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File No. 333-84159
File No. 811-09517
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. [_]
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Post-Effective Amendment No. 1 [X]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 2 [X]
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(Check appropriate box or boxes)
VARIABLE ANNUITY ACCOUNT XI
(Exact Name of Registrant)
Security Benefit Life Insurance Company
(Name of Depositor)
700 Harrison Street, Topeka, Kansas 66636-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, Including Area Code:
(785) 431-3000
Name of Agent for Service for Process:
Amy J. Lee, Associate General Counsel
Security Benefit Life Insurance Company
700 Harrison Street
Topeka, KS 66636-0001
It is proposed that this filing will become effective:
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on May 1, 2000, pursuant to paragraph (a)(1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_] on May 1, 2000, pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of securities being registered: Interests in a separate account under
group unallocated flexible premium deferred variable annuity contract.
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SCARBOROUGH ADVANTAGE VARIABLE ANNUITY
GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY: MAILING ADDRESS:
SECURITY BENEFIT LIFE INSURANCE COMPANY SECURITY BENEFIT 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 15. 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 May 1, 2000, 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 SW Harrison Street,
Topeka, Kansas 66636-0001 or by calling 1-800-888-2461. The table of contents of
the Statement of Additional Information is set forth on page 22 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: MAY 1, 2000
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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
PUBLISHED RATINGS.................................... 7
SEPARATE ACCOUNT..................................... 7
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 Small Cap Equity Fund........... 8
Goldman Sachs Capital Growth Fund.................. 8
The Investment Advisers............................ 8
THE CONTRACT............................................ 9
GENERAL.............................................. 9
APPLICATION TO INVEST IN THE CONTRACT................ 9
PURCHASE PAYMENTS.................................... 9
ALLOCATION OF PURCHASE PAYMENTS...................... 9
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......................... 11
SYSTEMATIC WITHDRAWALS............................... 12
DEATH BENEFIT........................................ 12
DISTRIBUTION REQUIREMENTS............................ 13
CHARGES AND DEDUCTIONS.................................. 13
MORTALITY AND EXPENSE RISK CHARGE.................... 13
ADMINISTRATION AND DISTRIBUTION CHARGE............... 13
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....................................... 15
INTEREST............................................. 15
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................ 16
DIVIDENDS............................................ 16
PAYMENTS FROM THE SEPARATE ACCOUNT................... 16
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.................. 17
Diversification Standards.......................... 17
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....... 18
Penalty Tax on Certain Surrenders and Withdrawals.. 18
ADDITIONAL CONSIDERATIONS............................ 19
Distribution-at-Death Rules........................ 19
Gift of Annuity Contracts.......................... 19
Contracts Owned by Non-Natural Persons............. 19
Multiple Contract Rule............................. 19
Possible Tax Changes............................... 19
Transfers, Assignments or Exchanges of a Contract.. 19
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.................................... 21
LEGAL MATTERS........................................ 21
DISTRIBUTION OF THE CONTRACT............................ 21
PERFORMANCE INFORMATION................................. 21
ADDITIONAL INFORMATION.................................. 22
REGISTRATION STATEMENT............................... 22
FINANCIAL STATEMENTS................................. 22
STATEMENT OF ADDITIONAL INFORMATION..................... 22
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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 15 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 7.
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 15.
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 11 and "Federal Tax Matters," page 17 for more information about
withdrawals, including the 10% 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 12 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 13.
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% to 3.5%. 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)
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 1.00% 0.09% 1.09%
(Series O)..........
International 1.10% 1.15%(3) 2.25%
(Series I)..........
Goldman Sachs CORE
Small Cap Equity.... 0.75% 0.25%(4) 0.90%
Goldman Sachs Capital
Growth.............. 0.75% 0.25%(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 Funds' December 31, 2000 expenses are based upon estimated amounts for
the fiscal year ended. 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) 0.75% and 1.50% and 0.94% and 1.69%, respectively. The
Series' adviser may discontinue or modify any limitations in the future at
its discretion. CORE(SM) is a service mark of Goldman, Sachs & Co.
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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%.
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%
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........ 38 120
Goldman Sachs CORE Small Cap Equity Subaccount 24 76
Goldman Sachs Capital Growth Subaccount....... 24 76
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CONDENSED FINANCIAL INFORMATION
The following condensed financial information presents accumulation unit values
for the year ended December 31, 1999 as well as ending accumulation units
outstanding under each Subaccount.
