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File No. 333-52491
File No. 811-08799
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Post-Effective Amendment No. 1 [X]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Post-Effective Amendment No. 2 [X]
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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 Jeffrey S. Puretz, Esq.
Associate General Counsel and Vice President Dechert Price & Rhoads
Security Benefit Group, Inc. 1500 K Street, N.W.
700 Harrison Street, Topeka, KS 66636-0001 Washington, DC 20005
(Name and address of Agent for Service)
It is proposed that this filing will become effective:
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 30, 1999, pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on May 1, 1999, pursuant to paragraph (a)(1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_] on May 1, 1999, pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Title of Securities Being Registered: Interests in a separate account under
individual and group flexible premium deferred variable annuity contracts.
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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
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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 as a non-tax qualified retirement plan or in connection with an
individual retirement annuity ("IRA") under Section 408 of the Internal Revenue
Code. The Contract is also available for groups 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 you flexibility in planning for retirement and
other financial goals.
During the Accumulation Period, the Contract provides for the accumulation of
your Contract 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 your 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.
Amounts that you allocate to the Subaccounts under a Contract will vary based
on investment performance of the Subaccounts. No minimum amount of Contract
Value is guaranteed.
You may return a Contract according to the terms of its Free-Look Right. See
"Free-Look Right," page 11.
This Prospectus concisely sets forth information about the Contract and the
Separate Account that you should know before purchasing the Contract. The
"Statement of Additional Information," dated May 1, 1999, which has been filed
with the Securities and Exchange Commission contains certain additional
information. The Statement of Additional Information, as it may be supplemented
from time to time, is incorporated by reference into this Prospectus and is
available at no charge, by writing Security Benefit at 700 Harrison Street,
Topeka, Kansas 66636 or by calling 1-800-888-2461. The table of contents of the
Statement of Additional Information is set forth on page 25 of this Prospectus.
The SEC maintains a web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference and other
information regarding companies that file electronically with the SEC.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE ADVISOR'S FUND.
YOU SHOULD READ THE PROSPECTUSES CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
THE CONTRACT IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE VALUE
OF YOUR CONTRACT WILL GO UP AND DOWN AND YOU COULD LOSE MONEY.
DATE: MAY 1, 1999
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TABLE OF CONTENTS
Page
DEFINITIONS............................................................... 4
SUMMARY................................................................... 4
PURPOSE OF THE CONTRACT................................................. 4
THE SEPARATE ACCOUNT AND THE MUTUAL FUND................................ 5
PURCHASE PAYMENTS....................................................... 5
CONTRACT BENEFITS....................................................... 5
FREE-LOOK RIGHT......................................................... 5
CHARGES AND DEDUCTIONS.................................................. 5
Mortality and Expense Risk Charge..................................... 5
Premium Tax Charge.................................................... 5
Other Expenses........................................................ 5
CONTACTING SECURITY BENEFIT............................................. 5
EXPENSE TABLE............................................................. 5
CONTRACTUAL EXPENSES.................................................... 6
ANNUAL SEPARATE ACCOUNT EXPENSES........................................ 6
ANNUAL MUTUAL FUND EXPENSES............................................. 6
EXAMPLES................................................................ 6
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND SBL FUND.... 6
SECURITY BENEFIT LIFE INSURANCE COMPANY................................. 6
YEAR 2000 COMPLIANCE.................................................... 7
PUBLISHED RATINGS....................................................... 7
SEPARATE ACCOUNT........................................................ 7
ADVISOR'S FUND.......................................................... 8
PCG Aggressive Growth Series.......................................... 8
PCG Growth Series..................................................... 8
SIM Growth Series..................................................... 8
SIM Conservative Growth Series........................................ 8
The Investment Adviser................................................ 8
THE CONTRACT.............................................................. 8
GENERAL................................................................. 8
APPLICATION FOR A CONTRACT.............................................. 9
PURCHASE PAYMENTS....................................................... 9
ALLOCATION OF PURCHASE PAYMENTS......................................... 9
TRANSFERS OF CONTRACT VALUE............................................. 10
CONTRACT VALUE.......................................................... 10
DETERMINATION OF CONTRACT VALUE......................................... 10
FULL AND PARTIAL WITHDRAWALS............................................ 10
SYSTEMATIC WITHDRAWALS.................................................. 11
FREE-LOOK RIGHT......................................................... 11
DEATH BENEFIT........................................................... 11
DISTRIBUTION REQUIREMENTS............................................... 12
DEATH OF THE ANNUITANT.................................................. 12
CHARGES AND DEDUCTIONS.................................................... 12
MORTALITY AND EXPENSE RISK CHARGE....................................... 12
PREMIUM TAX CHARGE...................................................... 13
OTHER CHARGES........................................................... 13
GUARANTEE OF CERTAIN CHARGES............................................ 13
MUTUAL FUND EXPENSES.................................................... 13
ANNUITY PERIOD............................................................ 13
GENERAL................................................................. 13
ANNUITY OPTIONS......................................................... 14
Option 1--Life Income with Guaranteed Payment of 25 Years............. 14
Option 2--Payments for a Specified Period............................. 14
Option 3--Payments of a Specified Amount.............................. 14
Option 4--Age Recalculation........................................... 14
Value of Variable Annuity Payments: Assumed Interest Rate............. 14
SELECTION OF AN OPTION.................................................. 14
MORE ABOUT THE CONTRACT................................................... 14
OWNERSHIP............................................................... 14
Joint Owners.......................................................... 14
DESIGNATION AND CHANGE OF BENEFICIARY................................... 14
PARTICIPATING........................................................... 15
PAYMENTS FROM THE SEPARATE ACCOUNT...................................... 15
PROOF OF AGE AND SURVIVAL............................................... 15
MISSTATEMENTS........................................................... 15
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS........................ 15
FEDERAL TAX MATTERS....................................................... 16
INTRODUCTION............................................................ 16
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT................. 16
General............................................................... 16
Charge for Security Benefit Taxes..................................... 16
Diversification Standards............................................. 16
INCOME TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS............ 17
Surrenders or Withdrawals Prior to the Annuity Start Date............. 17
Surrenders or Withdrawals on or after Annuity Start Date.............. 17
Penalty Tax on Certain Surrenders and Withdrawals..................... 18
ADDITIONAL CONSIDERATIONS............................................... 18
Distribution-at-Death Rules........................................... 18
Gift of Annuity Contracts............................................. 18
Contracts Owned by Non-Natural Persons................................ 18
Multiple Contract Rule................................................ 18
Possible Tax Changes.................................................. 19
Transfers, Assignments or Exchanges of a Contract..................... 19
QUALIFIED PLANS......................................................... 19
Section 401........................................................... 19
Section 403(b)........................................................ 20
Section 408........................................................... 21
Section 457........................................................... 21
Rollovers............................................................. 21
Tax Penalties......................................................... 22
Withholding........................................................... 22
OTHER INFORMATION......................................................... 22
VOTING OF SBL FUND SHARES............................................... 22
SUBSTITUTION OF INVESTMENTS............................................. 23
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................... 23
REPORTS TO OWNERS....................................................... 23
TELEPHONE TRANSFER PRIVILEGES........................................... 24
LEGAL PROCEEDINGS....................................................... 24
LEGAL MATTERS........................................................... 24
PERFORMANCE INFORMATION................................................... 24
ADDITIONAL INFORMATION.................................................... 25
REGISTRATION STATEMENT.................................................. 25
FINANCIAL STATEMENTS.................................................... 25
STATEMENT OF ADDITIONAL INFORMATION....................................... 25
IRA DISCLOSURE STATEMENT
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YOU MAY NOT BE ABLE TO PURCHASE THE CONTRACT IN YOUR STATE. YOU SHOULD NOT
CONSIDER THIS PROSPECTUS TO BE AN OFFERING IF THE CONTRACT MAY NOT BE LAWFULLY
OFFERED IN YOUR STATE. YOU SHOULD ONLY RELY UPON INFORMATION CONTAINED IN THIS
PROSPECTUS OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
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DEFINITIONS
Various terms commonly used in this Prospectus are defined as follows:
ACCUMULATION PERIOD -- The period commencing on the Contract Date and ending
on the Annuity Start Date or, if earlier, when you terminate the Contract,
either through a full withdrawal, payment of charges, or payment of the death
benefit proceeds.
ACCUMULATION UNIT -- A unit of measure used to calculate Contract Value.
ANNUITANT -- The person that you designate to receive annuity payments. If
you designate Joint Annuitants, "Annuitant" means both Annuitants unless
otherwise stated.
ANNUITY -- A series of periodic income payments made by Security Benefit to
an Annuitant, Joint Annuitant, or Beneficiary during the period specified in the
Annuity Option.
ANNUITY OPTIONS -- Options under the Contract that prescribe the provisions
under which a series of annuity payments are made.
ANNUITY PERIOD -- The period beginning on the Annuity Start Date during which
annuity payments are made.
ANNUITY START DATE -- The date when annuity payments are to begin.
CONTRACT DATE -- The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually the
date that your initial purchase payment is credited to the Contract.
CONTRACTOWNER OR OWNER -- The person entitled to the ownership rights under
the Contract and in whose name the Contract is issued.
CONTRACT VALUE -- The total value of a Contract which includes all amounts
allocated to the Subaccounts.
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 participants' interests in the Contract is not
maintained by Security Benefit.
HOME OFFICE -- The Annuity Administration Department of Security Benefit,
P.O. Box 750497, Topeka, Kansas 66675-0497.
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 -- An amount 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 you will receive upon full withdrawal of the
Contract. It is equal to Contract Value less uncollected premium taxes.
SUMMARY
This summary provides a brief overview of the more significant aspects of the
Contract. Further detail is provided in this Prospectus, the Statement of
Additional Information, and the Contract.
PURPOSE OF THE CONTRACT -- The flexible purchase payment deferred variable
annuity contract ("Contract") described in this Prospectus is designed to give
you flexibility in planning for retirement and other financial goals. 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 8.
You may purchase the Contract as a non-tax qualified retirement plan for an
individual ("Non-Qualified Plan"). You may also purchase the Contract, on an
individual basis, in connection with a retirement plan qualified under 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. These plans are sometimes referred to in this Prospectus as
"Qualified Plans."
THE SEPARATE ACCOUNT AND THE MUTUAL FUND -- The Separate Account is currently
divided into four accounts referred to as Subaccounts. See "Separate Account,"
page 7. 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 8.
You may allocate all or part of your purchase payments to the Subaccounts.
Amounts that you allocate to the Subaccounts will increase or decrease in dollar
value depending on the investment performance of the Series of the Mutual Fund
in which such Subaccount invests. You bear the investment risk for amounts
allocated to a Subaccount.
PURCHASE PAYMENTS -- The minimum initial purchase payment is $100,000.
Thereafter, you may choose the amount and frequency of purchase payments. See
"Purchase Payments," page 9.
CONTRACT BENEFITS -- You may transfer Contract Value among the Subaccounts
subject to certain restrictions as described in "The Contract," page 8.
At any time before the Annuity Start Date, you may surrender a Contract for
its Withdrawal Value and partial withdrawals, including systematic withdrawals,
may be taken from Contract Value. See "Full and Partial Withdrawals," page 10
and "Federal Tax Matters," page 16 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 prior
to the Annuity Start Date. A death benefit is not available, however, under a
Group Contract. See "Death Benefit," page 11 for more information. The Contract
provides for several Annuity Options on a variable basis beginning on the
Annuity Start Date.
FREE-LOOK RIGHT -- You may return the Contract within the Free-Look Period,
which is generally a ten-day period beginning when you receive the Contract. In
this event, Security Benefit will refund to you the Contract Value in the
Subaccounts plus any charges deducted from Contract Value in the Subaccounts.
Security Benefit will refund purchase payments allocated to the Subaccounts
rather than the Contract Value in those states where it is required to do so.
CHARGES AND DEDUCTIONS -- Security Benefit does not deduct sales load from
purchase payments before allocating them to the Contract Value. Certain charges
will be deducted in connection with the Contract as described below.
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 12.
PREMIUM TAX CHARGE. Security Benefit assesses a premium tax charge to
reimburse itself for any premium taxes that it incurs with respect to this
Contract. This charge will usually be deducted on annuitization or upon full
withdrawal if a premium tax was incurred by Security Benefit and is not
refundable. Partial withdrawals, including systematic withdrawals, may be
subject to a premium tax charge if a premium tax is incurred on the withdrawal
by Security Benefit and is not refundable. Security Benefit reserves the right
to deduct such taxes when due or anytime thereafter. Premium tax rates currently
range from 0 percent to 3.5 percent. See "Premium Tax Charge" on page 13.
OTHER EXPENSES. Security Benefit pays the operating expenses of the Separate
Account. 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 -- You should direct all written requests, notices,
and forms required by the Contract, and any questions or inquiries to Security
Benefit Life Insurance Company, P.O. Box 750497, Topeka, Kansas 66675-0497 or by
phone by calling (785) 431-3112 or 1-800-888-2461, extension 3112.
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly and indirectly. The table reflects any
contractual charges, expenses of the Separate Account, and charges and expenses
of the Mutual Fund. The table does not reflect premium taxes that may be imposed
by various jurisdictions. See "Premium Tax Charge," page 13.
