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SCARBOROUGH ADVANTAGE VARIABLE ANNUITY
GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY: MAILING ADDRESS:
SECURITY BENEFIT SECURITY BENEFIT
LIFE INSURANCE COMPANY LIFE INSURANCE COMPANY
700 SW HARRISON STREET P.O. BOX 750497
TOPEKA, KANSAS 66636-0001 TOPEKA, KANSAS 66675-0497
1-800-888-2461
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This Prospectus describes the Scarborough Advantage Variable Annuity--a
flexible purchase payment deferred variable annuity contract (the "Contract")
offered by Security Benefit Life Insurance Company ("Security Benefit"). The
Contract is a group contract available for those persons eligible to participate
in the International Brotherhood of Electrical Workers ("IBEW") Local Unions
Savings and Retirement Plan and Trust. The Contract is designed to give you
flexibility in planning for retirement and other financial goals.
You may allocate your purchase payments to one or more of the Subaccounts
that comprise a separate account of Security Benefit called the Variable Annuity
Account XI, or to the Fixed Account. The Subaccounts currently available under
the Contract are:
* T. Rowe Price Mid-Cap Growth
* T. Rowe Price Equity Income
* Bankers Trust International
* Goldman Sachs CORE(SM) Small Cap Equity
* Goldman Sachs Capital Growth
Amounts allocated to the Fixed Account will accrue interest at rates that are
paid by Security Benefit as described in "The Fixed Account," page 16. Contract
Value in the Fixed Account is guaranteed by Security Benefit.
Amounts that you allocate to the Subaccounts under the Contract will vary
based on investment performance of the Subaccounts. No minimum amount of
Contract Value is guaranteed.
When you are ready to receive annuity payments, the Contract provides several
options for annuity payments. See "Annuity Options," page 15.
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 October 27, 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 23 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 UNDERLYING
FUNDS. 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: OCTOBER 27, 1999
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TABLE OF CONTENTS
Page
DEFINITIONS................................................................ 4
SUMMARY.................................................................... 4
PURPOSE OF THE CONTRACT................................................. 4
THE SEPARATE ACCOUNT AND THE FUNDS...................................... 5
FIXED ACCOUNT........................................................... 5
PURCHASE PAYMENTS....................................................... 5
CONTRACT BENEFITS....................................................... 5
CHARGES AND DEDUCTIONS.................................................. 5
Mortality and Expense Risk Charge..................................... 5
Administration and Distribution Charge................................ 5
Premium Tax Charge.................................................... 5
Other Expenses........................................................ 6
CONTACTING SECURITY BENEFIT............................................. 6
EXPENSE TABLE.............................................................. 6
CONTRACTUAL EXPENSES.................................................... 6
ANNUAL SEPARATE ACCOUNT EXPENSES........................................ 6
ANNUAL FUND EXPENSES.................................................... 6
EXAMPLE................................................................. 6
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND THE FUNDS.... 7
SECURITY BENEFIT LIFE INSURANCE COMPANY................................. 7
YEAR 2000 COMPLIANCE.................................................... 7
PUBLISHED RATINGS....................................................... 7
SEPARATE ACCOUNT........................................................ 8
THE FUNDS............................................................... 8
T. Rowe Price Mid-Cap Growth Portfolio................................ 8
T. Rowe Price Equity Income Series (Series O)......................... 8
Bankers Trust International Series (Series I)......................... 8
Goldman Sachs CORE(SM) Small Cap Equity Fund.......................... 9
Goldman Sachs Capital Growth Fund..................................... 9
The Investment Advisers............................................... 9
THE CONTRACT............................................................... 9
GENERAL................................................................. 9
APPLICATION TO INVEST IN THE CONTRACT................................... 9
PURCHASE PAYMENTS....................................................... 9
ALLOCATION OF PURCHASE PAYMENTS......................................... 10
DOLLAR COST AVERAGING OPTION............................................ 10
ASSET REALLOCATION OPTION............................................... 10
TRANSFERS OF CONTRACT VALUE............................................. 11
CONTRACT VALUE.......................................................... 11
DETERMINATION OF CONTRACT VALUE......................................... 11
FULL AND PARTIAL WITHDRAWALS............................................ 12
SYSTEMATIC WITHDRAWALS.................................................. 12
DEATH BENEFIT........................................................... 13
DISTRIBUTION REQUIREMENTS............................................... 13
CHARGES AND DEDUCTIONS..................................................... 13
MORTALITY AND EXPENSE RISK CHARGE....................................... 13
ADMINISTRATION AND DISTRIBUTION CHARGE.................................. 14
PREMIUM TAX CHARGE...................................................... 14
OTHER CHARGES........................................................... 14
VARIATIONS IN CHARGES................................................... 14
GUARANTEE OF CERTAIN CHARGES............................................ 14
FUND EXPENSES........................................................... 14
ANNUITY PERIOD............................................................. 14
GENERAL................................................................. 14
ANNUITY OPTIONS......................................................... 15
Option 1--Life Income................................................. 15
Option 2--Life Income with Guaranteed Payment of 5, 10, 15 or 20 Years 15
Option 3--Life with Installment Refund Option......................... 15
Option 4--Joint and Last Survivor..................................... 15
Option 5--Joint and Contingent Survivor Option........................ 15
THE FIXED ACCOUNT.......................................................... 16
INTEREST................................................................ 16
DEATH BENEFIT........................................................... 16
CONTRACT CHARGES........................................................ 16
TRANSFERS AND WITHDRAWALS FROM THE FIXED ACCOUNT........................ 16
PAYMENTS FROM THE FIXED ACCOUNT......................................... 16
MORE ABOUT THE CONTRACT.................................................... 16
HOLDER.................................................................. 16
DESIGNATION AND CHANGE OF BENEFICIARY................................... 17
DIVIDENDS............................................................... 17
PAYMENTS FROM THE SEPARATE ACCOUNT...................................... 17
PROOF OF AGE AND SURVIVAL............................................... 17
MISSTATEMENTS........................................................... 17
FEDERAL TAX MATTERS........................................................ 17
INTRODUCTION............................................................ 17
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT................. 17
General............................................................... 17
Charge for Security Benefit Taxes..................................... 18
Diversification Standards............................................. 18
INCOME TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS............ 18
Surrenders or Withdrawals Prior to the Annuity Start Date............. 18
Distributions on or after Annuity Start Date.......................... 19
Penalty Tax on Certain Surrenders and Withdrawals..................... 19
ADDITIONAL CONSIDERATIONS............................................... 19
Distribution-at-Death Rules........................................... 19
Gift of Annuity Contracts............................................. 19
Contracts Owned by Non-Natural Persons................................ 19
Multiple Contract Rule................................................ 20
Possible Tax Changes.................................................. 20
Transfers, Assignments or Exchanges of a Contract..................... 20
OTHER INFORMATION.......................................................... 20
VOTING OF FUND SHARES................................................... 20
SUBSTITUTION OF INVESTMENTS............................................. 20
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................... 21
REPORTS TO PARTICIPANTS................................................. 21
TELEPHONE TRANSFER PRIVILEGES........................................... 21
LEGAL PROCEEDINGS....................................................... 22
LEGAL MATTERS........................................................... 22
DISTRIBUTION OF THE CONTRACT............................................... 22
PERFORMANCE INFORMATION.................................................... 22
ADDITIONAL INFORMATION..................................................... 23
REGISTRATION STATEMENT.................................................. 23
FINANCIAL STATEMENTS.................................................... 23
STATEMENT OF ADDITIONAL INFORMATION........................................ 23
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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 UNIT -- A unit of measure used to calculate Contract Value.
ADMINISTRATIVE OFFICE -- Scarborough Securities Corporation, One Bridge
Street, Irvington, New York 10533.
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 START DATE -- The date when annuity payments are to begin.
AUTOMATIC INVESTMENT PROGRAM -- A program pursuant to which purchase payments
are automatically paid from your bank account on a specified day of each month
or a payroll deduction arrangement.
CONTRACT DATE -- The date of your first contribution to the 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.
CONTRACTHOLDER OR HOLDER -- The IBEW Local Unions Savings and Retirement Plan
and Trust holds the Contract for the benefit of Participants.
