any vacancy in the board occurring in the interim between annual meetings
shall be filled by the remaining members thereof until the next annual
meeting, at which time a successor shall be elected to fill the unexpired
term except vacancies occurring by reason of increase in number of
directors, in which event such vacancies shall be filled at the annual
meeting.
8. Regular and special meetings of the board of directors may be held at
such place or places within or without the state of Kansas as the board
of directors may from time to time designate. Special meetings of the
board of directors may be called at any time by the president or by any
three directors. The secretary shall give notice of each special meeting
by mailing the same at least two days before the meeting or by
telegraphing the same at least one day before the meeting to each
director, but such notice may be waived by any director. Unless otherwise
indicated in the notice thereof, any and all business may be transacted
at a special meeting. The number of directors necessary to constitute a
quorum shall be not less than five; except that if the board of directors
consists of nine members or less, a majority may constitute a quorum.
9. The fee to be paid to the directors for their services shall be fixed by
resolution of the board.
10. The board of directors may appoint advisory directors to serve for a
period of not more than one year. Such appointed directors shall act only
in an advisory capacity without right to vote. An advisory director may
be removed by the board of directors whenever in its judgment the best
interests of the company would be served thereby. The fee to be paid
advisory directors for their services shall be fixed by resolution of the
board.
<PAGE>
11. Nothing in this Article, however, should be construed as to prevent the
directors from establishing one or more separate accounts for purposes of
issuing contracts with variable benefits and approving such additional
voting rights for variable contract owners as may be authorized or
required by the law.
ARTICLE V - OFFICERS
1. The officers of the company shall be a chairman of the board, a
president, one or more vice presidents, a treasurer, a secretary, an
actuary, and such other officers as may be appointed by the board of
directors. Any two or more offices may be held by the same person, except
the offices of president and secretary. All officers of the company,
except appointed officers, shall be elected annually by the board of
directors at the first meeting of the board of directors held after each
annual meeting of the policyholders. If the election of officers shall
not be held at such meeting, such election shall be held as soon
thereafter as conveniently may be. Vacancies may be filled or new offices
filled at any meeting of the board of directors. Each officer shall hold
office until his successor shall have been duly elected or appointed and
shall have qualified, or until his death, or until he shall have resigned
or shall have been removed in the manner hereinafter provided.
Any officer elected or appointed by the board of directors may be removed
by the board of directors whenever in its judgment the best interest of
the company would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
2. The chairman of the board shall preside at all meetings of policyholders
or directors and shall perform such other duties as shall be assigned to
him by the board of directors. In the absence of the chairman of the
board, the president shall preside over meetings of policyholders or
directors.
3. The president shall be chief executive officer of the company, unless the
chairman of the board is so designated, and he shall perform such other
duties as are incident to the office of the president or are properly
assigned to him by the board of directors.
4. The vice presidents shall have such powers and discharge such duties as
may be assigned to them from time to time by the board of directors.
5. The treasurer shall have charge and custody of and be responsible for all
funds and securities of the company; shall disburse the funds of the
company in payments of just demands against it or as may be ordered by
the board of directors, and in general perform all the duties incident to
the office of treasurer and such other duties as may from time to time be
assigned to him by the board of directors. The assistant treasurer, if
any, may sign in place of the treasurer with the same force and effect as
the treasurer is authorized to sign.
6. The secretary shall keep the minutes of meetings of the policyholders and
of the board of directors, see that all notices are duly given in
accordance with the provisions of these
<PAGE>
bylaws or as required by law; shall be custodian of the corporate records
and seal of the company, and in general perform all duties incident to
the office of secretary and such other duties as may from time to time be
assigned to him by the board of directors. The assistant secretary, if
any, may sign and attest documents with the same force and effect as the
secretary is authorized to sign and attest.
7. The actuary shall have general supervision over all computations relating
to premium rates, policy dividends, reserves and surrender values,
preparation of the annual statement of the company, perform such other
duties as are incident to his office and such other duties as may from
time to time be assigned to him by the board of directors. In absence or
inability of the actuary, his duties may be performed by an associate
actuary or by an assistant actuary.
8. The salaries of the officers shall be fixed from time to time by the
board of directors, and no officer shall be prevented from receiving such
salary by reason of the fact that he is also a director of the company.