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," page 12. For a more complete description of the Mutual Fund's
costs and expenses, see the Advisor's Fund Prospectus, which accompanies this
Prospectus.
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CONTRACTUAL EXPENSES
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Sales Load on Purchase Payments......................................... None
Contingent Deferred Sales Charge........................................ None
Transfer Fee (per transfer)............................................. None
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ANNUAL SEPARATE ACCOUNT EXPENSES (as a percentage
of each Subaccount's average daily net assets)
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Annual Mortality and Expense Risk Charge
Individual Contracts.................................................. .65%
Group Contracts....................................................... .80%
Total Separate Account Annual Expenses
Individual Contracts.................................................. .65%
Group Contracts....................................................... .80%
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ANNUAL MUTUAL FUND EXPENSES
(as a percentage of each Series' average daily net assets)
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TOTAL
MANAGEMENT OTHER MUTUAL FUND
FEE EXPENSES(1) EXPENSES
PCG Aggressive Growth.............. 0.75% 0.97% 1.72%
PCG Growth......................... 0.75% 0.97% 1.72%
SIM Growth......................... 0.75% 0.97% 1.72%
SIM Conservative Growth............ 0.75% 0.97% 1.72%
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1. Other Expenses are based on estimated amounts for the fiscal year ending
April 30, 1999.
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EXAMPLES -- The examples presented below show the 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
EXAMPLES -- The Owner of an Individual Contract would pay the expenses shown
below on a $1,000 investment, assuming 5 percent annual return on assets:
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1 YEAR 3 YEARS
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PCG Aggressive Growth Subaccount......... $24 $74
PCG Growth Subaccount.................... 24 74
SIM Growth Subaccount.................... 24 74
SIM Conservative Growth.................. 24 74
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GROUP CONTRACTS
EXAMPLES -- 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:
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1 YEAR 3 YEARS
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PCG Aggressive Growth Subaccount......... $26 $78
PCG Growth Subaccount.................... 26 $78
SIM Growth Subaccount.................... 26 $78
SIM Conservative Growth.................. 26 $78
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INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND THE MUTUAL FUND
SECURITY BENEFIT LIFE INSURANCE COMPANY -- Security Benefit is a life insurance
company organized under the laws of the State of Kansas. It was organized
originally as a fraternal benefit society and commenced business February 22,
1892. It became a mutual life insurance company under its present name on
January 2, 1950.
On July 31, 1998, Security Benefit converted from a mutual life insurance
company to a stock life insurance company ultimately controlled by Security
Benefit Mutual Holding Company, a Kansas mutual holding company. Membership
interests of persons who were Contractowners as of July 31, 1998 became
membership interests in Security Benefit Mutual Holding Company as of that date,
and persons who acquire policies from Security Benefit after that date
automatically become members in the mutual holding company.
Security Benefit offers a complete line of life insurance policies and
annuity contracts, as well as financial and retirement services. It is admitted
to do business in the District of Columbia, and in all states except New York.
As of the end of 1998, The Company had total assets of approximately $7.9
billion. Together with its subsidiaries, The Company has total funds under
management of approximately $8.8 billion.
The Principal Underwriter for the Contracts is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Benefit Group, 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 and the
Mutual Fund could be adversely affected if the computer systems used by Security
Benefit or the Fund's Investment Adviser, and other service providers, in
performing their administrative functions do not properly process and calculate
date-related information and data before, during and after January 1, 2000. Some
computer software and hardware systems currently cannot distinguish between the
year 2000 and the year 1900 or some other date because of the way date fields
were encoded. This is commonly known as the "Year 2000 Problem." If not
addressed, the Year 2000 Problem could impact (i) the administrative services
provided by Security Benefit with respect to the Contract and (ii) the
management services provided to 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. We consider a system Year 2000 Compliant when it is able to correctly
process, provide and/or receive data before, during and after the Year 2000.
Security Benefit'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 have made
substantial progress toward completing the modification/replacement of its
internal systems as well as toward obtaining Year 2000 Compliant certifications
from its external vendors. Overall systems testing commenced in early 1998 and
will extend into the first eight 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 their systems will be Year 2000
Compliant. The costs or consequences of incomplete or untimely resolution of the
Year 2000 issue are unknown to Security Benefit at this time but could have a
material adverse impact on the operations of the Security Benefit, the separate
account and the Mutual Fund.
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 Security Benefit as measured by Standard & Poor's Insurance Ratings
Services may be referred to in advertisements or sales literature or in reports
to Owners. These ratings are opinions of an operating insurance company's
financial capacity to meet the obligations of its insurance and annuity policies
in accordance with their terms. Such ratings do not reflect the investment
performance of the Separate Account or the degree of risk associated with an
investment in the Separate Account.
SEPARATE ACCOUNT -- Security Benefit established the Separate Account under
Kansas law on March 23, 1998. The Contract provides that the income, gains, or
losses of the Separate Account, whether or not realized, are credited to or
charged against the assets of the Separate Account without regard to other
income, gains, or losses of Security Benefit. K.S.A. 40-436 provides that assets
in a separate account attributable to the reserves and other liabilities under
the contracts may not be charged with liabilities arising from any other
business that the insurance company conducts if, and to the extent the contracts
so provide. The Contract contains such a provision. Security Benefit owns the
assets in the Separate Account and is required to maintain sufficient assets in
the Separate Account to meet all Separate Account obligations under the
Contracts. Security Benefit may transfer to its General Account assets that
exceed anticipated obligations of the Separate Account. All obligations arising
under the Contracts are general corporate obligations of Security Benefit.
Security Benefit may invest its own assets in the Separate Account for other
purposes, but not to support contracts other than variable annuity contracts,
and may accumulate in the Separate Account proceeds from Contract charges and
investment results applicable to those assets.
The Separate Account is currently divided into four Subaccounts. The Contract
provides that the income, gains and losses, whether or not realized, are
credited to, or charged against, the assets of each Subaccount without regard to
the income, gains or losses in the other Subaccounts. Each Subaccount invests
exclusively in shares of a specific Series of the 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. It is registered with the SEC
under the 1940 Act. Such registration does not involve supervision by the SEC of
the investments or investment policy of the 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 and may also be sold to
qualified pension and retirement plans. 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 decision to
buy and sell securities for each Series except the PCG Aggressive Growth Series.
The Investment Adviser has engaged Mench Financial, Inc., 30 West Third Street,
Fourth Floor, Cincinnati, Ohio 45202 to provide investment advisory services to
the PCG Aggressive Growth Series.
THE CONTRACT
GENERAL -- Security Benefit issues the Contract offered by this Prospectus. It
is a flexible purchase payment deferred variable annuity. The Contract is
significantly different from a fixed annuity contract in that it is the Owner
under a Contract who assumes the risk of investment gain or loss rather than
Security Benefit. When you are ready to begin receiving annuity payments, the
Contract provides several Annuity Options under which Security Benefit will pay
periodic annuity payments on a variable basis beginning on the Annuity Start
Date. The amount that will be available for annuity payments will depend on the
investment performance of the Subaccounts to which you have allocated purchase
payments.
Security Benefit also issues the Group Contract offered by this Prospectus.
It is identical to the individual form of the Contract in all material respects
except the death benefit and annuity option provisions. The Group Contract does
not provide a death benefit and makes annuity options available to Participants
only upon receipt of certain distributions from the Qualified Plan. The annuity
rates available to Participants are guaranteed in the Group Contract. An
individual annuity contract will be issued to a Participant who elects to apply
a distribution from the Plan to purchase an annuity from Security Benefit.
The Contract is available for purchase by an individual as a non-tax
qualified retirement plan ("Non-Qualified Plan"). The Contract is also eligible
for purchase in connection with individual tax qualified retirement plans that
meet the requirements of Section 408 of the Internal Revenue Code and in group
form with certain tax qualified retirement plans that meet the requirements of
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 -- If you wish to purchase a Contract, you may submit
an application and an initial purchase payment to Security Benefit, as well as
any other form or information that Security Benefit may require. Security
Benefit reserves the right to reject an application or purchase payment for any
reason, subject to Security Benefit's underwriting standards and guidelines and
any applicable state or federal law relating to nondiscrimination.
The maximum age of an Owner or Annuitant for which a Contract will be issued
is age 90. 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. Thereafter, you may choose the amount and frequency of
purchase payments. Cumulative purchase payments exceeding $5 million in an
individual contract will not be accepted without prior approval of Security
Benefit.
Security Benefit will apply the initial purchase payment not later than the
end of the second Valuation Date after the Valuation Date it is received by
Security Benefit; provided that the purchase payment is preceded or accompanied
by an application that contains sufficient information to establish an account
and properly credit such purchase payment. The application form will be provided
by Security Benefit. If Security Benefit does not receive a complete
application, Security Benefit will notify you that it does not have the
necessary information to issue a Contract. If you do not provide the necessary
information to Security Benefit within five Valuation Dates after the Valuation
Date on which Security Benefit first receives the initial purchase payment or if
Security Benefit determines it cannot otherwise issue the Contract, Security
Benefit will return the initial purchase payment to you unless you consent to
Security Benefit retaining the purchase payment until the application is made
complete.
Security Benefit will credit subsequent purchase payments as of the end of
the Valuation Period in which they are received by Security Benefit at its Home
Office. Purchase payments after the initial purchase payment may be made at any
time prior to the Annuity Start Date, so long as the Owner is living. Subsequent
purchase payments under a Qualified Plan may be limited by the terms of the plan
and provisions of the Internal Revenue Code.
ALLOCATION OF PURCHASE PAYMENTS -- In an application for a Contract, you select
the Subaccounts to which purchase payments will be allocated. Purchase payments
will be allocated according to your instructions contained in the application or
more recent instructions received, if any, except that no purchase payment
allocation is permitted that would result in less than 1 percent of any payment
being allocated to any one Subaccount. The allocations must be whole percentages
and must total 100 percent.
You may change the purchase payment allocation instructions by submitting a
proper written request to Security Benefit's Home Office. A proper change in
allocation instructions will be effective upon receipt by Security Benefit at
its Home Office and will continue in effect until you submit a change in
instructions to the company. You may make changes in your purchase payment
allocation by telephone provided the Telephone Transfer section of the
application or an Authorization for Telephone Requests form is properly
completed, signed, and filed at Security Benefit's Home Office. Changes in the
allocation of future purchase payments have no effect on existing Contract
Value. You may, however, transfer Contract Value among the Subaccounts in the
manner described in "Transfers of Contract Value," page 10.
TRANSFERS OF CONTRACT VALUE -- Prior to the Annuity Start Date, you may transfer
Contract Value among the Subaccounts upon proper written request to Security
Benefit's Home Office. You may make transfers 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.
Security Benefit generally does not limit the frequency of transfers,
although Security Benefit reserves the right at a future date to limit the
number of transfers to 14 in a Contract Year. Security Benefit also reserves the
right to limit the size and frequency of such transfers, and to discontinue
telephone transfers.
CONTRACT VALUE -- The Contract Value is the sum of the amounts under the
Contract held in each Subaccount of the Separate Account as of any Valuation
Date.
On each Valuation Date, the amount of Contract Value allocated to any
particular Subaccount will be adjusted to reflect the investment experience of
that Subaccount. See "Determination of Contract Value," below. No minimum amount
of Contract Value is guaranteed. You bear the entire investment risk relating to
the investment performance of Contract Value allocated to the Subaccounts.
DETERMINATION OF CONTRACT VALUE -- The Contract Value will vary to a degree that
depends upon several factors, including investment performance of the
Subaccounts to which you have allocated Contract Value, payment of purchase
payments, 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 you allocate purchase payments to a Subaccount,
your Contract is credited with Accumulation Units. The number of Accumulation
Units to be credited is determined by dividing the dollar amount allocated to
the particular Subaccount by the price for the Subaccount as of the end of the
Valuation Period in which the purchase payment is credited. In addition, other
transactions including full or partial withdrawals, transfers, and assessment of
certain charges against the Contract affect the number of Accumulation Units
credited to a Contract. The number of units credited or debited in connection
with any such transaction is determined by dividing the dollar amount of such
transaction by the price of the affected Subaccount. The price of each
Subaccount is determined on each Valuation Date. The number of Accumulation
Units credited to a Contract shall not be changed by any subsequent change in
the value of an Accumulation Unit, but the dollar value of an Accumulation Unit
may vary from Valuation Date to Valuation Date depending upon the investment
experience of the Subaccount and charges against the Subaccount.
The price of each Subaccount's units initially was $10. The price of a
Subaccount on any Valuation Date takes into account the following: (1) the
investment performance of the Subaccount, which is based upon the investment
performance of the corresponding Series of 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 make a partial withdrawal of
Contract Value, or surrender the Contract for its Withdrawal Value. A full or
partial withdrawal, including a systematic withdrawal, may be taken from
Contract Value at any time while the Owner is living and before the Annuity
Start Date, subject to limitations under the applicable plan for Qualified Plans
and applicable law. A full or partial withdrawal request will be effective as of
the end of the Valuation Period that a proper written request is received by
Security Benefit at its Home Office. A proper written request must include the
written consent of any effective assignee or irrevocable Beneficiary, if
applicable.