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1999(1)
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T. ROWE MID CAP GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period............................. $14.37
End of period................................... $17.60
Accumulation units outstanding at the end of period 28,783
T. ROWE EQUITY INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period............................. $17.56
End of period................................... $17.67
Accumulation units outstanding at the end of period 36,063
BANKERS TRUST INTERNATIONAL SUBACCOUNT
Accumulation unit value:
Beginning of period............................. $10.02
End of period................................... $12.97
Accumulation units outstanding at the end of period 7,337
GOLDMAN SACHS CORE SMALL CAP EQUITY SUBACCOUNT
Accumulation unit value:
Beginning of period............................. $ 8.73
End of period................................... $10.35
Accumulation units outstanding at the end of period 12,256
GOLDMAN SACHS CAPITAL GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period............................. $12.01
End of period................................... $14.05
Accumulation units outstanding at the end of period 70,591
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1. For the period October 27, 1999 (date operations commenced) to December 31,
1999.
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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 1999,
Security Benefit had total assets of approximately $8.3 billion. Together with
its subsidiaries, Security Benefit has total funds under management of
approximately $9.9 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.
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 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 by investing in dividend paying common stocks of established
companies.
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 is located at 32 Old Slip, New
York, New York 10005. As of September 1, 1999, the Investment Management
Division ("IMD") was established as a new operating division of Goldman, Sachs &
Co. registered as an investment adviser in 1981. The Goldman Sachs Group, LP,
which controlled GSAM, merged into the Goldman Sachs Group, Inc. as a result of
an initial public offering. GSAM 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%. 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% 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% 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 domicile, 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% to 3.5%, 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% of each
Subaccount's average daily net assets and the charge for administration and
distribution will not exceed an annual rate of 0.94% of each Subaccount's
average daily net assets (0.59% 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%, 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 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 12.
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 11 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% of
the total assets of a Series may be represented by any one investment, no more
than 70% may be represented by any two investments, no more than 80% may be
represented by any three investments, and no more than 90% 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." Guidance issued to date has no application to the Contract.
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% 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% 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%
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% 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. 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 the 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, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999, 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
EXPERTS................................................. 3
PERFORMANCE INFORMATION................................. 3
FINANCIAL STATEMENTS.................................... 4
<PAGE>
SCARBOROUGH ADVANTAGE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: MAY 1, 2000
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 May 1, 2000, 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, 1999, and 1998 and for each of the three years
in the period ended December 31, 1999, and the financial statements of the
Separate Account at December 31, 1999 and for the period ended December 31, 1999
included in this Statement of Additional Information have been audited by Ernst
& Young LLP, independent auditors, for the periods indicated in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
PERFORMANCE INFORMATION
Performance information for the Subaccounts, 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. The performance figures herein for the
T. Rowe Price Mid-Cap Growth Subaccount, T. Rowe Price Equity Income Subaccount,
Bankers Trust International Subaccount, Goldman Sachs CORE(SM) Small Cap Equity
Subaccount, and Goldman Sachs Capital Growth Subaccount reflect the
reimbursement of certain expenses by the Investment Adviser. In the absence of
such reimbursement, the performance figures would be reduced.
- -----------------------------------------------------------------
AVERAGE ANNUAL RETURN
----------------------------------
1 YEAR 3 YEARS 5 YEARS
- -----------------------------------------------------------------
T. Rowe Price Mid-Cap Growth 22.48% -- --
T. Rowe Price Equity Income 0.63% -- --
Bankers Trust International 29.44% -- --
Goldman Sachs CORE(SM) 12.01% -- --
Small Cap Equity
Goldman Sachs Capital Growth 20.50% -- --
From October 27, 1999 (date of inception of product) to December 31, 1999.
- -----------------------------------------------------------------
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 financial statements of Security Benefit Life Insurance Company
and Subsidiaries as of December 31, 1999 and 1998 and for each of the three
years in the period ended December 31, 1999, and the financial statements of the
Separate Account at December 31, 1999 and for the period ended December 31,
1999.
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.