9. The company shall indemnify every person, his heirs, executors or
administrators, who is or was a director, officer, or employee of the
company, or is or was serving at the request of the company as a
director, officer or employee of another business entity, to the full
extent permitted or authorized by the laws of the state of Kansas, as now
in effect and as hereafter amended, against any liability, judgment,
fine, amount paid in settlement, cost or expense (including attorney's
fees) asserted or threatened against and incurred by such person in his
capacity as or arising out of his status as a director, officer, or
employee of the company or, if serving at the request of the company as a
director, officer or employee of another business entity. The
indemnification provided by this bylaw provision shall not be exclusive
of any other rights to which those indemnified may be entitled under any
other bylaw or under any agreement, vote of stockholders or disinterested
directors or otherwise, and shall not limit in any way any right which
the company may have to make different or further indemnifications with
respect to the same or different persons or classes of persons.
ARTICLE VI - SEAL
1. The corporate seal of the company shall consist of two concentric circles
between which shall be the name of the company and in the center of which
shall be inscribed the year of its incorporation.
ARTICLE VII - FRATERNAL CERTIFICATES
1. The gross premium payable with respect to each fraternal certificate
issued by the corporation shall be the sum designated prior to
transformation of the corporation from a fraternal benefit society to a
mutual life insurance company as home office premium plus a collection
charge equal to the sum paid prior to such transformation as subordinate
council dues or collection fee. Provided, however, that the annual
collection charge payable with respect to each fraternal certificate
shall not in any case exceed $2.40.
<PAGE>
2. The gross premium for each fraternal certificate shall become due and
payable, without notice, on the first day of the calendar month following
the period for which prior payment has been made. The first calendar
month following the period for which payment has been made shall be
allowed as a grace period during which the certificate shall remain in
full force and effect. If the gross premium for any certificate is not
paid when due or within the grace period, such certificate shall be in
default and all rights and benefits thereunder shall be forfeited,
without notice, except as may otherwise be provided by the terms of such
certificate.
3. Every fraternal certificate which shall become in default on account of
nonpayment of gross premiums may be reinstated at any time within sixty
days after the date of such default by payment in full of the gross
premiums in arrears, provided the insured under such certificate is in
sound mental and physical condition on the date of such payment. Any
payment of gross premiums made for the purpose of effecting reinstatement
under the provisions of this section shall constitute a representation by
the insured making such payment that he or she is in sound mental and
physical condition; and the receipt and retention of such payment shall
not effect reinstatement of the certificate if the insured is not in
sound mental and physical condition.
4. Every fraternal certificate which shall become in default on account of
nonpayment of gross premiums, and which shall not have been reinstated
within sixty days after the date of such default, may be reinstated only
in accordance with and as permitted by the rules and regulations for
reinstatement prescribed by the board of directors.
5. Any person or corporation may be appointed as a beneficiary in a
fraternal certificate, except as eligibility with respect to
beneficiaries may be restricted by the laws of the state in which the
certificate was first delivered to the insured.
6. The owner of a fraternal certificate in force may at any time change the
beneficiary by filing a satisfactory written notice therefor with the
company at its home office. The fraternal certificate need not be
presented for endorsement except upon written request of the company. A
change of beneficiary shall not be effective until it has been recorded
by the company at its home office. After such recordation, the change
shall relate back to and take effect as of the date the owner signed said
written request, whether or not the insured be living at the time of such
recordation, but without prejudice to the company on account of any
payment made by it before receipt of such written request at its home
office. If there be more than one beneficiary the interest of any
deceased beneficiary shall pass to the survivor or survivors, unless
otherwise directed by the owner and recorded at the home office. If no
designated beneficiary survives the insured, the amount payable under the
certificate shall be paid in a lump sum to the executors or
administrators of the insured.
7. Whenever the age of an insured in a fraternal certificate has been
understated in his or her application for insurance, and the correct age
was within the age limits of the corporation, the amount of the death
benefit payable under such certificate shall be such as the premiums
<PAGE>
paid would have purchased at the correct age according to the
corporation's premium rates in force on the issue date of the
certificate. If the correct age of the insured was not within the age
limits of the corporation, the liability of the corporation under his or
her certificate shall be the premiums paid thereon. If the age has been
overstated in the application, no additional amount of insurance or other
values shall be granted on account of any excess premium paid, but such
excess premium shall be returned without interest.