The proceeds received upon a full withdrawal will be the Contract's
Withdrawal Value. The Withdrawal Value is equal to the Contract Value as of the
end of the Valuation Period during which a proper withdrawal request is received
by Security Benefit at its Home Office, less any 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 of 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, Security
Benefit reserves the right to treat the partial withdrawal as a request for a
full withdrawal.
Security Benefit will deduct the amount of a partial withdrawal from the
Contract Value in the Subaccounts 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," page 13.
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 15. The tax consequences of a
withdrawal under the Contract should be carefully considered. See "Federal Tax
Matters," page 16.
SYSTEMATIC WITHDRAWALS -- Security Benefit currently offers a feature under
which you may select systematic withdrawals. Under this feature, a Contractowner
may elect to receive systematic withdrawals while the Owner is living and before
the Annuity Start Date by sending a properly completed Systematic Withdrawal
Request form to Security Benefit at its Home Office. This option may be elected
at any time. A Contractowner may designate the systematic withdrawal amount as a
percentage of Contract Value allocated to the Subaccounts, as a fixed period, as
a specified dollar amount, as all earnings in the Contract, or based upon the
life expectancy of the Owner or the Owner and a Beneficiary. A Contractowner
also may designate the desired frequency of the systematic withdrawals, which
may be monthly, quarterly, semiannually or annually. The Contractowner may stop
or modify systematic withdrawals upon proper written request received by
Security Benefit at its Home Office at least 30 days in advance of the requested
date of termination or modification. A proper request must include the written
consent of any effective assignee or irrevocable Beneficiary, if applicable.
Each systematic withdrawal must be at least $100. Upon payment, the
Contractowner's Contract Value will be reduced by an amount equal to the payment
proceeds plus any applicable premium tax. Any systematic withdrawal that equals
or exceeds the Withdrawal Value will be treated as a full withdrawal. In no
event will payment of a systematic withdrawal exceed the Withdrawal Value. The
Contract will automatically terminate if a systematic withdrawal causes the
Contract's Withdrawal Value to equal zero.
Security Benefit will effect each systematic withdrawal as of the end of the
Valuation Period during which the withdrawal is scheduled. The deduction caused
by the systematic withdrawal 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. You should consider carefully the tax
consequences of a systematic withdrawal, including the 10 percent penalty tax
which may be imposed on withdrawals made prior to the Owner attaining age 59
1/2. See "Federal Tax Matters," page 16.
FREE-LOOK RIGHT -- You may return a Contract within the Free-Look Period, which
is generally a ten-day period beginning when you receive the Contract. Security
Benefit will then deem void the returned Contract and will refund to you any
purchase payments allocated to the Fixed Account plus the Contract Value in the
Subaccounts as of the end of the Valuation Period during which the returned
Contract is received by Security Benefit. Security Benefit will refund purchase
payments allocated to the Subaccounts rather than Contract Value in those states
and circumstances that require it to do so.
DEATH BENEFIT -- If the Owner dies prior to the Annuity Start Date, Security
Benefit will pay the death benefit proceeds to the Designated Beneficiary upon
receipt of due proof of the Owner's death and instructions regarding payment to
the Designated Beneficiary. If there are Joint Owners, the death benefit
proceeds will be payable upon receipt of due proof of death of either Owner
prior to the Annuity Start Date and instructions regarding payment.
If the surviving spouse of the deceased Owner is the sole Designated
Beneficiary, such spouse may elect to continue the Contract in force, subject to
certain limitations. See "Distribution Requirements" below. If the Owner is not
a natural person, the death benefit proceeds will be payable upon receipt of due
proof of death of the Annuitant prior to the Annuity Start Date and instructions
regarding payment. Additionally, if the Owner is not a natural person, the
amount of the death benefit will be based on the age of the oldest Annuitant on
the date the Contract was issued. If the death of the Owner occurs on or after
the Annuity Start Date, any death benefit will be determined according to the
terms of the Annuity Option. See "Annuity Options," page 14.
The death benefit proceeds will be the death benefit reduced by any
uncollected premium tax. If an Owner dies during the Accumulation Period and the
age of each Owner was 75 or younger on the date the Contract was issued, the
amount of the death benefit will be the greatest of:
* The guaranteed death benefit defined below.
* The Contract Value on the date due proof of death and instructions regarding
payment are received by Security Benefit, less any uncollected premium tax.
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 and instructions
regarding payment are 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 an Annuity Option, there may be limits under
applicable law on the amount and duration of payments that the Beneficiary may
receive, and requirements respecting timing of payments. A tax adviser should be
consulted in considering Annuity Options. See "Federal Tax Matters," page 16 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 Contract
is equal to an annual rate of .65 percent of each Subaccount's average daily net
assets that fund the Individual Contract. 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 Options in the Contract. Security Benefit also assumes a
mortality risk in connection with the death benefit under the Contract.
Security Benefit may ultimately realize a profit from this charge to the
extent it is not needed to cover mortality and administrative expenses, but
Security Benefit may realize a loss to the extent the charge is not sufficient.
Security Benefit may use any profit derived from this charge for any lawful
purpose, including distribution expenses.
PREMIUM TAX CHARGE -- Various states and municipalities impose a tax on premiums
on annuity contracts received by insurance companies. Whether or not a premium
tax is imposed will depend upon, among other things, the Owner's state of
residence, the Annuitant's state of residence, and the insurance tax laws and
Security Benefit's status in a particular state. Security Benefit assesses a
premium tax charge to reimburse itself for premium taxes that it incurs in
connection with a Contract. Security Benefit currently deducts this charge upon
the Annuity Start Date or upon full or partial withdrawal if a premium tax was
incurred and is not refundable. Security Benefit reserves the right to deduct
premium taxes when due or any time thereafter. Premium tax rates currently range
from 0 percent to 3.5 percent, but are subject to change by a governmental
entity.
OTHER CHARGES -- Security Benefit may charge the Separate Account or the
Subaccounts for the federal, state, or local taxes incurred by Security Benefit
that are attributable to the Separate Account or the Subaccounts, or to the
operations of Security Benefit with respect to the Contracts, or that are
attributable to payment of premiums or acquisition costs under the Contracts. No
such charge is currently assessed. See "Tax Status of Security Benefit and the
Separate Account" and "Charge for Security Benefit Taxes."
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 Contract 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 SIM Growth Series and the SIM Conservative Growth Series of
the Mutual Fund seek their respective objectives by investing primarily in
shares of other publicly traded mutual funds. Therefore, Owners that direct
Purchase Payments to those Series of the Mutual Fund will also indirectly bear a
pro-rata portion of the fees and expenses of the mutual funds in which the SIM
Growth or Conservative Growth Series invests. 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 -- You select 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 that you start
annuity payments at an earlier age. If you do not select an Annuity Start Date,
the Annuity Start Date will be the annuitant's 95th birthday. If there are Joint
Annuitants, the birthdate of the older Annuitant will be used to determine the
latest Annuity Start Date.
If you are a Participant under a Qualified Plan in connection with which a
Group Contract is issued, you may elect to use an eligible rollover distribution
(or with respect to a Section 457 Plan, any distribution) from the Plan to
purchase an annuity contract from Security Benefit that offers the annuity
options and rates set forth in the Contract. The Participant's purchase payment
and application must be acceptable to Security Benefit under its rules and
practices and the provisions of the Contract. On the Annuity Start Date, the
proceeds under the Contract (or in the case of a Group Contract, the
distribution from the Plan) will be applied to provide an annuity under one of
the options described below. Variable annuity payments will fluctuate with the
investment performance of the applicable Subaccounts. The proceeds under the
Contract will be equal to your Contract Value in the Subaccounts as of the
Annuity Start Date, reduced by any applicable premium taxes.
The Contract provides 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.
You may elect to receive annuity payments on a monthly, quarterly,
semiannual, or annual basis, although no payments will be made for less than
$100. If the frequency of payments selected would result in payments of less
than $100, Security Benefit reserves the right to change the frequency.
You may designate or change an Annuity Start Date, Annuity Option, or
Annuitant, provided proper written notice is received by Security Benefit at its
Home Office at least 30 days prior to the Annuity Start Date set forth in the
Contract. The date selected as the new Annuity Start Date must be at least 30
days after the date written notice requesting a change of Annuity Start Date is
received at Security Benefit's Home Office.
Once annuity payments have commenced, 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 --PAYMENT 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 -- You should carefully review the Annuity Options with
your financial or tax advisers. For Contracts used in connection with a
Qualified Plan, reference should be made to the terms of the particular plan and
the requirements of the Internal Revenue Code for pertinent limitations
respecting annuity payments and other matters. For instance, Qualified Plans
generally require that annuity payments begin no later than April 1 of the
calendar year following the year in which the Annuitant reaches age 70 1/2. In
addition, under Qualified Plans, the period elected for receipt of annuity
payments under Annuity Options (other than Life Income) generally may be no
longer than the joint life expectancy of the Annuitant and beneficiary in the
year that the Annuitant reaches age 70 1/2, and must be shorter than such joint
life expectancy if the beneficiary is not the Annuitant's spouse and is more
than ten years younger than the Annuitant. For Non-Qualified Plans, SBL does not
allow annuity payments to be deferred beyond the Annuitant's 95th birthday.
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 16.
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.
DIVIDENDS -- The Contract may 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. Certain states will not permit the
Contract to be issued as a dividend-paying policy.
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:
* During which the New York Stock Exchange is closed other than customary
weekend and holiday closings,
* During which trading on the New York Stock Exchange is restricted as
determined by the SEC,
* During which an emergency, as determined by the SEC, exists as a result of
which (i) disposal of securities held by the Separate Account is not
reasonably practicable, or (ii) it is not reasonably practicable to determine
the value of the assets of the Separate Account, or
* For such other periods as the SEC may by order permit for the protection of
investors.
PROOF OF AGE AND SURVIVAL -- Security Benefit may require proof of age or
survival of any person on whose life annuity payments depend.
MISSTATEMENTS -- If you misstate the age or sex of an Annuitant or age of an
Owner, the correct amount paid or payable by Security Benefit under the Contract
shall be such as the Contract Value would have provided for the correct age or
sex (unless unisex rates apply).
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS -- Generally, a Qualified Plan
may not provide for the distribution or withdrawal of amounts accumulated under
the Plan until after a fixed number of years, the attainment of a stated age or
upon the occurrence of a specific event such as hardship, disability,
retirement, death or termination of employment. Therefore, if you own a Contract
purchased in connection with a Qualified Plan, you may not be entitled to make a
full or partial withdrawal, as described in this Prospectus, unless one of the
above-described conditions has been satisfied. For this reason, you should refer
to the terms of your particular Qualified Plan, the Internal Revenue Code and
other applicable law for any limitation or restriction on distributions and
withdrawals, including the 10 percent penalty tax that may be imposed in the
event of a distribution from a Qualified Plan before the participant reaches age
59 1/2. See the discussion under "Tax Penalties," page 22.
Section 403(b) imposes restrictions on certain distributions from
tax-sheltered annuity contracts meeting the requirements of Section 403(b). The
restrictions 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 (i) reaches age
59 1/2, (ii) separates from service, (iii) dies, (iv) becomes disabled, or (v)
incurs a hardship. Furthermore, distributions of gains attributable to such
contributions accrued after December 31, 1988 may not be made on account of
hardship. Hardship, for this purpose, is generally defined as an immediate and
heavy financial need, such as paying for medical expenses, the purchase of a
residence, or paying certain tuition expenses, that may ONLY be met by the
distribution.
If you own a Contract purchased as a tax-sheltered Section 403(b) annuity
contract, you will not, therefore, be entitled to make a full or partial
withdrawal, as described in this Prospectus, in order to receive proceeds from
the Contract attributable to contributions under a salary reduction agreement or
any gains credited to such Contract after December 31, 1988 unless one of the
above-described conditions has been satisfied. In the case of transfers of
amounts accumulated in a different Section 403(b) contract to this Contract
under a Section 403(b) program, the withdrawal constraints described above would
not apply to the amount transferred to the Contract attributable to the Owner's
December 31, 1988 account balance under the old contract, provided the amounts
transferred between contracts qualified as a tax-free exchange under the
Internal Revenue Code. An Owner of a Contract may be able to transfer the
Contract's Withdrawal Value to certain other investment alternatives meeting the
requirements of Section 403(b) that are available under an employer's Section
403(b) arrangement.
The distribution or withdrawal of amounts under a Contract purchased in
connection with a Qualified Plan may result in the receipt of taxable income to
the Owner or Annuitant and in some instances may also result in a penalty tax.
Therefore, you should carefully consider the tax consequences of a distribution
or withdrawal under a Contract and you should consult a competent tax adviser.
See "Federal Tax Matters," below.
FEDERAL TAX MATTERS
INTRODUCTION -- The 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 Contractowner),
rather than the insurance company, to be treated as the owner of the assets in
the account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example, the Contractowner has additional flexibility in allocating purchase
payments and Contract Values. These differences could result in a Contractowner
being treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, Security Benefit does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Security Benefit therefore reserves the right to
modify the Contract, as it deems appropriate, to attempt to prevent a
Contractowner from being considered the owner of a pro rata share of the assets
of the Separate Account. Moreover, in the event that regulations or rulings are
adopted, there can be no assurance that the Series will be able to operate as
currently described in the Prospectus, or that the Mutual Fund will not have to
change any Series' investment objective or investment policies.