CONTRACT VALUE -- The total value of your account which includes amounts
allocated to the Subaccounts and the Fixed Account.
CONTRACT YEAR -- Each twelve-month period measured from the Contract Date.
DESIGNATED BENEFICIARY -- The person designated by you as having the right to
the death benefit, if any, payable upon your death.
FIXED ACCOUNT -- A separate account of Security Benefit to which you may
allocate all or a portion of your Contract Value to be held for accumulation at
fixed rates of interest declared periodically by Security Benefit.
FUNDS -- T. Rowe Price Equity Series, Inc., SBL Fund and Goldman Sachs
Variable Insurance Trust. The Funds (each a "Fund") are diversified, open-end
management investment companies commonly referred to as mutual funds. Each Fund
issues its shares in multiple Series.
GENERAL ACCOUNT -- All assets of Security Benefit other than those allocated
to the Separate Account, the Fixed Account, or to any other separate account of
Security Benefit.
PARTICIPANT -- A Participant as defined in the Trust Agreement.
PURCHASE PAYMENT -- An amount paid to Security Benefit as consideration for
the Contract.
SEPARATE ACCOUNT -- The Variable Annuity Account XI. A separate account of
Security Benefit that consists of accounts, referred to as Subaccounts, each of
which invests in a corresponding Series of the Funds.
SERIES -- T. Rowe Price Mid-Cap Growth Portfolio (a Series of the T. Rowe
Price Equity Series, Inc.); Equity Income Series and International Series (each
a Series of SBL Fund); and Goldman Sachs CORE Small Cap Equity Series and
Goldman Sachs Capital Growth Series (each a Series of the Goldman Sachs Variable
Insurance Trust). The Series (each a "Series") are separate portfolios of their
respective Funds. Each Series operates as a separate investment fund.
SUBACCOUNT -- A division of the Separate Account of Security Benefit which
invests in a corresponding Series of the Funds. Currently, five Subaccounts are
available under the Contract.
TRUST -- The IBEW Local Unions Savings and Retirement Plan and Trust.
TRUST AGREEMENT -- The Trust Agreement creating the Trust.
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. 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 your
Contract Value. It is equal to Contract Value less any uncollected premium
taxes.
SUMMARY
This summary provides a brief overview of the more significant aspects of the
Contract. Further detail is provided in this Prospectus, the Statement of
Additional Information, and the Contract. Unless the context indicates
otherwise, the discussion in this summary and the remainder of the Prospectus
relates to the portion of the Contract involving the Separate Account. The Fixed
Account is briefly described under "The Fixed Account," page 16 and in the
Contract.
PURPOSE OF THE CONTRACT -- The flexible purchase payment deferred variable
annuity contract ("Contract") described in this Prospectus is designed to give
you flexibility in planning for retirement and other financial goals.
You may purchase the Contract pursuant to the terms of the Trust Agreement if
you are eligible to be a Participant under its terms.
THE SEPARATE ACCOUNT AND THE FUNDS -- The Separate Account is currently divided
into five accounts referred to as Subaccounts. See "Separate Account," page 8.
Each Subaccount invests exclusively in shares of a corresponding Series of the
Funds. See "the Funds," page 8. The Series, each of which has a different
investment objective or objectives, are set forth under their respective Fund
below:
T. ROWE PRICE EQUITY SERIES, INC.
* T. Rowe Price Mid-Cap Growth Portfolio
SBL FUND
* T. Rowe Price Equity Income Series (Series O)
* Bankers Trust International Series (Series I)
GOLDMAN SACHS VARIABLE INSURANCE TRUST
* Goldman Sachs CORE Small Cap Equity Fund
* Goldman Sachs Capital Growth Fund
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 Fund in which
such Subaccount invests. You bear the investment risk for amounts allocated to a
Subaccount.
FIXED ACCOUNT -- You may allocate all or part of your purchase payments to the
Fixed Account, which is a separate account of Security Benefit. Amounts that you
allocate to the Fixed Account earn interest at rates determined at the
discretion of Security Benefit. See "The Fixed Account," page 16.
PURCHASE PAYMENTS -- Unless you had an account as of July 1, 1999, the minimum
initial purchase payment is $2,000. Thereafter, you may choose the amount and
frequency of purchase payments, except that the minimum subsequent purchase
payment is $100. There is no minimum for subsequent purchase payments made
pursuant to an Automatic Investment Program. See "Purchase Payments," page 9.
CONTRACT BENEFITS -- You may transfer your Contract Value among the Subaccounts
and to and from the Fixed Account.
At any time before the Annuity Start Date, you may surrender your Contract
Value for its Withdrawal Value, and may make partial withdrawals, including
systematic withdrawals, from Contract Value. See "Full and Partial Withdrawals,"
page 12 and "Federal Tax Matters," page 17 for more information about
withdrawals, including the 10 percent penalty tax that may be imposed upon full
and partial withdrawals (including systematic withdrawals) made prior to
attaining age 59 1/2.
The Contract provides for a death benefit upon your death prior to the
Annuity Start Date. See "Death Benefit," page 13 for more information. The
Contract provides for several Annuity Options on a fixed basis. Security Benefit
guarantees annuity payments under the fixed Annuity Options. See "Annuity
Period," page 14.
CHARGES AND DEDUCTIONS -- Security Benefit does not deduct sales load from
purchase payments before allocating them to 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 as set forth below.
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MORTALITY AND
SUBACCOUNT EXPENSE RISK FEE
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T. Rowe Price Mid-Cap Growth.............. 0.45%
T. Rowe Price Equity Income............... 0.45%
Bankers Trust International............... 0.45%
Goldman Sachs CORE Small Cap Equity....... 0.45%
Goldman Sachs Capital Growth.............. 0.45%
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See "Mortality and Expense Risk Charge," page 13.
ADMINISTRATION AND DISTRIBUTION CHARGE. Security Benefit is currently
charging an administration and distribution charge equal to an annual rate of
0.91% of each Subaccount's average daily net assets, except that the annual rate
for the T. Rowe Price Equity Income and Bankers Trust International Subaccounts
is 0.56%. Security Benefit may deduct a maximum daily administration and
distribution charge equal to an annual rate of 0.94% of each Subaccount's
average daily net assets, except the T. Rowe Price Equity Income and Bankers
Trust International Subaccounts for which the maximum annual rate is 0.59%. See
"Administration and Distribution Charge," page 14.
PREMIUM TAX CHARGE. Security Benefit assesses a premium tax charge to
reimburse itself for any premium taxes that it incurs with respect to this
Contract. This charge will usually be deducted when you begin receiving annuity
payments 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," page 14.
OTHER EXPENSES. Security Benefit pays the operating expenses of the Separate
Account. Investment advisory fees and operating expenses of the Funds are paid
by each Fund and are reflected in the net asset value of the Fund shares. For a
description of these charges and expenses, see the prospectuses for the Funds.
CONTACTING SECURITY BENEFIT -- You should direct all written requests, notices,
and forms required by the Contract, and any questions or inquiries to the
Administrative Office located at One Bridge Street, Irvington, New York 10533 or
by phone by calling (914) 591-9200 or 1-800-223-7608.
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly and indirectly if you allocate Contract
Value to the Subaccounts. The table reflects any contractual charges, expenses
of the Separate Account, and charges and expenses of the Funds. The table does
not reflect premium taxes that may be imposed by various jurisdictions. See
"Premium Tax Charge," page 14. The information contained in the table is not
generally applicable to amounts allocated to the Fixed Account.
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," page 13. For a more complete description of the Funds' costs
and expenses, see the Fund prospectuses, which accompany this Prospectus.