8. That part of the gross premium designated prior to transformation of the
corporation as home office premium shall, with respect to fraternal
certificates issued on the pure assessment plan, be payable in accordance
with the following premium table:
PREMIUMS PER $1,000 OF INSURANCE
AGE NEAREST AGE NEAREST
BIRTHDAY MONTHLY ANNUAL BIRTHDAY MONTHLY ANNUAL
16 $1.15 $13.25 49 $3.25 $37.45
17 1.20 13.50 50 3.40 39.25
18 1.20 13.80 51 3.60 41.10
19 1.20 14.10 52 3.75 43.10
20 1.25 14.40 53 3.95 45.30
21 1.30 14.75 54 4.15 47.55
22 1.30 15.10 55 4.35 50.00
23 1.35 15.45 56 4.60 52.65
24 1.40 15.80 57 4.85 55.45
25 1.40 16.20 58 5.10 58.45
26 1.45 16.65 59 5.40 61.65
27 1.50 17.10 60 5.70 65.05
28 1.50 17.55 61 6.00 67.25
29 1.55 18.05 62 6.40 71.10
30 1.60 18.55 63 6.80 75.30
31 1.65 19.10 64 7.20 79.85
32 1.70 19.70 65 7.65 84.70
33 1.75 20.30 66 8.15 89.95
34 1.80 20.95 67 8.65 95.60
35 1.90 21.65 68 9.25 101.70
36 1.95 22.40 69 9.85 108.30
37 2.00 23.15 70 10.55 115.45
38 2.10 24.00 71 11.30 123.15
39 2.15 24.85 72 12.15 131.55
40 2.25 25.80 73 13.00 140.60
<PAGE>
AGE NEAREST AGE NEAREST
BIRTHDAY MONTHLY ANNUAL BIRTHDAY MONTHLY ANNUAL
41 2.30 26.80 74 14.00 150.50
42 2.40 27.85 75 15.10 161.20
43 2.50 28.95 76 16.25 172.85
44 2.60 30.15 77 17.55 185.55
45 2.70 31.45 78 19.00 199.35
46 2.85 32.80 79 20.60 214.45
47 2.95 34.25 80 and over 22.35 230.90
48 3.10 35.90
The premium rates as stated in said table shall be based upon the
attained age nearest birthday of the insured as of July 1, 1935. Each
insured under a pure assessment fraternal certificate shall, after
premiums in accordance with the above table have been paid for three full
years, be entitled to the nonforfeiture options of extended term
insurance, paid up insurance or certificate loans to the extent of the
tabular reserve to the credit of such certificate.
9. Any insured under a pure assessment fraternal certificate may, in lieu of
making premium payments in accordance with the premium table specified in
the preceding section, elect to continue to make monthly payments upon
his certificate at the rate paid for the month of January, 1935. In the
event of such election, the certificate upon which such payment is made
shall automatically be reduced to such face amount of whole life
insurance (with the reserve thereon computed according to the American
Experience Table of Mortality with an interest assumption of 4%) as the
payment actually made would purchase at the rates specified in said
premium table for the attained age nearest birthday of the insured as of
July 1, 1935. The payment by any insured for the month of July, 1935, and
subsequent months at the rate paid by such insured for the month of
January, 1935, shall be considered an election by such insured to reduce
the amount of his certificate and continue the same in force for such
reduced face amount. Each insured who elects to continue to make monthly
payments upon his certificate at the rate paid for the month of January,
1935, shall, after such payments have been made for three full years, be
entitled to the nonforfeiture options of extended term insurance, paid up
insurance or certificate loans to the extent of the tabular reserve to
the credit of such certificate.
10. Every fraternal certificate issued prior to January 1, 1938, which
contains nonforfeiture provisions is, with respect to such provisions,
hereby amended as follows:
In the event the owner does not within sixty days after the due date
of any premium in default elect in writing any of the other
available nonforfeiture options, the insurance will be automatically
continued in force as nonparticipating extended term insurance in
accordance with the extended term insurance provision of the
certificate: Provided, however, that the insurance under a
certificate which does not contain an extended term insurance
provision will be automatically continued in
<PAGE>
force as nonparticipating paid up insurance in accordance with the
paid up insurance provision of the certificate.