INCOME TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS -- Section 72 of
the Code governs the taxation of annuities. In general, a Contractowner is not
taxed on increases in value under an annuity contract until some form of
distribution is made under the contract. However, the increase in value may be
subject to tax currently under certain circumstances. See "Contracts Owned by
Non-Natural Persons" on page 18 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 Designated 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 taxation on owners of variable annuities. There is
always the possibility that the tax treatment of annuities could change by
legislation or other means (such as IRS regulations, revenue rulings, and
judicial decisions). Moreover, although unlikely, it is also possible that any
legislative change could be retroactive (that is, effective prior to the date of
such change).
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 entire investment, the unrecovered investment
will be allowed as a deduction on his final return. If the employee made no
contributions that were taxable when made, the full amount of each annuity
payment is taxable to him as ordinary income.
A "lump-sum" distribution from a retirement plan qualified under Code Section
401 is eligible for favorable tax treatment. A "lump-sum" distribution means the
distribution within one taxable year of the balance to the credit of the
employee which becomes payable: (i) on account of the employee's death, (ii)
after the employee attains age 59 1/2, (iii) on account of the employee's
termination of employment (in the case of a common law employee only) or (iv)
after the employee has become disabled (in the case of a self-employed person
only).
As a general rule, a lump-sum distribution is fully taxable as ordinary
income except for an amount equal to the employee's investment, if any, which is
recovered tax-free. However, special five-year averaging may be available,
provided the employee has reached age 59 1/2 and has not previously elected to
use income averaging. (Special five-year averaging has been repealed for
distributions after 1999.) Special ten-year averaging and capital-gains
treatment may be available to an employee who reached age 50 before 1986.
Distributions from a retirement plan qualified under Code Section 401 may be
eligible for a tax-free rollover to either another qualified retirement plan or
to an individual retirement account or annuity (IRA). See "Rollovers" on page
21.
SECTION 403(B). Code Section 403(b) permits public school employees and
employees of certain types of charitable, educational and scientific
organizations specified in Section 501(c)(3) of the Code to purchase annuity
contracts, and, subject to certain limitations, to exclude the amount of
purchase payments from gross income for tax purposes. The Contract may be
purchased in connection with a Section 403(b) annuity program.
Section 403(b) annuities must generally be provided under a plan which meets
certain minimum participation, coverage, and nondiscrimination requirements.
Section 403(b) annuities are generally subject to minimum distribution
requirements similar to those applicable to retirement plans qualified under
Section 401 of the Code. See "Section 401" on page 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 21.
SECTION 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 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 a
traditional IRA may be made on a deductible or non-deductible basis. IRAs may
not be transferred, sold, assigned, discounted or pledged as collateral for a
loan or other obligation. The annual premium for an IRA may not be fixed and may
not exceed $2,000 (except in the case of a rollover contribution). Any refund of
premium must be applied to the payment of future premiums or the purchase of
additional benefits.
Sale of the Contract for use with IRAs may be subject to special requirements
imposed by the Internal Revenue Service. Purchasers of the Contract for such
purposes will be provided with such supplementary information as may be required
by the Internal Revenue Service or other appropriate agency, and will have the
right to revoke the Contract under certain circumstances. See the IRA Disclosure
Statement that accompanies this Prospectus.
In general, traditional IRAs are subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code; however, the required beginning date for traditional IRAs is generally
the date that the Contractowner reaches age 70 1/2--the Contractowner's
retirement date, if any, will not affect his or her required beginning date. See
"Section 401" on page 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 a traditional IRA may be eligible for a tax-free rollover
to another traditional IRA. In certain cases, a distribution from a traditional
IRA may be eligible to be rolled over to a retirement plan qualified under Code
Section 401(a) or a Section 403(b) annuity contract. See "Rollovers" on page 21.
SECTION 457. Section 457 of the Code permits employees of state and local
governments and units and agencies of state and local governments as well as
tax-exempt organizations described in Section 501(c)(3) of the Code to defer a
portion of their compensation without paying current taxes if those employees
are participants in an eligible deferred compensation plan. A Section 457 plan
may permit the purchase of Contracts to provide benefits thereunder.
Although a participant under a Section 457 plan may be permitted to direct or
choose methods of investment in the case of a tax-exempt employer sponsor, all
amounts deferred under the plan, and any income thereon, remain solely the
property of the employer and subject to the claims of its general creditors,
until paid to the participant. The assets of a Section 457 plan maintained by a
state or local government employer must be held in trust (or custodial account
or an annuity contract) for the exclusive benefit of plan participants, who will
be responsible for taxes upon distribution. A Section 457 plan must not permit
the distribution of a participant's benefits until the participant attains age
70 1/2, terminates employment or incurs an "unforeseeable emergency."
Section 457 plans are generally subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code. See "Section 401" on page 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. Security Benefit will
exercise voting rights attributable to the shares of each Series of the Fund
held in the Subaccounts at any regular and special meetings of the shareholders
of the Fund on matters requiring shareholder voting under the 1940 Act. In
accordance with its view of presently applicable law, Security Benefit will
exercise its voting rights based on instructions received from persons having
the voting interest in corresponding Subaccounts. However, if the 1940 Act or
any regulations thereunder should be amended, or if the present interpretation
thereof should change, and as a result Security Benefit determines that it is
permitted to vote the shares of the 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 your Contract Value in the corresponding Subaccount on a
particular date by the net asset value per share of the Series as of the same
date. Fractional votes will be counted. The number of votes as to which voting
instructions may be given will be determined as of the same date established by
the Mutual Fund for determining shareholders eligible to vote at the meeting of
the Fund. If required by the SEC, Security Benefit reserves the right to
determine in a different fashion the voting rights attributable to the shares of
the Mutual Fund. Voting instructions may be cast in person or by proxy.
Voting rights attributable to your Contract Value in a Subaccount for which
no timely voting instructions are received will be voted by Security Benefit in
the same proportion as the voting instructions that are received in a timely
manner for all Contracts participating in that Subaccount. Security Benefit will
also exercise the voting rights from assets in each Subaccount that are not
otherwise attributable to Contractowners, if any, in the same proportion as the
voting instructions that are received in a timely manner for all Contracts
participating in that Subaccount. Security Benefit generally will exercise
voting rights attributable to shares of the Series of 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 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 Security Benefit
management believes 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. Security Benefit may establish new Subaccounts in its sole
discretion, and will determine whether to make any new Subaccount available to
existing Owners. Security Benefit may also eliminate or combine one or more
Subaccounts if, in its sole discretion, marketing, tax, or investment conditions
so warrant.
Subject to compliance with applicable law, Security Benefit may transfer
assets to the General Account. Security Benefit also reserves the right, subject
to any required regulatory approvals, to transfer assets of any Subaccount to
another separate account or Subaccount.
In the event of any such substitution or change, Security Benefit may, by
appropriate endorsement, make such changes in these and other contracts as may
be necessary or appropriate to reflect such substitution or change. If Security
Benefit believes it to be in the best interests of persons having voting rights
under the Contracts, the Separate Account may be operated as a management
investment company under the 1940 Act or any other form permitted by law. The
Separate Account may be deregistered under that Act in the event such
registration is no longer required, or it may be combined with other separate
accounts of Security Benefit or an affiliate thereof. Subject to compliance with
applicable law, Security Benefit also may combine one or more Subaccounts and
may establish a committee, board, or other group to manage one or more aspects
of the operation of the Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS -- Security Benefit reserves the
right, without the consent of Owners, to suspend sales of the Contract as
presently offered and to make any change to the provisions of the Contracts to
comply with, or give Owners the benefit of, any federal or state statute, rule,
or regulation, including but not limited to requirements for annuity contracts
and retirement plans under the Internal Revenue Code and regulations thereunder
or any state statute or regulation. Security Benefit also reserves the right to
limit the amount and frequency of subsequent purchase payments.
REPORTS TO OWNERS -- Security Benefit will send you annually a statement setting
forth a summary of the transactions that occurred during the year, and
indicating the Contract Value as of the end of each year. In addition, the
statement will indicate the allocation of Contract Value among the Subaccounts
and any other information required by law. Security Benefit will also send
confirmations upon purchase payments, transfers and full and partial
withdrawals. Security Benefit may confirm certain transactions on a quarterly
basis. These transactions include systematic withdrawals and annuity payments.
You 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 each Series, as required by the 1940 Act, and/or such other
reports as may be required by federal securities laws.
TELEPHONE TRANSFER PRIVILEGES -- You may request a transfer of Contract Value by
telephone if the Telephone Transfer section of the application or an
Authorization for Telephone Requests form ("Telephone Authorization") has been
completed, signed, and filed at Security Benefit's Home Office. Security Benefit
has established procedures to confirm that instructions communicated by
telephone are genuine and will not be liable for any losses due to fraudulent or
unauthorized instructions provided it complies with its procedures. Security
Benefit's procedures require that any person requesting a transfer by telephone
provide the account number and the Owner's tax identification number and such
instructions must be received on a recorded line. Security Benefit reserves the
right to deny any telephone transfer request. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), you may not be able to request transfers by telephone and would
have to submit written requests.
By authorizing telephone transfers, you authorize Security Benefit to accept
and act upon telephonic instructions for transfers involving your Contract. You
agree that neither Security Benefit, any of its affiliates, nor SBL Fund, will
be liable for any loss, damages, cost, or expense (including attorneys' fees)
arising out of any telephone requests; provided that Security Benefit effects
such request in accordance with its procedures. As a result of this policy on
telephone requests, you bear the risk of loss arising from the telephone
transfer privilege. Security Benefit may discontinue, modify, or suspend the
telephone transfer privilege at any time.
LEGAL PROCEEDINGS -- There are no legal proceedings pending to which the
Separate Account is a party, or which would materially affect the Separate
Account.
LEGAL MATTERS -- Amy J. Lee, Esq., Associate General Counsel, Security Benefit,
has passed upon legal matters in connection with the issue and sale of the
Contracts described in this Prospectus, Security Benefit's authority to issue
the Contracts under Kansas law, and the validity of the forms of the Contracts
under Kansas law.
PERFORMANCE INFORMATION
Performance information for the Subaccounts, including the yield 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 and Subsidiaries at December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998, are contained in
the Statement of Additional Information. Financial statements for the Separate
Account are not yet available as no Contracts were issued prior to December 31,
1998.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to Security Benefit Life Insurance Company and
Subsidiaries. The Table of Contents of the Statement of Additional Information
is set forth below:
TABLE OF CONTENTS --
Page
GENERAL INFORMATION AND HISTORY............................................ 1
Safekeeping of Assets................................................... 1
DISTRIBUTION OF THE CONTRACT............................................... 1
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS...... 1
Section 401............................................................. 1
Section 403(b).......................................................... 1
Section 408............................................................. 2
Section 457............................................................. 2
EXPERTS.................................................................... 3
PERFORMANCE INFORMATION.................................................... 3
FINANCIAL STATEMENTS....................................................... 6
<PAGE>
PCG VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: MAY 1, 1999
INDIVIDUAL AND GROUP FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE
ANNUITY CONTRACT
ISSUED BY
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
1-800-888-2461
MAILING ADDRESS:
SECURITY BENEFIT LIFE INSURANCE COMPANY
P.O. BOX 750497
TOPEKA, KANSAS 66675-0497
1-800-888-2461
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current Prospectus for the PCG Variable Annuity dated
May 1, 1999, as it may be supplemented from time to time. A copy of the
Prospectus may be obtained from Security Benefit by calling 1-800-888-2461 or by
writing P.O. Box 750497, Topeka, Kansas 66675-0497.
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION AND HISTORY.......................................... 3
Safekeeping of Assets.................................................. 3
DISTRIBUTION OF THE CONTRACT............................................. 3
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS.... 3
Section 401............................................................ 3
Section 403(b)......................................................... 3
Section 408............................................................ 3
Section 457............................................................ 4
EXPERTS.................................................................. 4
PERFORMANCE INFORMATION.................................................. 4
FINANCIAL STATEMENTS..................................................... 5
<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 X (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 a 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 of Security Benefit Life Insurance Company
and Subsidiaries at December 31, 1998, and 1997 and for each of the three years
in the period ended December 31, 1998, appearing in this Statement of Additional
Information have been audited by Ernst & Young LLP, independent auditors, as set
forth in their 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 no contracts were issued prior to fiscal year-end December 31,
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 Subaccount), 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 may 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 and Subsidiaries' consolidated balance
sheets as of December 31, 1998, and 1997, and the related consolidated
statements of income, changes in equity, and cash flows for each of the three
years in the period ended December 31, 1998, are set forth starting on page 6.
The consolidated financial statements of Security Benefit Life Insurance Company
and Subsidiaries, which are included in this Statement of Additional
Information, should be considered only as bearing on the ability of the Company
to meet its obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets held in the Separate
Account.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The consolidated financial statements of Security Benefit Life
Insurance Company and Subsidiaries at December 31, 1998 and 1997,
and for each of the three years in the period ended December 31,
1998 are incorporated by reference to the financial statements
filed with the T. Rowe Price Variable Annuity Account's
Post-Effective Amendment No. 9 under the Securities Act of 1933 and
Amendment No. 10 under the Investment Company Act of 1940 to
Registration Statement No. 33-83238 (April 23, 1999).