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CONTRACTUAL EXPENSES
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Sales Load on Purchase Payments...................................... None
Contingent Deferred Sales Charge (as a percentage of amount
withdrawn attributable to Purchase Payments)....................... 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............................. 0.45%
Annual Administration and Distribution Charge........................ 0.94%(1)
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Total Separate Account Annual Expenses............................... 1.39%
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ANNUAL FUND EXPENSES
(as a percentage of each Series' average daily net assets)
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TOTAL MUTUAL
OTHER EXPENSES FUND EXPENSES
ADVISORY (AFTER EXPENSE (AFTER EXPENSE
FEE REIMBURSEMENTS) REIMBURSEMENTS)
T. Rowe Price Mid-Cap Growth........ 0.85%(2) 0.00% 0.85%
Equity Income (Series O)............ 1.00% 0.08% 1.08%
International (Series I)............ 1.10% 0.57%(3) 1.67%
Goldman Sachs CORE Small Cap Equity. 0.75% 0.15%(4) 0.90%
Goldman Sachs Capital Growth........ 0.75% 0.15%(4) 0.90%
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1. The maximum annual administration and distribution charge is 0.94% for all
Subaccounts, except the T. Rowe Price Equity Income and Bankers Trust
International Subaccounts for which the maximum annual administration and
distribution charge is 0.59%. Security Benefit currently assesses an annual
administration and distribution charge of 0.91% from the Subaccounts (0.56%
from the T. Rowe Price Equity Income and Bankers Trust International
Subaccounts).
2. The advisory fee includes the ordinary expenses of operating the Series.
3. Other Expenses for International Series (Series I) are based on estimated
amounts for the current fiscal year.
4. The Goldman Sachs Capital Growth Fund's expenses are based upon estimated
amounts for the current fiscal year. The Series' adviser has voluntarily
agreed to reduce or limit certain Other Expenses (excluding advisory fees,
taxes, interest, brokerage fees, litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed the percentage
stated in the table above (as calculated per annum) of each Series'
respective average daily net assets. Such reductions or limits, if any, are
calculated monthly on a cumulative year-to-year basis. The expenses shown
include this reimbursement. If not included, the "Other Expenses" and "Total
Mutual Fund Expenses" for the Goldman Sachs CORE Small Cap Equity and
Capital Growth Funds would be 3.17% and 3.92% and 1.03% and 1.78%,
respectively. The Series' adviser may discontinue or modify any limitations
in the future at its discretion.
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EXAMPLE -- The example presented below shows the expenses that you would pay at
the end of one and three years. The example reflects any contractual charges,
expenses of the Separate Account, and charges and expenses of the Funds. The
information presented applies if, at the end of those time periods, your
Contract Value is surrendered, or annuitized or otherwise not surrendered. The
example shows expenses based upon an allocation of $1,000 to each of the
Subaccounts and a hypothetical return of 5 percent.
YOU SHOULD NOT CONSIDER THE EXAMPLES BELOW A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE 5
PERCENT RETURN ASSUMED IN THE EXAMPLES IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ACTUAL RETURNS, WHICH MAY BE
GREATER OR LESSER THAN THE ASSUMED AMOUNT.
Example -- You would pay the expenses shown below:
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1 YEAR 3 YEARS
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T. Rowe Price Mid-Cap Growth Subaccount........................ $24 $ 74
T. Rowe Price Equity Income Subaccount......................... 26 82
Bankers Trust International Subaccount......................... 32 101
Goldman Sachs CORE Small Cap Equity Subaccount................. 24 76
Goldman Sachs Capital Growth Subaccount........................ 24 76
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INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND THE FUNDS
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 owned Security Benefit policies 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 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,
Security Benefit had total assets of approximately $7.9 billion. Together with
its subsidiaries, Security Benefit has total funds under management of
approximately $8.8 billion.
The Principal Underwriter for the Contract 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
Funds could be adversely affected if the computer systems used by Security
Benefit or the Funds' Investment Advisers, 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 Funds by the Investment Advisers, as well as
transfer agency, accounting, custody, distribution and other services provided
to the Funds.
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 is finalizing
testing of the modification/replacement of its internal systems. Security
Benefit has obtained Year 2000 Compliant certifications from most of its
external vendors. Overall systems testing commenced in early 1998 and will
extend through year end 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 Security Benefit, the separate
account, the Funds and the Investment Advisers.
The Year 2000 Problem is also expected to affect companies, which may include
issuers of portfolio securities held by the Funds, to varying degrees based upon
various factors, including, but not limited to, the company's industry sector
and degree of technological sophistication. The Funds and the Investment
Advisers are unable to predict what impact, if any, the Year 2000 Problem will
have on issuers of the portfolio securities held by the Funds.
PUBLISHED RATINGS -- Security Benefit may from time to time publish in
advertisements, sales literature and reports to Participants, 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 Participants. 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 October 26, 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. Kansas law 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
Contract. Security Benefit may transfer to its General Account assets that
exceed anticipated obligations of the Separate Account. All obligations arising
under the Contract 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 five 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 one of the Funds. Security Benefit
may in the future establish additional Subaccounts of the Separate Account,
which may invest in other Series of the Funds 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.
THE FUNDS -- Each Fund is a diversified, open-end management investment company
of the series type and is registered with the SEC under the 1940 Act. Such
registration does not involve supervision by the SEC of the investments or
investment policies of the Funds. Each Subaccount invests in a corresponding
Series of the Funds, each of which has a different investment objective and
policies. Each Series is listed under its respective Fund below.
T. ROWE PRICE EQUITY SERIES, INC.
* T. Rowe Price Mid-Cap Growth Portfolio
SBL FUND
* T. Rowe Price Equity Income Series (Series O)
* Bankers Trust International Series (Series I)
GOLDMAN SACHS VARIABLE INSURANCE TRUST
* Goldman Sachs CORE Small Cap Equity Fund
* Goldman Sachs Capital Growth Fund
A summary of the investment objective of each Series of the Funds is set
forth below. We cannot assure that any Series will achieve its objective. More
detailed information is contained in the accompanying prospectuses of the Funds,
including information on the risks associated with the investments and
investment techniques of each Series.
EACH FUND'S PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO --The investment objective of this Series
is to provide long-term capital appreciation by investing in mid-cap stocks with
potential for above-average growth.
T. ROWE PRICE EQUITY INCOME SERIES (SERIES O) --The investment objective of this
Series is to seek to provide substantial dividend income and also capital
appreciation.
BANKERS TRUST INTERNATIONAL SERIES (SERIES I) --The investment objective of this
Series is to seek long-term capital appreciation by investing primarily in
non-U.S. equity securities and other securities with equity characteristics.
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND --The investment objective of this
Series is to seek long-term growth of capital through a broadly diversified
portfolio of equity securities (which may include securities of foreign issuers
that are traded in the U.S.) which are included in the Russell 2000 Index at the
time of investment.
GOLDMAN SACHS CAPITAL GROWTH FUND --The investment objective of this Series is
to seek long-term growth of capital primarily through investment in U.S. equity
securities that offer long-term capital appreciation potential.
THE INVESTMENT ADVISERS -- T. Rowe Price Associates, Inc. ("T. Rowe Price"), 100
East Pratt Street, Baltimore, Maryland 21202 serves as investment adviser to the
T. Rowe Price Mid-Cap Growth Portfolio and as sub-adviser to the T. Rowe Price
Equity Income Series (Series O) pursuant to an agreement with Series O's
investment adviser, Security Management Company, LLC, 700 SW Harrison Street,
Topeka, Kansas 66636-0001. T. Rowe Price is registered with the SEC as an
investment adviser. T. Rowe Price is responsible for the day to day decisions to
buy and sell securities for the T. Rowe Price Mid-Cap Growth Portfolio and the
T. Rowe Price Equity Income Series (Series O). Bankers Trust Company, 130
Liberty Street, New York, New York 10006 serves as sub-adviser to the Bankers
Trust International Series (Series I) pursuant to an agreement with Series I's
investment adviser, Security Management Company, LLC. Bankers Trust is
registered with the SEC as an investment adviser. It is responsible for the day
to day decisions to buy and sell securities for the Bankers Trust International
Series (Series I). Goldman Sachs Asset Management, One New York Plaza, New York,
New York 10004 is also registered with the SEC as an investment adviser and
serves as the investment adviser to the Goldman Sachs CORE Small Cap Equity Fund
and the Goldman Sachs Capital Growth Fund. It is responsible for the day to day
decisions to buy and sell securities for those Series.