11. The owner of each fraternal certificate in good standing prior to the
transformation of the corporation from a fraternal benefit society to a
mutual life insurance company shall have the right after such
transformation to transfer the insurance evidenced by such certificate to
the mutual life plan in the manner provided by law. The company shall not
have the right to levy an assessment against the owner of such
transferred insurance or impose a lien against the reserve standing to
the credit thereof.
12. The right and power heretofore existing in the corporation to levy an
assessment in addition to the gross premiums payable with respect to each
fraternal certificate is hereby irrevocably waived.
13. The term "fraternal certificate," wherever the same appears in these
bylaws, shall mean and apply to all beneficiary certificates issued by
the corporation prior to its transformation from a fraternal benefit
society to a mutual life insurance company.
ARTICLE VIII - AMENDMENTS
1. These bylaws may be amended, changed or repealed by a majority of the
board of directors at any regular or special meeting of the board. They
may also be amended, changed or repealed at any annual meeting of the
policyholders by a majority vote of the policyholders at any annual
meeting, provided that such proposed amendment, change or repeal to be
considered at the annual meeting of the policyholders shall have been
submitted in writing and filed with the secretary at least ninety days
before the time for holding the annual meeting at which action thereon is
to be taken.
<PAGE>
Item 24.b Exhibit (10)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 6, 1998, with respect to the financial
statements of Security Benefit Life Insurance Company and Subsidiaries included
in the Initial Registration Statement (Form N-4) and the related Statement of
Additional Information accompanying the Prospectus of PCG Variable Annuity.
Ernst & Young LLP
Kansas City, Missouri
May 8, 1998
<PAGE>
Item 24.b Exhibit (15)
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
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 VARIABLE ANNUITY ACCOUNT X 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 23rd day of March, 1998.
THOMAS R. CLEVENGER
------------------------------
Thomas R. Clevenger
SUBSCRIBED AND SWORN to before me this 23rd day of March, 1998.
JANA R. SELLEY
------------------------------
Notary Public
My Commission Expires:
June 14, 2000
- ------------------------------
<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 VARIABLE ANNUITY ACCOUNT X
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 23rd day of March, 1998.
SISTER LORETTO MARIE COLWELL
------------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 23rd day of March, 1998.
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 VARIABLE ANNUITY ACCOUNT X 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 24th day of March, 1998.
JOHN C. DICUS
------------------------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 24th day of March, 1998.
MARY R. FALTER
------------------------------
Notary Public
My Commission Expires:
1-30-2000
- ------------------------------
<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 VARIABLE ANNUITY ACCOUNT X 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 23rd day of March, 1998.
STEVEN J. DOUGLASS
------------------------------
Steven J. Douglass
SUBSCRIBED AND SWORN to before me this 23rd day of March, 1998.
JANA R. SELLEY
------------------------------
Notary Public
My Commission Expires:
June 14, 2000
- ------------------------------
<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 VARIABLE ANNUITY ACCOUNT X 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 March, 1998.
HOWARD R. FRICKE
------------------------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 20th day of March, 1998.
JANA R. SELLEY
------------------------------
Notary Public
My Commission Expires:
June 14, 2000
- ------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
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 VARIABLE ANNUITY ACCOUNT X 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 23rd day of March, 1998.
JOHN E. HAYES, JR.
------------------------------
John E. Hayes, Jr.
SUBSCRIBED AND SWORN to before me this 23rd day of March, 1998.
JANA R. SELLEY
------------------------------
Notary Public
My Commission Expires:
June 14, 2000
- ------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
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 VARIABLE ANNUITY ACCOUNT X 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 23rd day of March, 1998.
LAIRD G. NOLLER
------------------------------
Laird G. Noller
SUBSCRIBED AND SWORN to before me this 23rd day of March, 1998.
LINDA L. GRIFFIN
------------------------------
Notary Public
My Commission Expires:
3/7/00
- ------------------------------
<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 VARIABLE ANNUITY ACCOUNT X 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 23rd day of March, 1998.
FRANK C. SABATINI
------------------------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 23rd day of March, 1998.
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 VARIABLE ANNUITY ACCOUNT X 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 23rd day of March, 1998.
ROBERT C. WHEELER
------------------------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 23rd day of March, 1998.
NANCY G. DEBACKER
------------------------------
Notary Public
My Commission Expires:
December 15, 1999
- ------------------------------