(b) Exhibits
(1) Certified Resolution of the Board of Directors of Security
Benefit Life Insurance Company ("SBL") authorizing
establishment of the Separate Account(a)
(2) Not Applicable
(3) (a) Service Facilities Agreement(a)
(b) Variable Annuity Sales Agreement(b)
(c) Marketing Organization Agreement(b)
(4) (a) Individual Contract (Form V6026 7-98)(b)
(b) Individual Contract - Unisex (V6026 7-98u)(b)
(c) Group Contract (GV 6026 7-98)(b)
(d) Individual Retirement Annuity Endorsement (V6842A 1-97)(b)
(5) Form of Application (V7584 7-98)(b)
(6) (a) Composite of Articles of Incorporation of SBL(b)
(b) Bylaws of SBL(b)
(7) Automatic 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 Attorney 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
(a) Incorporated herein by reference to the exhibits filed with the
Registrant's Initial Registration Statement No. 333-52491 (May 12, 1998).
(b) Incorporated herein by reference to the Exhibits filed with the
Registrant's Pre-Effective Amendment No. 1 under the Securities Act of 1933
and Post-Effective Amendment No. 1 under the Investment Company Act of
1940, file No. 333-52491 (August 18, 1998).
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR
Howard R. Fricke* Chairman of the Board, Chief
Executive Officer and Director
Thomas R. Clevenger Director
P.O. Box 8514
Wichita, Kansas 67208
Sister Loretto Marie Colwell Director
1700 SW 7th Street
Topeka, Kansas 66044
John C. Dicus Director
700 Kansas Avenue
Topeka, Kansas 66603
Steven J. Douglass Director
3231 E. 6th Street
Topeka, Kansas 66607
William W. Hanna Director
P.O. Box 2256
Wichita, KS 67201
John E. Hayes, Jr. Director
200 Gulf Blvd.
Belleair Shore, FL 33786
Laird G. Noller Director
2245 Topeka Avenue
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
Donald J. Schepker* Senior Vice President, Chief
Financial Officer and Treasurer
Kris A. Robbins* President and Chief Operating Officer
Roger K. Viola* Senior Vice President, General
Counsel and Secretary
Malcolm E. Robinson* Senior Vice President and Assistant
to the Chairman and CEO
Richard K Ryan* Senior Vice President
John D. Cleland* Senior Vice President
Terry A. Milberger* Senior Vice President
Venette K. Davis* Senior Vice President
J. Craig Anderson* Senior Vice President
Gregory Garvin* Senior Vice President
Amy J. Lee* Associate General Counsel and
Vice President
James R. Schmank* Senior Vice President
Tom Swank* Vice President and Chief Investment
Officer
*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 Security Benefit Corp. through the ownership of 700,000
of SBL's 700,010 issued and outstanding shares of common stock. One
share each of SBL's issued and outstanding common stock is owned by
each director of SBL, in accordance with the requirements of Kansas
law. Security Benefit Corp. is wholly-owned by Security Benefit Mutual
Holding Company ("SBMHC"), which in turn is controlled by SBL
policyholders. No one person holds more than approximately 0.0004% of
the voting power of SBMHC. The Registrant is a segregated asset
account of SBL.
The following chart indicates the persons controlled by or under
common control with SBL Variable Annuity Account X or SBL:
PERCENT OF VOTING
JURISDICTION OF SECURITIES OWNED
NAME INCORPORATION BY SBMHC
Security Benefit Mutual
Holding Company (Holding (directly or
Company) Kansas indirectly)
Security Benefit Corp.
(Holding Company) Kansas 100%
Security Benefit Life Insurance
Company (Stock Life
Insurance Company) Kansas 100%
Security Benefit Group, Inc.
(Holding Company) Kansas 100%
Security Management Company, LLC
(Mutual Funds Management
Company) Kansas 100%
Security Distributors, Inc.
(Broker/Dealer, Principal
Underwriter of Mutual Funds) Kansas 100%
First Advantage Insurance
Agency, Inc. (Insurance Agency) Kansas 100%
Security Benefit Academy, Inc.
(Daycare Company) Kansas 100%
Creative Impressions, Inc.
(Advertising Agency) Kansas 100%
First Security Benefit Life
Insurance and Annuity
Company of New York New York 100%
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 Ultra Fund 32.0%
Security Growth and Income Fund 39.4%
SBL Fund 100%
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 1, 1999, 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) No director of the corporation shall be liable to the
corporation or its stockholders for monetary damages for breach
of his or her fiduciary duty as a director, PROVIDED that nothing
contained in this Article shall eliminate or limit the liability
of a director (a) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (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. If the General Corporation Code of the State of
Kansas is amended after the filing of these Articles of
Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the General
Corporation Code of the State of Kansas, as so amended.
(b) Any repeal or modification of the foregoing paragraph by
the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing
at the time of such repeal or modification.
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 Separate Account (Variflex and Variflex ES),
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 POSITION AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
------------------ ------------------
Richard K Ryan President and Director
John D. Cleland Vice President and Director
James R. Schmank Vice President and Director
Mark E. Young Vice President and Director
Amy J. Lee Secretary
Brenda M. Harwood Treasurer and Director
William G. Mancuso Regional Vice President
*700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by Section 31(a)
of the 1940 Act and the rules under it are maintained by SBL at its
administrative offices--700 Harrison Street, Topeka, Kansas
66636-0001.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a post-effective
amendment to this Registration Statement as frequently as
necessary to ensure that the audited financial statements in the
Registration Statement are never more than sixteen (16) months
old for so long as payments under the Variable Annuity contracts
may be accepted.
(b) Registrant undertakes that it will provide, as a part of the
Application Kit, a box for the applicant to check if he or she
wishes to receive a copy of the 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, 1998), 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 has caused this Registration Statement to be signed on its
behalf, in the City of Topeka, and State of Kansas on this 23rd day of April,
1999.
SIGNATURES AND TITLES
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of (The Depositor)
the Board and Chief
Executive Officer
By: ROGER K. VIOLA
Thomas R. Clevenger ---------------------------------------
Director Roger K. Viola, Senior Vice President,
General Counsel and Secretary as
Sister Loretto Marie Colwell Attorney-In-Fact for the Officers
Director and Directors Whose Names Appear
Opposite
John C. Dicus
Director SBL VARIFLEX VARIABLE ANNUITY ACCOUNT X
Steven J. Douglass By: SECURITY BENEFIT LIFE INSURANCE COMPANY
Director (The Depositor)
William W. Hanna
Director By: HOWARD R. FRICKE
---------------------------------------
John E. Hayes, Jr. Howard R. Fricke, Chairman of the
Director Board and Chief Executive Officer
Laird G. Noller By: DONALD J. SCHEPKER
Director ---------------------------------------
Donald J. Schepker, Senior Vice
Frank C. Sabatini President, Chief Financial Officer
Director and Treasurer
Robert C. Wheeler (ATTEST): ROGER K. VIOLA
Director ---------------------------------
Roger K. Viola, Senior Vice
President, General Counsel
and Secretary
Date: April 23, 1999
<PAGE>
EXHIBIT INDEX
(1) None
(2) None
(3) (a) None
(4) None
(5) None
(6) None
(7) Automatic Reinsurance Agreement
(8) None
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) None
(12) None
(13) None
(14) None
(15) Powers of Attorney
<PAGE>
AUTOMATIC REINSURANCE AGREEMENT
Between
SECURITY BENEFIT LIFE INSURANCE COMPANY
Topeka, Kansas
And
SWISS RE LIFE & HEALTH AMERICA INC.
New York, New York
This Agreement will be referred to as AGREEMENT NO. SA722-98.
<PAGE>
AUTOMATIC REINSURANCE AGREEMENT
CONTENTS
ARTICLE I Scope of Agreement
ARTICLE II Commencement & Termination of Liability
ARTICLE III Oversights - Clerical Errors
ARTICLE IV Mortality Net Amount At Risk
ARTICLE V Reinsurance Premiums
ARTICLE VI Reinsurance Administration
ARTICLE VII Settlement of Claims
ARTICLE VIII Tax Credits
ARTICLE IX Regulatory Compliance
ARTICLE X Inspection of Records
ARTICLE XI Insolvency
ARTICLE XII Arbitration
ARTICLE XIII Rights of Offsetting Balances Due
ARTICLE XIV Contract and Program Changes
ARTICLE XV Federal Taxes
ARTICLE XVI Parties to Agreement
ARTICLE XVII Confidentiality
ARTICLE XVIII Entire Agreement
ARTICLE XIX Duration of Agreement
ARTICLE XX Severability
Signature Page
EXHIBIT A - Variable Annuities Covered Under This Agreement
EXHIBIT B - Risk Classification Guidelines for Investment Offerings
EXHIBIT C - Loss Carryforward Definitions and Formulae
EXHIBIT D - YRT Reinsurance Premium Rates
<PAGE>
AUTOMATIC REINSURANCE AGREEMENT
THIS AGREEMENT between the SECURITY BENEFIT LIFE INSURANCE COMPANY, a
corporation organized under the laws of the State of Kansas, hereinafter
referred to as the "Company", and SWISS RE LIFE & HEALTH AMERICA INC., a
corporation organized under the laws of the State of New York, hereinafter
referred to as "Swiss Re Life & Health", WITNESSETH AS FOLLOWS:
DEFINITIONS
1. Aggregate Account Value is the sum of the Contract Values of all annuity
contracts reinsured hereunder that have not annuitized.
2. Contract Value shall have the meaning set forth in the policy form(s) of
the Company as specified in Exhibit A.
3. Guaranteed Death Benefit shall have the meaning set forth in the policy
form(s) of the Company as specified In Exhibit A.
4. Mortality Net Amount at Risk shall have the meaning set forth in Article
IV of this Agreement.
5. Contract Calculation Value will be determined at the end of each calendar
month. It will be either the Contract Value or Guaranteed Death Benefit of the
Annuity Contract (as defined below). The Contract Calculation Value will be each
Annuity Contract's Contract Value if the Aggregate Account Value for all Annuity
Contracts reinsured hereunder is greater than or equal to the Aggregate
Guaranteed Death Benefit for the same Annuity Contracts. The Contract
Calculation Value will be the Annuity Contract's Guaranteed Death Benefit if the
Aggregate Account Value for all Annuity Contracts reinsured hereunder is less
than the Aggregate Guaranteed Death Benefit for the same Annuity Contracts.
ARTICLE I
SCOPE OF AGREEMENT
1. On and after the later of the 1st day of September, 1998, and the first
date of issue of a variable annuity contract reinsured hereunder ("effective
date"), the Company shall automatically reinsure with Swiss Re Life & Health,
and Swiss Re Life & Health shall automatically accept, a 50% quota share of the
Mortality Net Amount at Risk, as defined in Article IV, generated prior to
annuitization or complete surrender by the contract owner, by the Guaranteed
Death Benefit.
2. Swiss Re Life & Health's maximum aggregate liability in any one calendar
year shall not exceed 2% (200 basis points) of Swiss Re Life & Health's quota
share percentage of the average Aggregate Account Value over each respective
calendar year of coverage. This average shall be calculated by totaling the
Aggregate Account Value as of the end of each calendar month and dividing the
result by the number of months that reinsurance has been inforce in that
respective calendar year.
3. Swiss Re Life & Health's maximum liability on any one life reinsured
hereunder shall be Ten Million Dollars ($10,000,000), multiplied by the quota
share percentage reinsured by Swiss Re Life & Health specified in paragraph 1 of
this Article, and calculated as specified in Article IV of this Agreement.
4. This Agreement covers only the Company's liability for claims paid under
variable annuity contracts written on the contract forms specified in Exhibit A
and supported by funds that conform to the Risk Classification Guidelines set
forth in Exhibit B. The automatic provisions of this Agreement shall not extend
to variable annuity contracts covered under this Agreement that are supported by
funds outside the established Risk Classification Guidelines. New funds may be
established by a Registered Investment Advisor (RIA) and may be added as covered
funds under this Agreement according to the procedures set forth in Paragraph 5,
Paragraph 6 and Paragraph 7 of this Article.
5. From time to time a RIA may establish a new mutual fund to support the
variable annuity contracts theretofore reinsured under this Agreement. The
Company agrees to assess the Risk Classification of the new fund according to
the guidelines set forth in Exhibit B. Any and all funds so established shall be
submitted to Swiss Re Life & Health prior to issue, with the Risk Classification
category determined by the Company. Swiss Re Life & Health shall have the right,
within 10 business days of receipt of the submission, to disagree with the risk
Class assessed by the Company. Should the Company and Swiss Re Life & Health be
unable to reach a consensus of opinion concerning the appropriate Risk
Classification, then the facultative provisions of this Agreement, set forth in
paragraph 6 of this Article, shall be invoked. Should the company receive no
response from Swiss Re Life & Health to its fund submission, then the Company
may assume that Swiss Re Life & Health is in agreement with the assigned Risk
Classification.