The investment objectives and policies of the Series are similar to the
investment objectives and policies of other mutual funds that the Investment
Advisers manage. Although the objectives and policies may be similar, the
investment results of the Series may be higher or lower than the results of such
other mutual funds. The Investment Advisers cannot guarantee, and make no
representation, that the investment results of similar funds will be comparable
even though the funds have the same Investment Adviser.
THE CONTRACT
GENERAL -- Security Benefit issues the Contract offered by this Prospectus. It
is a group flexible purchase payment deferred variable annuity. To the extent
that you allocate all or a portion of your purchase payments to the Subaccounts,
the Contract is significantly different from a fixed annuity contract in that it
is the Participant 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 fixed 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 Contract
Value and the amount of interest credited on Contract Value that you have
allocated to the Fixed Account.
You may purchase the Contract under the terms of the Trust Agreement if you
are eligible to be a Participant under its terms.
APPLICATION TO INVEST IN THE CONTRACT -- If you wish to invest in the Contract,
you may submit a participation enrollment form 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 a
participation enrollment form 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 for which a participation enrollment form will be accepted is
age 90.
PURCHASE PAYMENTS -- The minimum initial purchase payment is $2,000. Thereafter,
you may choose the amount and frequency of purchase payments, except that the
minimum subsequent purchase payment is $100. There is no minimum for subsequent
purchase payments made pursuant to an Automatic Investment Program. A purchase
payment exceeding $1 million will not be accepted without prior approval of
Security Benefit.
Security Benefit will apply the initial purchase payment not later than the
end of the Valuation Period during which it is received by Security Benefit;
provided that the purchase payment is preceded or accompanied by a participation
enrollment form that contains sufficient information to establish an account and
properly credit such purchase payment. If Security Benefit does not receive a
complete participation enrollment form, Security Benefit will notify you that it
does not have the necessary information to establish an account and properly
credit your purchase payment. 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 cannot otherwise establish your account, Security Benefit will return
your initial purchase payment. Security Benefit may retain your purchase payment
pending receipt of necessary information; provided that you consent to us
retaining the purchase payment until your participation enrollment form is made
complete.
Security Benefit will credit subsequent purchase payments as of the end of
the Valuation Period in which they are received at the Administrative Office.
Purchase payments after the initial purchase payment may be made at any time
prior to the Annuity Start Date, so long as the Participant is living.
Subsequent purchase payments may be paid under an Automatic Investment Program.
ALLOCATION OF PURCHASE PAYMENTS -- In a participation enrollment form, you
select the Subaccounts or the Fixed Account to which purchase payments will be
allocated. Purchase payments will be allocated according to your instructions
contained in the enrollment form or more recent instructions received, if any.
The allocations must be whole percentages and must total 100 percent. Available
allocation alternatives include the five Subaccounts and the Fixed Account.
You may change the purchase payment allocation instructions by submitting a
proper written request to the Administrative Office. A proper change in
allocation instructions will be effective upon receipt by Security Benefit at
the Administrative Office and will continue in effect until you submit a change
in instructions to Security Benefit. You may make changes in your purchase
payment allocation and changes to an existing Dollar Cost Averaging or Asset
Reallocation Option by telephone provided the Telephone Transfer section of the
participation enrollment form or an Authorization for Telephone Requests form is
properly completed, signed, and filed at the Administrative Office. Changes in
the allocation of future purchase payments have no effect on existing Contract
Value. You may, however, transfer Contract Value among the Subaccounts and the
Fixed Account in the manner described in "Transfers of Contract Value," page 11.
DOLLAR COST AVERAGING OPTION -- Prior to the Annuity Start Date, you may dollar
cost average your Contract Value by authorizing Security Benefit to make
periodic transfers of Contract Value from any one Subaccount to one or more of
the other Subaccounts. Dollar cost averaging is a systematic method of investing
in which securities are purchased at regular intervals in fixed dollar amounts
so that the cost of the securities gets averaged over time and possibly over
various market cycles. The option will result in the transfer of Contract Value
from one Subaccount to one or more of the other Subaccounts. Amounts transferred
under this option will be credited at the price of the Subaccount as of the end
of the Valuation Dates on which the transfers are effected. Since the price of a
Subaccount's Accumulation Units will vary, the amounts transferred to a
Subaccount will result in the crediting of a greater number of units when the
price is low and a lesser number of units when the price is high. Similarly, the
amounts transferred from a Subaccount will result in a debiting of a greater
number of units when the price is low and a lesser number of units when the
price is high. Dollar cost averaging does not guarantee profits, nor does it
assure that you will not have losses.
A Dollar Cost Averaging Request form is available upon request. On the form,
you must designate whether Contract Value is to be transferred on the basis of a
specific dollar amount, fixed period or earnings only, the Subaccount or
Subaccounts to and from which the transfers will be made, the desired frequency
of the transfers, which may be on a monthly or quarterly basis, and the length
of time during which the transfers shall continue or the total amount to be
transferred over time.
After Security Benefit has received a Dollar Cost Averaging Request in proper
form at the Administrative Office, Security Benefit will transfer Contract Value
in the amounts you designate from the Subaccount from which transfers are to be
made to the Subaccount or Subaccounts you have chosen. Security Benefit will
effect each transfer on the date you specify or if no date is specified, on the
monthly or quarterly anniversary, whichever corresponds to the period selected,
of the date of receipt at the Administrative Office of a Dollar Cost Averaging
Request in proper form. Transfers will be made until the total amount elected
has been transferred, or until Contract Value in the Subaccount from which
transfers are made has been depleted.
You may instruct Security Benefit at any time to terminate the option by
written request to the Administrative Office. In that event, the Contract Value
in the Subaccount from which transfers were being made that has not been
transferred will remain in that Subaccount unless you instruct us otherwise. If
you wish to continue transferring on a dollar cost averaging basis after the
expiration of the applicable period, the total amount elected has been
transferred, or the Subaccount has been depleted, or after the Dollar Cost
Averaging Option has been canceled, a new Dollar Cost Averaging Request must be
completed and sent to the Administrative Office. Security Benefit requires that
you wait at least a month (or a quarter if transfers were made on a quarterly
basis) before reinstating Dollar Cost Averaging after it has been terminated for
any reason. Security Benefit may discontinue, modify, or suspend the Dollar Cost
Averaging Option at any time.
You may also dollar cost average Contract Value to or from the Fixed Account.
You may not have in effect at the same time Dollar Cost Averaging and Asset
Reallocation Options.
ASSET REALLOCATION OPTION -- Prior to the Annuity Start Date, you may authorize
Security Benefit to automatically transfer Contract Value on a quarterly,
semiannual or annual basis to maintain a particular percentage allocation among
the Subaccounts. The Contract Value allocated to each Subaccount will grow or
decline in value at different rates during the selected period, and Asset
Reallocation automatically reallocates the Contract Value in the Subaccounts to
the allocation you selected on a quarterly, semiannual or annual basis, as you
select. Asset Reallocation is intended to transfer Contract Value from those
Subaccounts that have increased in value to those Subaccounts that have declined
in value. Over time, this method of investing may help you buy low and sell
high. This investment method does not guarantee profits, nor does it assure that
you will not have losses.
To elect this option, an Asset Reallocation Request in proper form must be
received by Security Benefit at the Administrative Office. An Asset Reallocation
Request form is available upon request. On the form, you must indicate the
applicable Subaccounts, the applicable time period and the percentage of
Contract Value to be allocated to each Subaccount.
Upon receipt of the Asset Reallocation Request, Security Benefit will effect
a transfer or, in the case of a new participation, will allocate the initial
purchase payment, among the Subaccounts based upon the percentages that you
selected. Thereafter, Security Benefit will transfer Contract Value to maintain
that allocation on each quarterly, semiannual or annual anniversary, as
applicable, of the date of Security Benefit's receipt of the Asset Reallocation
Request in proper form. The amounts transferred will be credited at the price of
the Subaccount as of the end of the Valuation Date on which the transfer is
effected.