6. The Company may submit for facultative consideration a class of variable
annuity contracts covered under this Agreement, that are supported by funds
outside the established Risk Classification Guidelines. The Company shall
promptly notify Swiss Re Life & Health of its desire to secure reinsurance
coverage under one of the existing Risk Classifications or under a new Risk
Classification Category. The Company shall supply Swiss Re Life & Health with
documentation it may require to make its determination, such as, but not limited
to, a fund or company prospectus. Swiss Re Life & Health shall promptly render a
facultative decision, generally within ten (10) business days of receipt of any
documentation that it may require to make its decision. Swiss Re Life & Health
may either accept, on the same or revised terms, or decline the reinsurance. If
Swiss Re Life & Health makes an offer of terms to reinsure the funds under an
existing or a new Risk Classification Category, or with new reinsurance terms,
the Company must formally accept the offer in writing in order to effect the
reinsurance. Acceptance by the Company of a facultative offer made by Swiss Re
Life & Health shall become a formal Amendment to this Agreement. Should Swiss Re
Life & Health decline the risk then no reinsurance shall be in effect on the
variable annuity contracts supported by the fund(s) declined for reinsurance.
Further, when Swiss Re Life & Health declines the fund of a RIA for reinsurance,
and when the Company nevertheless decides to issue the fund that has been
declined, then the Company shall recapture, under the terms set forth in Article
XIX, all reinsurance inforce supported by other funds from the same RIA.
7. After approval and classification made by the company and Swiss Re Life &
Health, the classification of a Fund will remain unchanged as long as the then
current Fund prospectus remains unchanged and effective with the Securities and
Exchange Commission (SEC). Classifications will be reviewed if there is a change
in the investment objective or securities made available to the Fund as the same
are approved by the Fund's board of directors and reflected in the fund's
current prospectus.
ARTICLE II
COMMENCEMENT & TERMINATION OF LIABILITY
1. On reinsurance ceded under the terms of this Agreement, the liability of
Swiss Re Life & Health shall commence simultaneously with that of the Company,
and shall terminate upon the earliest of annuitization of a contract, complete
surrender of a contract or termination of this Agreement in accordance with the
applicable provisions of Article XIX of this Agreement.
2. Swiss Re Life & Health shall be liable to reimburse claims on only those
deaths where the date of death is on or after the effective date of this
Agreement, in accordance with Article VII.
ARTICLE III
OVERSIGHTS - CLERICAL ERRORS
1. Should either the Company or Swiss Re Life & Health fail to comply with
any of the terms of this Agreement, and if this is shown to be unintentional and
the result of a misunderstanding, oversight or clerical error on the part of
either the Company or Swiss Re Life & Health, then this Agreement shall not be
deemed abrogated thereby, but both companies shall be restored to the position
they would have occupied had no such oversight, misunderstanding, or clerical
error occurred. Such conditions are to be reported and corrected promptly after
discovery.
2. If the Company or Swiss Re Life & Health discovers that the Company did
not cede reinsurance on a contract it should have reinsured under this
Agreement, the Company will take reasonable and necessary steps to ensure that
similar oversights do not recur. If Swiss Re Life & Health receives no evidence
that the Company has taken action to remedy such a situation, Swiss Re Life &
Health reserves the right to limit its liability to reported contracts only.
3. Swiss Re Life & Health is not liable for Extra Contractual Obligations
that may arise from willful and/or negligent acts or omissions by the Company.
Extra Contractual Obligations are obligations outside of the contractual
obligations and include but are not limited to punitive damages, bad faith
damages, compensatory damages, and other damages or statutory penalties.
ARTICLE IV
MORTALITY NET AMOUNT AT RISK
1. The Mortality Net Amount at Risk for each variable annuity contract
reinsured hereunder shall be equal to the difference between the Guaranteed
Death Benefit and the Contract Value of the annuity. The reinsured Mortality Net
Amount at Risk shall not be less than zero and shall not be greater than the
product of Ten Million Dollars ($10,000,000) per life and the quota share
percentage set forth in Article I.
2. For periodic reporting purposes described in Article VI, the Mortality Net
Amount at Risk shall be calculated as of the last day of each calendar month.
ARTICLE V
REINSURANCE PREMIUMS
1. (a) Reinsurance premiums shall be calculated monthly and shall be equal to
the sum of the YRT monthly premiums for each Annuity Contract . The YRT
monthly premium for a specific Annuity Contract shall be equal to one
twelfth (1/12) of 80% of the 1988 U.S. Life Mortality Table, as filed
under Exhibit D of this Agreement, multiplied by the product of the
contract's Mortality Net Amount at Risk for the period and Swiss Re Life &
Health's quota share percentage, subject to the minimum and maximum
monthly premiums stated in 1(b) and 1(c), below.
(b) The minimum monthly premium shall be equal to the sum of the minimum
monthly premiums for each Annuity Contract. The minimum monthly premium
for a specific Annuity Contract shall be equal to the product of the
minimum monthly premium rate and Swiss Re Life & Health's quota share
percentage of the Contract Calculation Value. The minimum monthly premium
rate, by Risk Classification and Issue Age (for joint owners, use oldest
age), expressed in basis points, shall be equal to:
RISK CLASSIFICATION ISSUE AGE *MINIMUM MONTHLY PREMIUM RATE
Conservative 0-49 0.1042
50-59 0.1667
60-69 0.3333
70-75 0.5000
Moderate 0-49 0.1250
50-59 0.2500
60-69 0.5000
70-75 0.7500
Aggressive 0-49 0.1667
50-59 0.3333
60-69 0.5833
70-75 1.0000
*Weighted average may apply. See Paragraph 1(d) of this Article.
The total reinsurance premium in any month shall at least equal Five
Hundred Dollars ($500) in year one and year two of this Agreement and One
Thousand Dollars ($1,000) in year three of this Agreement.
(c) The maximum monthly premium shall be equal to the sum of the maximum
monthly premiums for each Annuity Contract. The maximum monthly premium
for a specific Annuity Contract shall be equal to the product of the
maximum monthly premium rate and Swiss Re Life & Health's quota share
percentage of the Contract Calculation Value.
The maximum monthly premium rate, by Risk Classification and Issue Age
(for joint owners, use oldest age), expressed in basis points, shall be
equal to:
RISK CLASSIFICATION ISSUE AGE *MAXIMUM MONTHLY PREMIUM RATE
Conservative 0-49 0.1875
50-59 0.3333
60-69 0.5833
70-75 0.9167
Moderate 0-49 0.2083
50-59 0.4167
60-69 0.9167
70-75 1.3333
Aggressive 0-49 0.2500
50-59 0.5000
60-69 1.0833
70-75 1.7500
*Weighted average may apply. See Paragraph 1(d) of this Article.
(d) Should a policy's fund allocation be distributed under more than one
Risk Classification, then the reinsurance premium rate shall be determined
by a weighted average. A ratio for each policy shall be calculated of the
Current Contract Value by risk class to the total Current Contract Value
for the policy. Each resulting ratio shall be applied to each appropriate
monthly premium rate by issue age and then totaled to achieve the weighted
monthly premium rate for a policy.
2. The monthly reinsurance premium shall be due and payable as described in
Article VI. Swiss Re Life & Health reserves the right to charge interest on
premiums not remitted in accordance with the schedule set forth in Article VI.
The interest rate payable by the Company to Swiss Re Life & Health for overdue
premiums shall be the 90 Day Federal Government Treasury Bill rate as first
published in the Wall Street Journal in the month following the end of the
billing period plus 50 basis points. The method of calculation shall be simple
interest "Bankers' Rule" (or 360 day year).
3. The reinsurance premium structure described above shall remain in effect
as long as the Guaranteed Death Benefit design, the contract fees, the mortality
and expense charges, the administration fees, and the surrender charges, for
contracts specified in Exhibit A, in effect at the inception of this Agreement
remain unchanged.
ARTICLE VI
REINSURANCE ADMINISTRATION
1. Within thirty (30) days of the end of each calendar month, the Company
will furnish Swiss Re Life & Health a separate electronic report for each
annuity contract design specified in Exhibit A, valued as of the last day of
that month. Each report will indicate for all inforce annuities reinsured
hereunder:
a) Annuitant's name, sex, date of birth, issue age and
social security number
b) Owner's name, sex, date of birth, issue age and social security number
c) Contract number
d) Contract issue date
e) Contract form number
f) Tax status
g) Current contract value in total and by funding vehicle, if any
h) Current cash surrender value
i) Cumulative net considerations
j) Current Guaranteed Death Benefit
k) Current contract death benefit
l) Current contract Mortality Net Amount at Risk
2. Additionally, within thirty (30) days of the end of each calendar month,
the Company will furnish Swiss Re Life & Health with a separate seriatim
termination report, indicating the following:
a) Termination by death
b) Termination by lapse
c) Termination by annuitization
3. Additionally, within thirty (30) days of the end of each calendar month,
the Company will furnish Swiss Re Life & Health a report summarizing the
following data:
a) Reinsurance premiums due Swiss Re Life & Health
b) Death claim reimbursements due the Company
c) Total number of contracts reinsured
d) Total current contract value
e) Total cumulative net considerations
f) Total current Guaranteed Death Benefit
g) Total current death benefit
h) Total current mortality risk amount
4. If the net balance is due Swiss Re Life & Health, the amount due shall be
remitted with the report statement. If the net balance is due the Company, Swiss
Re Life & Health shall remit the amount to the Company within ten (10) days of
the receipt of the report. If the net balance due the Company is not remitted
within ten (10) days of the receipt of the report, the Company reserves the
right to charge interest on such net balance, and Swiss Re Life & Health agrees
to pay the interest so accrued. Interest on the net balance due the Company
shall be calculated in the same manner set forth in Article V, Paragraph 2.
ARTICLE VII
SETTLEMENT OF CLAIMS
1. The claims that are eligible for reimbursement are only those that the
Company is required to pay on deaths that occur on or after the effective date
of this Agreement.
2. In the event the Company provides satisfactory proof of claim to Swiss Re
Life & Health, claim settlements made by the Company shall be unconditionally
binding on Swiss Re Life & Health. Satisfactory proof of death shall be defined
as either a certified copy of the death certificate, a certified decree of a
court of competent jurisdiction as to the finding of death, or a written
statement by a medical doctor who attended the deceased Owner.
3. The death claim reimbursed by Swiss Re Life & Health shall be determined
as of the date due proof of death is received at the Company's Annuity Service
office.
4. Within thirty (30) days of the end of each month, the Company shall notify
Swiss Re Life & Health of the reinsured death benefits paid in that month and
Swiss Re Life & Health shall reimburse the Company, as provided in Article VI,
for the reinsured benefits.
5. Settlements by Swiss Re Life & Health shall be in a lump sum regardless of
the mode of payment made by the Company to the beneficiary.
ARTICLE VIII
TAX CREDITS
1. Swiss Re Life & Health shall not reimburse the Company for state premium
taxes.
ARTICLE IX
REGULATORY COMPLIANCE
1. Swiss Re Life & Health agrees to comply with all regulatory directives
required to permit the Company to receive statutory reserve credit for the
reinsurance ceded under this Agreement.
2. The Company warrants that it has secured all necessary federal and state
licenses and approvals, and that it is operating in all material respects in
compliance with federal investment laws and state investment and insurance laws
and regulations.
ARTICLE X
INSPECTION OF RECORDS
1. Swiss Re Life & Health, or its duly appointed representatives, shall have
the right at its own expense and for any reasonable purpose to inspect at the
office of the Company all records referring to reinsurance ceded to Swiss Re
Life & Health. Such inspections shall take place only during the Company's
normal business hours.
ARTICLE XI
INSOLVENCY
1. A party to this Agreement will be deemed "insolvent" when it:
(a) Applies for or consents to the appointment of a receiver,
rehabilitator, conservator, liquidator or statutory successor
(hereinafter referred to as the Authorized Representative) of its
properties or assets; or
(b) Is adjudicated as bankrupt or insolvent; or
(c) Files or consents to the filing of a petition in bankruptcy, seeks
reorganization or an arrangement with creditors or takes advantage of
any bankruptcy, dissolution, liquidation, or similar law or statute;
or
(d) Becomes the subject of an order to rehabilitate or an order to
liquidate as defined by the insurance code of the jurisdiction of the
party's domicile.
2. In the event of the insolvency of the Company, all reinsurance made,
ceded, renewed or otherwise becoming effective under this Agreement shall be
payable by Swiss Re Life & Health directly to the Company or to its Authorized
Representative on the basis of the liability of the Company under the contract
or contracts reinsured without diminution because of the insolvency of the
Company. It is understood, however, that in the event of the insolvency of the
Company, the Authorized Representative of the insolvent Company shall give
written notice of the pendency of a claim against the insolvent Company on the
policy reinsured within a reasonable time after such claim is filed in the
insolvency proceeding and that, during the pendency of such claim, Swiss Re Life
& Health may investigate such claim and interpose, at its own expense, in the
proceeding where such claim is to be adjudicated, any defense or defenses which
it may deem available to the Company or to its Authorized Representative.
3. It is further understood that the expense thus incurred by Swiss Re Life &
Health shall be chargeable, subject to court approval, against the insolvent
Company as part of the expense of liquidation to the extent of a proportionate
share of the benefit which may accrue to the Company solely as a result of the
defense undertaken by Swiss Re Life & Health. Where two or more assuming
insurers are involved in the same claim and a majority in interest elect to
interpose defense to such claim, the expense shall be apportioned in accordance
with the terms of this Reinsurance Agreement as though such expense had been
incurred by the Company.
4. In the event of the insolvency of Swiss Re Life & Health and the
appointment of receivers therefor, the liability of Swiss Re Life & Health shall
not terminate but shall continue with respect to the reinsurance ceded to Swiss
Re Life & Health by the Company prior to the date of such insolvency or
appointment.
ARTICLE XII
ARBITRATION
1. In the event of any difference arising hereafter between the contracting
parties with reference to any transaction under this Agreement, the same shall
be referred to three arbitrators who must be current or former executive
officers of life insurance or life reinsurance companies other than the two
parties to this Agreement or their affiliates, each of the contracting companies
to appoint one of the arbitrators and such two arbitrators to select the third.
If either party refuses or neglects to appoint an arbitrator within 60 days
after receipt of the written request for arbitration, the other party may
appoint a second arbitrator.
2. If the two arbitrators fail to agree on the selection of a third
arbitrator within 60 days of their appointment, each of them shall name three
individuals, of whom the other shall decline two, and the decision shall be made
by drawing lots.
3. The arbitrators shall consider this Reinsurance Agreement not merely as a
legal document but also as a gentlemen's agreement. In resolving the dispute,
the arbitrators will give full consideration to the customs and practices of the
life insurance and life reinsurance industry, insofar as they are not in
conflict with the specific terms of this Agreement. The arbitrators shall decide
by a majority vote. There shall be no appeal from their written decision.
4. Unless the arbitrators decide otherwise, each party shall bear the expense
of its own arbitration, including its arbitrator and outside attorney fees, and
shall jointly and equally bear with the other party the expense of the third
arbitrator. Any remaining costs of the arbitration proceedings shall be
apportioned by the Board of Arbitrators.
ARTICLE XIII
RIGHT OF OFFSETTING BALANCES DUE
1. The Company and Swiss Re Life & Health shall have, and may exercise at any
time, the right to offset any balance or balances due one party to the other,
its successors or assigns, against balances due the other party under this
Agreement or under any other Agreements or Contracts previously or subsequently
entered into between the Company and Swiss Re Life & Health. This right of
offset shall not be affected or diminished because of insolvency of either party
to this Agreement.
ARTICLE XIV
CONTRACT AND PROGRAM CHANGES
1. The Company may amend, substitute, add or delete variable investment funds
to the investment funds supporting the annuity contract as described in the
contract general provisions. No such change will be made by the Company without
prior notification to Swiss Re Life & Health and without the prior approval of
the Securities and Exchange Commission, if necessary.
2. The Company shall also give Swiss Re Life & Health advance notice of any
material change to the contract form.
3. Should any such change result in a material increase in the reinsured Net
Amount at Risk and/or material decrease in the reinsurance premiums due, Swiss
Re Life & Health shall have the right to modify the premium required hereunder.
ARTICLE XV
FEDERAL TAXES
1. The Company and Swiss Re Life & Health hereby agree to the following
pursuant to Section 1.848-2(g)(8) of the Income Tax Regulation issued December
1992, under Section 848 of the Internal Revenue Code of 1986, as amended. This
election shall be effective as of the Effective Date of this Agreement and for
all subsequent taxable years for which this Agreement remains in effect.
(a) The term "party" will refer to either the Company or Swiss Re Life &
Health, as appropriate.
(b) The terms used in this Article are defined by reference to Regulation
1.848-2 in effect December 1992.
(c) The party with the net positive consideration for this Agreement for
each taxable year will capitalize specified policy acquisition
expenses with respect to this Agreement without regard to the general
deductions limitation of Section 848(c)(1).
(d) Both parties agree to exchange information pertaining to the amount of
net consideration under this Agreement each year to ensure consistency
or as otherwise required by the Internal Revenue Service.
(e) The Company will submit a schedule to Swiss Re Life & Health by May 1
of each year of its calculation of the net consideration for the
preceding calendar year. This schedule of calculations will be
accompanied by a statement stating that the Company will report such
net consideration in its tax return for the preceding calendar year.
(f) Swiss Re Life & Health may contest such calculation by providing an
alternative calculation to the Company by June 1. If Swiss Re Life &
Health does not so notify the Company, the Company will report the net
consideration as determined by the Company in the Company's tax return
for the previous calendar year.
(g) If Swiss Re Life & Health contests the Company's calculation of the
net consideration, the parties will act in good faith to reach an
agreement as to the correct amount by July 1. If the Company and Swiss
Re Life & Health reach agreement on an amount of the net
consideration, each party shall report such amount in their respective
tax returns for the previous calendar year.
2. Swiss Re Life & Health and the Company represent and warrant that they are
subject to U.S. taxation under Subchapter L of Chapter 1 of the Internal Revenue
Code.
ARTICLE XVI
PARTIES TO AGREEMENT
1. This Agreement is an indemnity reinsurance agreement solely between the
Company and Swiss Re Life & Health. The acceptance of reinsurance hereunder
shall not create any right or legal relation whatever between Swiss Re Life &
Health and the annuitant, owner, beneficiary or any other party under any
contracts of the Company which may be reinsured hereunder, and the Company shall
be and remain solely liable to such parties under such contracts reinsured
hereunder.
2. This Agreement shall be binding upon the parties hereto and their
respective successors and assigns.
ARTICLE XVII
CONFIDENTIALITY
1. All matters with respect to this Agreement require the utmost good faith
of both parties. Both the Company and Swiss Re Life & Health shall hold
confidential and not disclose or make competitive use of any shared proprietary
information unless otherwise agreed to in writing, or unless the information
otherwise becomes publicly available or the disclosure of which is required for
retrocession purposes or has been mandated by law or is duly required by
external auditors.
ARTICLE XVIII
ENTIRE AGREEMENT
1. This Agreement shall constitute the entire agreement between the parties
with respect to business reinsured hereunder. There are no understandings
between the parties other than as expressed in this Agreement and any change or
modification of this Agreement shall be null and void unless made by amendment
to the Agreement and signed by both parties.
ARTICLE XIX
DURATION OF AGREEMENT
1. This Agreement shall be unlimited as to its duration but may be reduced or
terminated as provided in this Article, below.
2. This Agreement shall be open for new business for a minimum of three (3)
years as measured from the effective date of this agreement. Any time on or
after the third anniversary of this Agreement and upon 180 days written notice,
either the Company or Swiss Re Life & Health may either cancel this Agreement
for new business unilaterally or amend the terms of reinsurance for new business
by mutual agreement.
3. Any time on or after the fifteenth anniversary of this Agreement, the
Company may, upon 90 days written notice, irrevocably elect to cancel the
reinsurance in force under this Agreement, provided the loss carryforward,
calculated as described in Exhibit C of this Agreement, is non-negative. Upon
election, the reinsurance shall be recaptured at a constant rate by reducing the
quota share percentage set forth in Article I, paragraph 1, by 1.39% per month.
The reduction shall begin in the month of election and continue for 36
consecutive months. The quota share percentage will then be equal to 0% and the
reinsurance ceded hereunder will be fully recaptured and this Agreement will
then be terminated.
4. Under the provisions set forth in Article I, Paragraph 6, any recapture
that is occasioned by Swiss Re Life & Health's declination of reinsurance of a
specific RIA's fund(s), shall occur within 90 days of Swiss Re Life & Health's
notice of decline made to the Company. Upon receipt of said notification, the
Company shall promptly notify Swiss Re Life & Health of the effective date,
occurring within the 90 day time period, that recapture will effected. Such
recapture shall be in full and permanent as of the effective date.
5. Should the Company fail to pay reinsurance premiums when due, Swiss Re
Life & Health may act to suspend the reinsurance coverage hereunder. Such
suspension shall not occur before reinsurance premiums are 90 days or more in
arrears, and shall only take effect upon the expiration of a 30-day notice
period that Swiss Re Life & Health must give the Company. The reinsurance
coverage will be reinstated at the option of Swiss Re Life & Health upon receipt
of all the overdue premiums. However, Swiss Re Life & Health shall have no
liability for claims that occur during a period of suspension. Also, suspension
of reinsurance coverage shall not relieve the Company of liability for premiums
due Swiss Re Life & Health during the period of non-payment prior to suspension
and shall not relieve Swiss Re Life & Health of liability for claims during the
same period.
6. The Company may cancel this Agreement for new business and cancel the
inforce reinsurance previously ceded under this Agreement upon the occurrence of
either of the following events:
(a) The statutory capital and surplus of Swiss Re Life & Health falls
below the NAIC Authorized Control Level Risk Based Capital; or
(b) The Company loses reserve credit in a jurisdiction in which it was
licensed on the effective date of this Agreement and the Company and
Swiss Re Life & Health have not been able to correct the loss of
reserve credit within 90 days after receiving notice of the loss.
ARTICLE XX
SEVERABILITY
1. If any provision of this Agreement is determined to be invalid or
unenforceable, such determination will not affect or impair the validity or the
enforceability of the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the Company and Swiss Re Life & Health have caused their
names to be subscribed and duly attested hereunder by their respective
Authorized Officers.
SECURITY BENEFIT LIFE INSURANCE COMPANY
By: BRANDT BROCK Attest: ROGER OFFERMAN
-------------------------------- ----------------------------
Title: VP Product & Market Development Title: Asst. VP and Assoc. Actuary
-------------------------------- ----------------------------
Date: 11-30-98 Date: 11-30-98
-------------------------------- ----------------------------
SWISS RE LIFE & HEALTH AMERICA INC.
By: PHILIP N. VELAZQUEZ Attest: JULIA CORNELY
-------------------------------- ----------------------------
Title: Actuary Title: Reinsurance Services Officer
-------------------------------- ----------------------------
Date: 12/2/98 Date: 12/2/98
-------------------------------- ----------------------------
<PAGE>
EXHIBIT A
Variable Annuities Covered Under This Agreement
I. Contract Data
Product Name Registered Investment Advisors Product
Policy Form Number V6026
Endorsement Number 6842A (Individual Retirement Annuity Endorsement
II. Issue Dates Covered
Issue Dates on or after the later of the 1st day of September, 1998, and
the first date of issue of a variable annuity contract reinsured
hereunder.
III. Guaranteed Death Benefit Design
Return of Premium reduced proportionately for partial withdrawals.
Applies to issue ages 75 or less (Joint policies, issue age determined
by age of oldest contract owner or annuitant).
<PAGE>
EXHIBIT B
Risk Classification Guidelines for Investment Offerings
Each underlying mutual fund of a Sub-account (each "Fund") will be categorized
according to one of the following risk classifications:
Conservative
Moderate
Aggressive
Conservative risk Funds are those that exhibit minimal volatility under normal
market conditions. The Fund is often seeking current income consistent with
capital preservation. Capital appreciation is of a secondary concern. The Fund
may seek current income by investing in income producing equities, debt
instruments, or mutual funds. Moderate risk Funds are those that exhibit
moderate volatility under normal market conditions. The primary focus of the
Fund is often to provide capital appreciation rather than current income. The
capital appreciation focus is often accomplished through the investment in
equity securities or equity mutual funds. However, other securities or mutual
funds may be used to provide stability and diversification. Aggressive risk
Funds are those that have the potential for high volatility even under normal
market conditions. The objective of the Fund will often be to seek rapid growth
in capital. This may be achieved by investing in securities (equities and debt
securities) of, or mutual funds invested in, emerging markets. This may include
investment techniques such as heavy sector concentrations, leveraging and
short-selling.
Guidelines for maximum percentages of investments in equity securities traded on
an exchange, equity mutual funds, bonds and bond mutual funds, and cash
instruments or money market mutual funds for each risk category are outlined
below:
Conservative Moderate Aggressive
MAX MAX MAX
Equity 60% 80% 100%
Bond 60% 40% 20%
Cash 40% 30% 20%
Guidelines for maximum percentages of investments in large-cap securities or
large-cap mutual funds, small and mid-cap securities or small and mid-cap mutual
funds, and international securities, bonds or equities or international funds,
are outlined below as a percent of total investments in equity funds (Mutual
Funds will be categorized using the Morningstar Style Box Classification):
Conservative Moderate Aggressive
MAX MAX MAX
Large-Cap 60% 70% 100%
Small and Mid-Cap 60% 70% 75%
International 30% 40% 50%
The above percentages are only guidelines to be used in the classification of
Funds. Other securities than those listed in the above guidelines may be held by
the Fund. These other holdings will be evaluated based on their description as
provided in the fund prospectus as made effective by the SEC. Final
classifications of the Funds will be made based on the risk characteristics of
the investment objective and potential holdings of the Fund as described in its
current prospectus. Classifications will be reviewed if there is a change in the
investment objective or securities made available to the Fund as the same are
approved by the Fund's board of directors and reflected in the Fund's current
prospectus. After approval and classification made by the Company and Swiss Re
Life & Health, the classification of a given Fund will remain unchanged as long
as the then current Fund prospectus remains unchanged and effective with the
SEC.