You may instruct Security Benefit at any time to terminate this option by
written request to the Administrative Office. In that event, the Contract Value
in the Subaccounts that has not been transferred will remain in those
Subaccounts regardless of the percentage allocation unless you instruct us
otherwise. If you wish to continue Asset Reallocation after it has been
canceled, a new Asset Reallocation Request form must be completed and sent to
the Administrative Office. Security Benefit may discontinue, modify, or suspend,
and reserves the right to charge a fee for the Asset Reallocation Option at any
time.
Contract Value allocated to the Fixed Account may be included in the Asset
Reallocation option. You may not have in effect at the same time Dollar Cost
Averaging and Asset Reallocation Options.
TRANSFERS OF CONTRACT VALUE -- Prior to the Annuity Start Date, you may transfer
Contract Value among the Subaccounts upon proper written request to the
Administrative Office. Security Benefit will effect a transfer of Contract Value
at the price next determined after receipt of your transfer request. You may
make transfers (other than transfers pursuant to the Dollar Cost Averaging and
Asset Reallocation Options) by telephone if the Telephone Transfer section of
the participation enrollment form or an Authorization for Telephone Requests
form has been properly completed, signed and filed at the Administrative Office.
The minimum transfer amount is $100, or the amount remaining in a given
Subaccount. The minimum transfer amount does not apply to transfers under the
Dollar Cost Averaging or Asset Reallocation Options.
You may also transfer Contract Value from the Subaccounts to the Fixed
Account and from the Fixed Account to the Subaccounts.
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 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 -- Your Contract Value is the total value of your account, which
includes amounts under the Contract held in each Subaccount and the Fixed
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 -- Your 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 Funds. The investment performance of the
Subaccounts will reflect increases or decreases in the net asset value per share
of the corresponding Series and any dividends or distributions declared by a
Series. Any dividends or distributions from any Series of the Fund will be
automatically reinvested in shares of the same Series, unless Security Benefit,
on behalf of the Separate Account, elects otherwise.
Assets in the Subaccounts are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of your 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 Funds, (2) any dividends or
distributions paid by the corresponding Series, (3) the charges, if any, that
may be assessed by Security Benefit for taxes attributable to the operation of
the Subaccount, (4) the mortality and expense risk charge under the Contract,
and (5) the administration and distribution charge under the Contract.
FULL AND PARTIAL WITHDRAWALS -- You 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 made from Contract Value
at any time while the Participant is living and before the Annuity Start Date,
subject to any limitations under 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 the Administrative Office. A
proper written request must include the written consent of any effective
assignee, if applicable.
The proceeds received upon a full withdrawal will be the Withdrawal Value.
The Withdrawal Value is equal to your Contract Value as of the end of the
Valuation Period during which a proper withdrawal request is received by
Security Benefit at the Administrative Office, less any uncollected premium
taxes. Security Benefit requires the signature of the Participant on any request
to withdraw Contract Value.
A partial withdrawal may be requested for a specified percentage or dollar
amount of Contract Value. Each partial withdrawal must be at least $100
including systematic withdrawals as discussed below. A request for a partial
withdrawal will result in a payment by Security Benefit of the amount specified
in the partial withdrawal request provided there is sufficient Contract Value to
meet the request. Upon payment, the Contract Value will be reduced by an amount
equal to the payment and any applicable premium tax. If a partial withdrawal is
requested after the first Contract Year that would leave the Withdrawal Value in
the Contract less than $5,000, Security Benefit reserves the right to treat the
partial withdrawal as a request for a full withdrawal.
Security Benefit will deduct the amount of a partial withdrawal from the
Contract Value in the Subaccounts and the Fixed Account, according to your
instructions to Security Benefit. If you do not specify the allocation, Security
Benefit will deduct the withdrawal from the Contract Value in the Subaccounts
and the Fixed Account in the following order: T. Rowe Price Equity Income
Subaccount; Goldman Sachs Capital Growth Subaccount; Bankers Trust International
Subaccount; T. Rowe Price Mid-Cap Growth Subaccount; Goldman Sachs CORE Small
Cap Equity Subaccount; and then from the Fixed Account. The value of each
account will be depleted before the next account is charged.
A full or partial withdrawal, including a systematic withdrawal, may result
in receipt of taxable income to the Participant and, if made prior to the
Participant attaining age 59 1/2, may be subject to a 10 percent penalty tax.
The tax consequences of a withdrawal should be carefully considered. See
"Federal Tax Matters," page 17.
SYSTEMATIC WITHDRAWALS -- Security Benefit currently offers a feature under
which you may select systematic withdrawals. Under this feature, you may elect
to receive systematic withdrawals during your lifetime and before the Annuity
Start Date by sending a properly completed Systematic Withdrawal Request form to
Security Benefit at the Administrative Office. This option may be elected at any
time. You may designate the systematic withdrawal amount as a percentage of
Contract Value allocated to the Subaccounts and/or Fixed Account, as a fixed
period, as a specified dollar amount, as all earnings in the Contract, or based
upon your life expectancy. You also may designate the desired frequency of the
systematic withdrawals, which may be monthly, quarterly, semiannually or
annually. You may stop or modify systematic withdrawals upon proper written
request received by Security Benefit at the Administrative 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.
Each systematic withdrawal must be at least $100. Upon payment, your 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. Your account will
automatically terminate if a systematic withdrawal causes your 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 to your Contract Value in the
Subaccounts and the Fixed Account, as you direct. If you do not specify the
allocation, the systematic withdrawal will be deducted from the Contract Value
in the Subaccounts and the Fixed Account in the following order: T. Rowe Price
Equity Income Subaccount; Goldman Sachs Capital Growth Subaccount; Bankers Trust
International Subaccount; T. Rowe Price Mid-Cap Growth Subaccount; Goldman Sachs
CORE Small Cap Equity Subaccount; and then from the Fixed Account. The value of
each account will be depleted before the next account is charged.
Security Benefit may, at any time, discontinue, modify, suspend or charge a
fee for systematic withdrawals. You should consider carefully the tax
consequences of a systematic withdrawal, including the 10 percent penalty tax
that may be imposed on withdrawals made prior to attaining age 59 1/2. See
"Federal Tax Matters," page 17.
DEATH BENEFIT -- If you die prior to the Annuity Start Date, Security Benefit
will pay the death benefit proceeds to your Designated Beneficiary upon receipt
of due proof of your death and instructions regarding payment to the Designated
Beneficiary.
If your surviving spouse is your sole Designated Beneficiary, your spouse may
elect to continue your account in force, subject to certain limitations. If your
spouse so elects, the Contract Date of your account will not change, and any
death benefit payable after this election will be calculated using the same
Contract Date. See "Distribution Requirements" below. If your death 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 15.
The death benefit proceeds will be the death benefit reduced by any
uncollected premium tax. If you die prior to the Annuity Start Date and you were
75 or younger on the Contract Date, the amount of the death benefit will be the
greatest of:
* The sum of all Purchase Payments allocated to your Contract Value, less any
reductions caused by previous withdrawals,
* Your Contract Value on the date due proof of death and instructions regarding
payment are received by Security Benefit, or
* The stepped-up death benefit.
The stepped-up death benefit is:
* The largest death benefit on any Contract anniversary that is both an exact
multiple of five and occurs prior to your attaining age 76, plus
* Any Purchase Payments allocated to your Contract Value since the applicable
Contract anniversary, less
* Any withdrawals since the applicable anniversary.
The stepped-up death benefit does not come into play if you die prior to the
end of the fifth Contract Year.
If you die prior to the Annuity Start Date and your age was 76 or greater on
the Contract Date, or if due proof of death (regardless of your age on the
Contract Date) and instructions regarding payment are not received by Security
Benefit at the Administrative Office within six months of the date of your
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 the
Administrative Office.
The death benefit proceeds will be paid to the Designated Beneficiary in a
single sum or under one of the Annuity Options, as elected by the Designated
Beneficiary. If the Designated Beneficiary is to receive annuity payments under
an Annuity Option, there are 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 17 and "Distribution
Requirements," below for a discussion of the tax consequences in the event of
death.
DISTRIBUTION REQUIREMENTS -- If your surviving spouse is the sole Designated
Beneficiary, your spouse may elect to continue your account 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 your interest in
the Contract within five years of your death. If the Designated Beneficiary is a
natural person, that person alternatively can elect to begin receiving annuity
payments within one year of your death over a period not extending beyond his or
her life or life expectancy.
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 is equal to an annual rate as
set forth below.
------------------------------------------------------------
MORTALITY AND
SUBACCOUNT EXPENSE RISK FEE
------------------------------------------------------------
T. Rowe Price Mid-Cap Growth.............. 0.45%
T. Rowe Price Equity Income............... 0.45%
Bankers Trust International............... 0.45%
Goldman Sachs CORE Small Cap Equity....... 0.45%
Goldman Sachs Capital Growth.............. 0.45%
------------------------------------------------------------
This amount is intended to compensate Security Benefit for certain mortality and
expense risks Security Benefit assumes in offering and administering the
Contract and in operating the Subaccounts.
The expense risk is the risk that Security Benefit's actual expenses in
issuing and administering the Contract and operating the Subaccounts will be
more than the charges assessed for such expenses. The mortality risk borne by
Security Benefit is the risk that Annuitants, as a group, will live longer than
Security Benefit's actuarial tables predict. In this event, Security Benefit
guarantees that annuity payments will not be affected by a change in mortality
experience that results in the payment of greater annuity income than assumed
under the Annuity Options in the Contract. Security Benefit also assumes a
mortality risk in connection with the death benefit under the Contract.
Security Benefit may ultimately realize a profit from this charge to the
extent it is not needed to cover mortality and administrative expenses, but
Security Benefit may realize a loss to the extent the charge is not sufficient.
Security Benefit may use any profit derived from this charge for any lawful
purpose, including distribution expenses.
ADMINISTRATION AND DISTRIBUTION CHARGE -- Security Benefit may deduct a maximum
daily administration and distribution charge equal to an annual rate of 0.94% of
each Subaccount's average daily net assets, except the T. Rowe Price Equity
Income and Bankers Trust International Subaccounts for which the maximum annual
rate is 0.59%. Security Benefit is currently charging an annual rate of 0.91% of
each Subaccount's average daily net assets (0.56% of the average daily net
assets of the T. Rowe Price Equity Income and Bankers Trust International
Subaccounts). The purpose of this charge is to reimburse Security Benefit for
the expenses associated with administration and distribution of the Contract and
operation of the Subaccounts.
PREMIUM TAX CHARGE -- Whether or not a premium tax is imposed will depend upon,
among other things, the Holder's state of residence, the Annuitant's state of
residence, and the insurance tax laws and Security Benefit's status in a
particular state. Various states and municipalities impose a tax on premiums on
annuity contracts received by insurance companies. Such a tax is typically
assessed when annuity payments are to begin, and, accordingly, Security Benefit
currently deducts this charge upon the Annuity Start Date. Security Benefit
assesses a premium tax charge to reimburse itself for any premium tax that it
incurs in connection with the Contract. 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 Contract, or that are
attributable to payment of premiums or acquisition costs under the Contracts. No
such charge is currently assessed. See "Tax Status of Security Benefit and the
Separate Account" and "Charge for Security Benefit Taxes."
VARIATIONS IN CHARGES -- Security Benefit may reduce or waive the amount of the
administration and distribution charge for the Contract where the expenses
associated with the administration of the Contract are reduced.
GUARANTEE OF CERTAIN CHARGES -- Security Benefit guarantees that the charge for
mortality and expense risks will not exceed an annual rate of 0.45 percent of
each Subaccount's average daily net assets and the charge for administration and
distribution will not exceed an annual rate of 0.94 percent of each Subaccount's
average daily net assets (0.59 percent for the T. Rowe Price Equity Income and
Bankers Trust International Subaccounts).
FUND EXPENSES -- Each Subaccount of the Separate Account purchases shares at the
net asset value of the corresponding Series of the Funds. 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, you indirectly bear a pro rata portion of such fees and expenses. The
advisory fees and other expenses, if any, which are more fully described in each
Fund's prospectus, are not specified or fixed under the terms of the Contract,
and may vary from year to year.
ANNUITY PERIOD
GENERAL -- You select the Annuity Start Date when you complete the participation
enrollment form. The Annuity Start Date may not be within 30 days of the
Contract Date and may not be deferred beyond your 90th birthday. If you do not
select an Annuity Start Date, the Company will use your 90th birthday as the
Annuity Start Date.
On the Annuity Start Date, your Contract Value as of that date, less any
applicable premium taxes, will be applied to provide an annuity under one of the
options described below. Each option is a fixed annuity for which annuity
payments will not fluctuate.
The Contract provides for five Annuity Options. Security Benefit may make
other Annuity Options available upon request. Annuity payments are based upon
annuity rates that vary with the Annuity Option selected. The annuity rates will
vary based on the age and sex of the Annuitant, except that unisex rates are
available where required by law. The annuity rates reflect your life expectancy
based upon your age as of the Annuity Start Date and your gender, unless unisex
rates apply. The annuity rates are based upon the 1983(a) mortality table with
mortality improvement using projection scale G and are adjusted to reflect an
interest rate of 3 percent, compounded annually. If no Annuity Option is
selected, Security Benefit will make payments under Option 2, a life income,
with a 10-year period certain.
Annuity Options 1 through 5 provide for payments to be made during the
lifetime of the Annuitant. Annuity payments under such options cease in the
event of the Annuitant's death, unless the option provides for a guaranteed
minimum number of payments, for example a life income with guaranteed payments
of 5, 10, 15 or 20 years. The level of annuity payments will be greater for
shorter guaranteed periods and less for longer guaranteed periods. Similarly,
payments will be greater for life annuities than for joint and survivor
annuities, because payments for life annuities are expected to be made for a
shorter period.
You may elect to receive annuity payments on a monthly, quarterly,
semiannual, or annual basis, although no payments will be made for less than
$100. If the frequency of payments selected would result in payments of less
than $100, Security Benefit reserves the right to change the frequency.
You may designate or change an Annuity Start Date, Annuity Option, or
Annuitant, provided proper written notice is received by Security Benefit at the
Administrative Office at least 30 days prior to the Annuity Start Date. 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 the
Administrative Office.
Once annuity payments have commenced under one of the Annuity Options, the
Participant cannot change the Annuity Option and cannot surrender his or her
annuity and receive a lump-sum settlement in lieu thereof. The Contract
specifies annuity tables for Annuity Options 1 through 5, described below. The
tables contain the guaranteed minimum dollar amount of each annuity payment (per
$1,000 of Contract Value, less any premium taxes, applied).
ANNUITY OPTIONS --
OPTION 1 -- LIFE INCOME. Periodic annuity payments will be made during the
lifetime of the Annuitant. It is possible under this Option for any Annuitant to
receive only one annuity payment if the Annuitant's death occurred prior to the
due date of the second annuity payment, two if death occurred prior to the due
date of the third annuity payment, etc. THERE IS NO MINIMUM NUMBER OF PAYMENTS
GUARANTEED UNDER THIS OPTION. PAYMENTS WILL CEASE UPON THE DEATH OF THE
ANNUITANT REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 2 -- LIFE INCOME WITH GUARANTEED PAYMENTS OF 5, 10, 15 OR 20 YEARS.
Periodic annuity payments will be made during the lifetime of the Annuitant with
the promise that if, at the death of the Annuitant, payments have been made for
less than a stated period, which may be five, ten, fifteen or twenty years, as
elected by the Participant, annuity payments will be continued during the
remainder of such period to the Designated Beneficiary.
OPTION 3 -- LIFE WITH INSTALLMENT REFUND OPTION. Periodic annuity payments
will be made during the lifetime of the Annuitant with the promise that, if at
the death of the Annuitant, the number of payments that has been made is less
than the number determined by dividing the amount applied under this Option by
the amount of the first payment, annuity payments will be continued to the
Designated Beneficiary until that number of payments has been made.