<PAGE>
EXHIBIT C
Loss Carryforward
Definitions and Formulae
t = current month
q = current quarter
(SIGMA)AVt = Sum total of Swiss Re Life & Health's quota share
percentage of account values at end of month t
Avg. AVt = 50% of ((SIGMA)AV t-1 + (SIGMA)AVt)
(SIGMA)GMDBt = Sum total of Swiss Re Life & Health's quota share
percentage of guaranteed minimum death benefits at
end of month t
Avg. GMDBt = 50% of ((SIGMA)GMDBt-1 + (SIGMA)GMDBt)
APR = annualized premium rate for each product combination
MPR = Monthly premium rate for each product combination
= (APR / 12)
RPt = Reinsurance premiums due at end of month t
DBRt = Death benefit recoveries in month t
= Sum of individual reinsured variable net risk amounts
reimbursed upon death
DBRo = 0
MECt = Monthly expense charge for month t, applied to average
aggregate account value over the month
= (2.0 basis points / 12) x Avg. AVt
MECo = 0
CFWDt = Carryforward from month (t-1), adjusted for interest
= [AdjPt-1 x (1+CIRt)]
CFWD1 = 0
CIRt = Carryforward interest rate for month t
= (Avg. 90-Day U.S. Treasury bill rate for month
t + 2.0%) / 12
AdjPt = Adjusted profit for all products reinsured hereunder for
month t
= RPt-DBRt-MECt+CFWDt
AdjPo = 0
AdjPy = Adjusted profit for calendar year y
Note: This Loss Carryforward methodology will be applied to all
classes of risks reinsured under this agreement as though they
were one class.
<PAGE>
EXHIBIT D
YRT RATES PER $1.OO OF RISK
1988 US LIFE TABLE
---------------------------- ------------------------------
Age Male Female Age Male Female
---------------------------- ------------------------------
Qx qx qx qx
---------------------------- ------------------------------
0 0.00955 0.00747 49 0.00532 0.00294
---------------------------- ------------------------------
1 0.00074 0.00055 50 0.00574 0.00326
---------------------------- ------------------------------
2 0.00054 0.00042 51 0.00633 0.00360
---------------------------- ------------------------------
3 0.00040 0.00034 52 0.00700 0.00399
---------------------------- ------------------------------
4 0.00033 0.00027 53 0.00777 0.00440
---------------------------- ------------------------------
5 0.00029 0.00023 54 0.00864 0.00487
---------------------------- ------------------------------
6 0.00028 0.00021 55 0.00957 0.00536
---------------------------- ------------------------------
7 0.00026 0.00018 56 0.01057 0.00591
---------------------------- ------------------------------
8 0.00023 0.00016 57 0.01168 0.00650
---------------------------- ------------------------------
9 0.00020 0.00014 58 0.01289 0.00715
---------------------------- ------------------------------
10 0.00017 0.00013 59 0.01421 0.00786
---------------------------- ------------------------------
11 0.00018 0.00013 60 0.01565 0.00864
---------------------------- ------------------------------
12 0.00024 0.00015 61 0.01717 0.00946
---------------------------- ------------------------------
13 0.00041 0.00021 62 0.01872 0.01032
---------------------------- ------------------------------
14 0.00061 0.00029 63 0.02030 0.01122
---------------------------- ------------------------------
15 0.00085 0.00037 64 0.02191 0.01216
---------------------------- ------------------------------
16 0.00107 0.00047 65 0.02359 0.01317
---------------------------- ------------------------------
17 0.00125 0.00052 66 0.02546 0.01428
---------------------------- ------------------------------
18 0.00136 0.00054 67 0.02761 0.01556
---------------------------- ------------------------------
19 0.00144 0.00053 68 0.03018 0.01703
---------------------------- ------------------------------
20 0.00150 0.00051 69 0.03311 0.01870
---------------------------- ------------------------------
21 0.00157 0.00050 70 0.03633 0.02054
---------------------------- ------------------------------
22 0.00162 0.00049 71 0.03973 0.02253
---------------------------- ------------------------------
23 0.00162 0.00050 72 0.04335 0.02468
---------------------------- ------------------------------
24 0.00160 0.00051 73 0.04722 0.02698
---------------------------- ------------------------------
25 0.00156 0.00052 74 0.05134 0.02947
---------------------------- ------------------------------
26 0.00154 0.00054 75 0.05601 0.03223
---------------------------- ------------------------------
27 0.00154 0.00055 76 0.06048 0.03534
---------------------------- ------------------------------
28 0.00156 0.00057 77 0.06604 0.03886
---------------------------- ------------------------------
29 0.00163 0.00059 78 0.07197 0.04289
---------------------------- ------------------------------
30 0.00169 0.00061 79 0.07855 0.04754
---------------------------- ------------------------------
31 0.00176 0.00064 80 0.08587 0.05288
---------------------------- ------------------------------
32 0.00182 0.00067 81 0.09399 0.05908
---------------------------- ------------------------------
33 0.00190 0.00071 82 0.10306 0.06635
---------------------------- ------------------------------
34 0.00196 0.00077 83 0.11316 0.07495
---------------------------- ------------------------------
35 0.00205 0.00082 84 0.12444 0.08531
---------------------------- ------------------------------
36 0.00215 0.00089 85 0.13685 0.09710
---------------------------- ------------------------------
37 0.00226 0.00095 86 0.15050 0.11053
---------------------------- ------------------------------
38 0.00236 0.00104 87 0.16551 0.12581
---------------------------- ------------------------------
39 0.00247 0.00112 88 0.18201 0.14320
---------------------------- ------------------------------
40 0.00260 0.00121 89 0.20016 0.16299
---------------------------- ------------------------------
41 0.00276 0.00132 90 0.22012 0.18553
---------------------------- ------------------------------
42 0.00294 0.00145 91 0.24207 0.21117
---------------------------- ------------------------------
43 0.00315 0.00160 92 0.26621 0.24036
---------------------------- ------------------------------
44 0.00338 0.00176 93 0.29276 0.27359
---------------------------- ------------------------------
45 0.00365 0.00195 94 0.32196 0.31141
---------------------------- ------------------------------
46 0.00397 0.00216 95 0.35406 0.35446
---------------------------- ------------------------------
47 0.00432 0.00239 96 0.38938 0.40346
---------------------------- ------------------------------
48 0.00463 0.00266 97 0.42820 0.45923
---------------------------- ------------------------------
<PAGE>
AMENDMENT NO. 1
To the Automatic Reinsurance Agreement
Between the
SECURITY BENEFIT LIFE INSURANCE COMPANY
And
SWISS RE LIFE & HEALTH AMERICA INC.
Except as hereinafter specified, all terms and conditions of the Automatic
Reinsurance Agreement effective on and after the later of the 1st day of
September, 1998, and the first date of issue of a variable annuity contract
reinsured thereunder, amendments and addenda attached thereto, shall apply, and
this Amendment is to be attached to and made a part of the aforesaid Agreement.
It is mutually agreed that effective the 1st day of September, 1998, Exhibit B-1
is hereby added to this Agreement to document the risk classifications of the
Advisor's Fund Series, as attached.
IN WITNESS WHEREOF, the Company and Swiss Re Life & Health have caused their
names to be subscribed and duly attested hereunder by their respective
Authorized Officers.
SECURITY BENEFIT LIFE INSURANCE COMPANY
By: Attest:
---------------------------- --------------------------------
Title: Title:
------------------------- ---------------------------------
Date: Date:
-------------------------- ----------------------------------
SWISS RE LIFE & HEALTH AMERICA INC.
By: Attest:
---------------------------- --------------------------------
Title: Title:
------------------------- ---------------------------------
Date: Date:
-------------------------- ---------------------------------
<PAGE>
EXHIBIT B-1
Risk Classification of the Advisor's Fund Series
FUND CLASSIFICATION
PCG Growth Series Aggressive
PCG Aggressive Growth Series Aggressive
SIM Growth Series Aggressive
SIM Conservative Growth Series Conservative
<PAGE>
[SBG LOGO]
- --------------------------------------------------------------------------------
Security Benefit Life Insurance Company 700 SW Harrison St.
Security Benefit Group, Inc. Topeka, Kansas 66636-0001
Security Distributors, Inc. (785) 431-3000
Security Management Company, LLC
April 30, 1999
Security Benefit Life Insurance Company
700 SW Harrison Street
Topeka, KS 66636-0001
Dear Sir/Madam:
This letter is with reference to the Registration Statement of SBL Variable
Annuity Account X of which Security Benefit Life Insurance Company (hereinafter
"SBL") is the Depositor. Said Registration Statement is being filed with the
Securities and Exchange Commission for the purpose of registering the variable
annuity contracts issued by SBL and the interests in the SBL Variable Annuity
Account X under such variable annuity contracts which will be sold pursuant to
an indefinite registration.
I have examined the Articles of Incorporation and Bylaws of SBL, minutes of the
meetings of the Board of Directors and other records, and pertinent provisions
of the Kansas insurance laws, together with applicable certificates of public
officials and other documents which I have deemed relevant. Based on the
foregoing, it is my opinion that:
1. SBL is duly oganized and validly existing as a stock life insurance company
under the laws of the State of Kansas.
2. SBL Variable Annuity Account X has been validly created as a Separate
Account in accordance with the pertinent provisions of the insurance laws of
Kansas.
3. SBL has the power, and has validly and legally exercised it, to create and
issue the variable annuity contracts which are administered within and by
means of the SBL Variable Annuity Account X.
4. The amount of variable annuity contracts to be sold pursuant to the
indefinite registration, when issued, will represent binding obligations of
SBL in accordance with their terms providing said contracts were issued for
the considerations set forth therein and evidenced by appropriate policies
and certificates.
I hereby consent to the inclusion in the Registration Statement of my foregoing
opinion.
Respectfully submitted,
AMY J. LEE
Amy J. Lee
Associate General Counsel and Vice President
Security Benefit Life Insurance Company
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 5, 1999, with respect to the consolidated
financial statements of Security Benefit Life Insurance Company and Subsidiaries
included in Post-Effective Amendment No. 1 to the Registration Statement under
the Securities Act of 1933 (Registration No. 333-52491) and Post-Effective
Amendment No. 2 to the Registration Statement under the Investment Company Act
of 1940 (Registration No. 811-08799) on Form N-4 and the related Statement of
Additional Information accompanying the Prospectus of PCG Variable Annuity.
Ernst & Young LLP
Kansas City, Missouri
April 30, 1999
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
)ss.
COUNTY OF SEDGWICK)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Thomas R. Clevenger, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any 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 January, 1999.
THOMAS R. CLEVENGER
---------------------------
Thomas R. Clevenger
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
ANNETTE E. CRIPPS
---------------------------
Notary Public
My Commission Expires:
July 8, 2001
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
)ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Sister Loretto Marie Colwell, being a Director of SECURITY BENEFIT LIFE
INSURANCE COMPANY, by these presents do make, constitute and appoint Howard R.
Fricke, James R. Schmank and Roger K. Viola, and each of them, my true and
lawful attorneys, each with full power and authority for me and in my name and
behalf to sign Registration Statements, any amendments thereto and any
applications for exemptive relief filed pursuant to the Investment Company Act
of 1940 or the Securities Act of 1933, as amended, and any instrument or
document filed as part thereof, or in connection therewith or in any way related
thereto, in connection with Variable Annuity Contracts offered, issued or sold
by SECURITY BENEFIT LIFE INSURANCE COMPANY and any 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 16th day of January, 1999.
SISTER LORETTO MARIE COLWELL
----------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 16th day of January, 1999.
JULIA A. SMRHA
----------------------------
Notary Public
My Commission Expires:
July 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 20th day of January, 1999.
JOHN C. DICUS
---------------------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
ANNETTE CRIPPS
---------------------------
Notary Public
My Commission Expires:
July 8, 2001
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
)ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Steven J. Douglass, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any 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 19th day of January, 1999.
STEVEN J. DOUGLASS
---------------------------
Steven J. Douglass
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
NANCY A. LEWIS
---------------------------
Notary Public
My Commission Expires:
October 16, 1999
- ----------------------
<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 19th day of January, 1999.
HOWARD R. FRICKE
---------------------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
ANNETTE E. CRIPPS
---------------------------
Notary Public
My Commission Expires:
July 8, 2001
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, W. W. Hanna, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any 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 19th day of January, 1999.
W. W. HANNA
---------------------------
W. W. Hanna
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
CAROLYN R. SOUDERS
---------------------------
Notary Public
My Commission Expires:
July 21, 1999
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF FLORIDA )
)ss.
COUNTY OF PINELLAS)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John E. Hayes, Jr., being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any 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 27th day of January, 1999.
JOHN E. HAYES, JR.
---------------------------
John E. Hayes, Jr.
SUBSCRIBED AND SWORN to before me this 27th day of January, 1999.
PAMELA MURRAY
---------------------------
Notary Public
My Commission Expires:
March 2, 2000
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
)ss.
COUNTY OF DOUGLAS)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Laird G. Noller, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any 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 25th day of January, 1999.
LAIRD G. NOLLER
---------------------------
Laird G. Noller
SUBSCRIBED AND SWORN to before me this 25th day of January, 1999.
ANNETTE E. CRIPPS
---------------------------
Notary Public
My Commission Expires:
July 8, 2001
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
)ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Frank C. Sabatini, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any 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 21st day of January, 1999.
FRANK C. SABATINI
---------------------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 21st day of January, 1999.
PATRICIA A. CLARK
---------------------------
Notary Public
My Commission Expires:
March 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 20th day of January, 1999.
ROBERT C. WHEELER
---------------------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
NANCY G. DE BACKER
---------------------------
Notary Public
My Commission Expires:
December 15, 1999
- ----------------------