OPTION 4 -- JOINT AND LAST SURVIVOR. Periodic annuity payments will be made
during the lifetime of either Annuitant. It is possible under this Option for
only one annuity payment to be made if both Annuitants died prior to the second
annuity payment due date, two if both died prior to the third annuity payment
due date, etc. AS IN THE CASE OF OPTION 1, THERE IS NO MINIMUM NUMBER OF
PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE LAST
SURVIVING ANNUITANT, REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 5 -- JOINT AND CONTINGENT SURVIVOR OPTION. Periodic annuity payments
will be made during the life of the primary Annuitant. Upon the death of the
primary Annuitant, payments will be made to the contingent Annuitant during his
or her life. If the contingent Annuitant is not living upon the death of the
Primary Annuitant, no payments will be made to the contingent Annuitant. It is
possible under this Option for only one annuity payment to be made if both
Annuitants died prior to the second annuity payment due date, two if both died
prior to the third annuity payment due date, etc. AS IN THE CASE OF OPTIONS 1
AND 4, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION.
PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT, REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
THE FIXED ACCOUNT
You may allocate all or a portion of your purchase payments and transfer
Contract Value to the Fixed Account. The Fixed Account is a separate account of
Security Benefit established under Kansas law on October 26, 1998. Security
Benefit owns the assets of the Fixed Account and maintains them apart from the
assets of its General Account and its other separate accounts. The assets held
in the Fixed Account equal to the reserves and other Contract liabilities with
respect to the Fixed Account may not be charged with liabilities arising from
any other business Security Benefit may conduct. Income and realized and
unrealized gains and losses from assets in the Fixed Account are credited to, or
charged against, the Fixed Account without regard to the income, gains or losses
from the Security Benefit's General Account or its other separate accounts.
The Fixed Account is subject to regulation and supervision by the Kansas
Department of Insurance. In reliance on certain exemptive and exclusionary
provisions, interests in the Fixed Account have not been registered as
securities under the Securities Act of 1933 (the "1933 Act") and the Fixed
Account has not been registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, neither the Fixed Account nor
any interests therein are generally subject to the provisions of the 1933 Act or
the 1940 Act. This disclosure, however, may be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made in the Prospectus. This Prospectus is
generally intended to serve as a disclosure document only for aspects of a
Contract involving the Separate Account and contains only selected information
regarding the Fixed Account. For more information regarding the Fixed Account,
see "The Contract," page 9.
Subject to applicable law, Security Benefit has sole discretion over
investment of the assets of its Fixed Account.
INTEREST -- Contract Value allocated to the Fixed Account earns interest at a
fixed rate or rates (the "Current Rate") that are paid by Security Benefit. Such
interest will be paid regardless of the actual investment experience of the
Fixed Account. Security Benefit will determine the Current Rate, if any, from
time to time.
Contract Value allocated or transferred to the Fixed Account will earn
interest at the Current Rate, if any, in effect on the date such portion of
Contract Value is allocated or transferred to the Fixed Account. Security
Benefit bears the investment risk for Contract Value allocated to the Fixed
Account and for paying interest at the Current Rate on amounts allocated to the
Fixed Account.
DEATH BENEFIT -- The death benefit under the Contract will be determined in the
same fashion for a Contract that has Contract Value allocated to the Fixed
Account as for a Contract that has Contract Value allocated to the Subaccounts.
See "Death Benefit," page 13.
CONTRACT CHARGES -- Premium taxes will be the same for Participants who allocate
purchase payments or transfer Contract Value to the Fixed Account as for those
who allocate purchase payments or transfer Contract Value to the Subaccounts.
The charges for mortality and expense risks and the administration and
distribution charge will not be assessed against the Fixed Account, and any
amounts that Security Benefit pays for income taxes allocable to the Subaccounts
will not be charged against the Fixed Account. In addition, you will not pay
directly or indirectly the investment advisory fees and operating expenses of
the Funds to the extent Contract Value is allocated to the Fixed Account;
however, you also will not participate in the investment experience of the
Subaccounts.
TRANSFERS AND WITHDRAWALS FROM THE FIXED ACCOUNT -- You may transfer amounts
from the Subaccounts to the Fixed Account and from the Fixed Account to the
Subaccounts, subject to the following limitations. Transfers from the Fixed
Account are also allowed pursuant to the Dollar Cost Averaging and Asset
Reallocation Options.
The minimum amount that you may transfer from the Fixed Account to the
Subaccounts is $100. Transfers of Contract Value pursuant to the Dollar Cost
Averaging and Asset Reallocation Options are not currently subject to any
minimums. The Company reserves the right at a future date to limit the number of
transfers permitted each Contract Year, to limit the size and frequency of
transfer and to discontinue transfers.
You may also make full or partial withdrawals to the same extent as if you
had allocated Contract Value to the Subaccounts. See "Full and Partial
Withdrawals," page 12 and "Systematic Withdrawals," page 12.
PAYMENTS FROM THE FIXED ACCOUNT -- Full and partial withdrawals, and transfers
from the Fixed Account may be delayed for up to six months after a written
request in proper form is received by Security Benefit at the Administrative
Office. During the period of deferral, interest at the Current Rate will
continue to be credited to the amounts allocated to the Fixed Account. However,
payment of any amounts will not be deferred if they are to be used to pay
premiums on any policies or contracts issued by Security Benefit.
MORE ABOUT THE CONTRACT
HOLDER -- The Contractholder is the IBEW Local Unions Savings and Retirement
Plan and Trust (the "Trust"). The Trust holds the Contract for the benefit of
Participants. While living, the Participant alone has the right to receive all
benefits and exercise all rights that the Contract grants or Security Benefit
allows.
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 Participant prior to the Annuity Start Date. The Designated Beneficiary is
the first person on the following list who is alive on the date of death of the
Participant: the Primary Beneficiary; the Secondary Beneficiary; or if none of
the above are alive, the Participant's estate. The Primary Beneficiary is the
individual named as such in the participation enrollment form 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 the Participant prior to the Annuity Start Date. The Participant may
change the Primary Beneficiary at any time by written request on forms provided
by Security Benefit and received by Security Benefit at the Administrative
Office. The change will not be binding on Security Benefit until it is received
and recorded at the Administrative 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.
Reference should be made to the terms of the Trust Agreement 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.
PAYMENTS FROM THE SEPARATE ACCOUNT -- Security Benefit will pay any full or
partial withdrawal benefit or death benefit proceeds from Contract Value
allocated to the Subaccounts, and will effect a transfer between Subaccounts or
from a Subaccount to the Fixed Account on the Valuation Date a proper request is
received at the Administrative 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 your age or sex or that of an Annuitant, 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).
FEDERAL TAX MATTERS
INTRODUCTION -- The Contract described in this Prospectus is designed for use in
connection with a retirement plan that is not a "qualified" plan for federal tax
purposes. The ultimate effect of federal income taxes on the amounts held under
the Contract, on annuity payments, and on the economic benefits to the
Participants will depend upon the type of retirement plan, 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 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, a person
should consult with a qualified tax adviser regarding investment in the
Contract, the selection of an Annuity Option under a Contract, the receipt of
annuity payments under a Contract or any other transaction involving a Contract.
SECURITY BENEFIT DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF, OR TAX
CONSEQUENCES ARISING FROM, ANY CONTRACT OR ANY TRANSACTION INVOLVING THE
CONTRACT.
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT --
GENERAL. Security Benefit intends to be taxed as a life insurance company
under Part I, Subchapter L of the Code. Because the operations of the Separate
Account form a part of Security Benefit, Security Benefit will be responsible
for any federal income taxes that become payable with respect to the income of
the Separate Account and its Subaccounts.
CHARGE FOR SECURITY BENEFIT TAXES. A charge may be made for any federal taxes
incurred by Security Benefit that are attributable to the Separate Account, the
Subaccounts or to the operations of Security Benefit with respect to the
Contracts or attributable to payments, premiums, or acquisition costs under the
Contracts. Security Benefit will review the question of a charge to the Separate
Account, the Subaccounts or the Contracts for Security Benefit's federal taxes
periodically. Charges may become necessary if, among other reasons, the tax
treatment of Security Benefit or of income and expenses under the Contracts is
ultimately determined to be other than what Security Benefit currently believes
it to be, if there are changes made in the federal income tax treatment of
variable annuities at the insurance company level, or if there is a change in
Security Benefit's tax status.
Under current laws, Security Benefit may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, Security Benefit reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS. Each Series of the Funds 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
contract owner's gross income. The IRS has stated in published rulings that a
variable contract owner will be considered the owner of separate account assets
if the contract owner 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, 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 contract owners were not owners of separate account assets. For
example, the Participant has additional flexibility in allocating purchase
payments and Contract Values. These differences could result in a Participant
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
Participant 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 Funds 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 contract owner is not
taxed on increases in value under an annuity contract until some form of
distribution is made under the contract. However, the increase in value may be
subject to tax currently under certain circumstances. See "Contracts Owned by
Non-Natural Persons" on page 19 and "Diversification Standards" above.
Withholding of federal income taxes on all distributions may be required unless
a recipient who is eligible elects not to have any amounts withheld and properly
notifies Security Benefit of that election.
SURRENDERS OR WITHDRAWALS PRIOR TO THE ANNUITY START DATE. Code Section 72
provides that amounts received upon a total or partial withdrawal (including
systematic withdrawals) from a contract prior to the annuity start date
generally will be treated as gross income to the extent that the cash value of
the contract immediately before the withdrawal (determined without regard to any
surrender charge in the case of a partial withdrawal) exceeds the "investment in
the contract." The "investment in the contract" is that portion, if any, of
purchase payments paid under a contract less any distributions received
previously under the contract that are excluded from the recipient's gross
income. The taxable portion is taxed at ordinary income tax rates. For purposes
of this rule, a pledge or assignment of a contract is treated as a payment
received on account of a partial withdrawal of a Contract.
DISTRIBUTIONS ON OR AFTER THE ANNUITY START DATE. 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 (such as the Contract held by the Trust on behalf of the
Participants) 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 contract owner 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
your Contract Value, the designation of an Annuitant, Payee or beneficiary, the
selection of certain Annuity Start Dates or the exchange of your Contract Value
may result in certain tax consequences that are not discussed herein. A
Participant contemplating any such transfer, assignment, selection or exchange
should contact a competent tax adviser with respect to the potential effects of
such a transaction.
OTHER INFORMATION
VOTING OF FUND SHARES -- Security Benefit is the legal owner of the shares of
the Funds held by the Subaccounts. Security Benefit will exercise voting rights
attributable to the shares of each Series of the Funds held in the Subaccounts
at any regular and special meetings of the shareholders of a 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 Funds in its own right, it may elect to do so.
The person having the voting interest under a Contract is the Participant.
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 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 Funds. 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 Participants, 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 Funds 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 Funds
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 Funds
should become inappropriate in view of the purposes of the Contract, Security
Benefit may substitute shares of another Series of one of the Funds 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 Participants.
In connection with a substitution of any shares attributable to a
Participant's interest in a Subaccount or the Separate Account, Security Benefit
will, to the extent required under applicable law, provide notice, seek
Participant 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 one of the Funds 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 Participants. 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 the Holder or Participants, to make any change to
the provisions of the Contract to comply with, or give Participants the benefit
of, any federal or state statute, rule, or regulation, including but not limited
to requirements for annuity contracts and retirement plans under the Internal
Revenue Code and regulations thereunder or any state statute or regulation.
REPORTS TO PARTICIPANTS -- Security Benefit will send you quarterly a statement
setting forth a summary of the transactions that occurred during the quarter,
and indicating the Contract Value as of the end of the quarter. In addition, the
statement will indicate the allocation of Contract Value among the Fixed Account
and the Subaccounts and any other information required by law. Security Benefit
will also send confirmations upon purchase payments, transfers, and full and
partial withdrawals. Security Benefit may confirm certain transactions on a
quarterly basis. These transactions include purchases under an Automatic
Investment Program, transfers under the Dollar Cost Averaging and Asset
Reallocation Options, systematic withdrawals and annuity payments.
You will also receive annual and semiannual reports containing financial
statements for the Funds, which will include a list of the portfolio securities
of each Series, as required by the 1940 Act, and/or such other reports as may be
required by federal securities laws.
TELEPHONE TRANSFER PRIVILEGES -- You may request a transfer of Contract Value
and may make changes to an existing Dollar Cost Averaging or Asset Reallocation
option by telephone if the Telephone Transfer section of the participation
enrollment form or an Authorization for Telephone Requests form ("Telephone
Authorization") has been completed, signed, and filed at the Administrative
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 Participant'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
Value. You agree that neither Security Benefit, any of its affiliates, nor the
Funds, 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
Contract described in this Prospectus, Security Benefit's authority to issue the
Contract under Kansas law, and the validity of the form of the Contract under
Kansas law.
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
Contract is continuous.
Subject to arrangements with Security Benefit, the Contract is sold by
Scarborough Securities Corporation, a member of the NASD. Scarborough's
representatives are licensed to sell variable annuities for Security Benefit.
SDI acts as principal underwriter on behalf of Security Benefit for the
distribution of the Contract. SDI is not compensated under its Distribution
Agreement with Security Benefit.
The compensation payable by SDI to Scarborough under these arrangements is
equal to 0.75% of Contract Value on an annualized basis.
PERFORMANCE INFORMATION
Performance information for the Subaccounts, including yield and total return
of the Subaccounts may appear in advertisements, reports, and promotional
literature to current or prospective Participants.
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 the 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 mortality and expense risk charge and administration and
distribution charge, and may simultaneously be shown for other periods.
Although the Contracts were not available for purchase until October 1999,
the underlying investment vehicles of the Separate Account, the Funds, were in
existence prior to that date. Performance information for the Subaccounts may
also include quotations of total return for periods beginning prior to the
availability of the Contracts that incorporate the performance of the Funds.
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.
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............................................ 3
Safekeeping of Assets................................................... 3
DISTRIBUTION OF THE CONTRACT............................................... 3
EXPERTS.................................................................... 3
PERFORMANCE INFORMATION.................................................... 3
FINANCIAL STATEMENTS....................................................... 4
<PAGE>
SCARBOROUGH ADVANTAGE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: OCTOBER 27, 1999
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 Scarborough Advantage
Variable Annuity dated July 30, 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. The
Scarborough Advantage Variable Annuity is funded by a separate account of
Security Benefit called the Variable Annuity Account XI.
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION AND HISTORY............................................ 3
Safekeeping of Assets................................................... 3
EXPERTS.................................................................... 3
PERFORMANCE INFORMATION.................................................... 3
FINANCIAL STATEMENTS....................................................... 4
<PAGE>
GENERAL INFORMATION AND HISTORY
For a description of the Group Flexible Purchase Payment Deferred Variable
Annuity Contract (the "Contract"), Security Benefit Life Insurance Company
("Security Benefit"), and the Variable Annuity Account XI (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 Funds in non-certificated form, are held separate and apart from
the assets of Security Benefit's General Account and its other separate
accounts.
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 6 herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
PERFORMANCE INFORMATION
Performance information for the Subaccounts, including the yield and total
return, may appear in advertisements, reports, and promotional literature
provided to current or prospective Participants.
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 the 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 will include total return for periods beginning prior to
availability of the Contract. Such total return figures are based upon the
performance of the respective Series of the Funds, adjusted to reflect the
charges imposed under the Contract. Average annual total return figures reflect
the deduction of the mortality and expense risk and administration charges.
Quotations of total return for any Subaccount 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.
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 investment in the Contract under which the Participant'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 Funds in which the Subaccount invests, and the market conditions
during the given time period, and should not be considered as a representation
of what may be achieved in the future.
Reports and promotional literature may also contain other information including
(i) the ranking of any Subaccount derived from rankings of variable annuity
separate accounts, insurance products funds, or other investment products
tracked by Lipper Analytical Services or by other rating services, companies,
publications, or other persons who rank separate accounts or other investment
products on overall performance or other criteria, and (ii) the effect of a
tax-deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
FINANCIAL STATEMENTS
The consolidated balance sheets of Security Benefit Life Insurance Company and
Subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of income, changes in stockholder's equity, and cash flows for each
of the three years in the period ended December 31, 1998, are set forth herein,
starting on page 5.
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 Security
Benefit 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.