<PAGE>
Variable Annuity Account XI
Financial Statements
Period from October 27, 1999 (inception date) to December 31, 1999
CONTENTS
PAGE
Report of Independent Auditors........................................... 6
Audited Financial Statements
Balance Sheets......................................................... 7
Statements of Operations and Changes in Net Assets..................... 8
Notes to Financial Statements.......................................... 9
<PAGE>
Report of Independent Auditors
The Contract Owners of Variable Annuity Account XI and
The Board of Directors of Security Benefit Life Insurance Company
We have audited the accompanying individual and combined balance sheets of
Variable Annuity Account XI (comprised of the individual series as indicated
therein) as of December 31, 1999, and the related statements of operations and
changes in net assets for the period from October 27, 1999 (inception date) to
December 31, 1999. These financial statements are the responsibility of Security
Benefit Life Insurance Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of December 31, 1999,
by correspondence with the transfer agent. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
individual series of Variable Annuity Account XI at December 31, 1999, and the
individual and combined results of their operations and changes in their net
assets for the period from October 27, 1999 to December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
Ernst & Young LLP
Kansas City, Missouri
February 4, 2000
<PAGE>
Variable Annuity Account XI
Balance Sheets
December 31, 1999
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
ASSETS
Investments:
SBL Fund:
Series O (T. Rowe Price Equity Income Series) - 36,907 shares
at net asset value of $17.27 per share (cost, $657).............. $ 637
Series I (Bankers Trust International Series) - 7,319 shares
at net asset value of $13.00 per share (cost, $86)............... 95
T. Rowe Price Equity Series, Inc. (T. Rowe Price Mid-Cap Growth
Portfolio) - 29,003 shares at net asset value of $17.46 per
share (cost, $471)................................................. 507
Goldman Sachs Variable Insurance Trust:
Goldman Sachs CORE(SM) Small Cap Equity Fund - 11,972 shares at
net asset value of $10.60 per share (cost, $152)................. 127
Goldman Sachs Capital Growth Fund - 70,791 shares at net
asset value of $14.01 per share (cost, $695)..................... 992
Accounts receivable, net............................................... 308
-----
Combined assets........................................................ $2,666
=====
NUMBER
NET ASSETS OF UNITS UNIT VALUE
-----------------------
Net assets are represented by (Note 3):
T. Rowe Price Equity Income Series:
Accumulation units..................... 36,063 $17.67 $ 637
Bankers Trust International Series:
Accumulation units..................... 7,337 12.97 95
T. Rowe Price Mid-Cap Growth Portfolio:
Accumulation units..................... 28,783 17.59 507
Goldman Sachs CORE Small Cap Equity Fund:
Accumulation units..................... 12,256 7.39 91
Goldman Sachs Capital Growth Fund:
Accumulation units..................... 70,591 18.93 1,336
-----
Combined net assets........................ $2,666
=====
SEE ACCOMPANYING NOTES.
<PAGE>
Variable Annuity Account XI
Statements of Operations and Changes in Net Assets
Period from October 27, 1999 (inception date) to December 31, 1999
(IN THOUSANDS)
T. ROWE PRICE BANKERS TRUST T. ROWE PRICE
EQUITY INTERNATIONAL MID-CAP
INCOME SERIES SERIES GROWTH PORTFOLIO
------------------------------------------------
Dividend distributions....... $ 10 $--- $---
Expenses (NOTE 2):
Administrative fee......... --- --- ---
------------------------------------------------
Net investment income........ 10 --- ---
Capital gains distributions.. 6 --- 5
Realized gain (loss)
on investments............. (1) --- ---
Unrealized appreciation
(depreciation) on
investments................ (20) 9 36
------------------------------------------------
Net realized and unrealized
gain (loss) on investments. (15) 9 41
------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations............ (5) 9 41
Variable annuity deposits
(NOTES 2 AND 3)............ 649 86 466
Terminations and withdrawals
(NOTES 2 AND 3)............ (7) ---
------------------------------------------------
Net assets at end of period.. $637 $ 95 $507
================================================
GOLDMAN SACHS GOLDMAN SACHS
CORE SMALL CAP CAPITAL
EQUITY FUND GROWTH FUND COMBINED
---------------------------------------------
Dividend distributions....... $ --- $ 2 $ 12
Expenses (NOTE 2):
Administrative fee........ --- (1) (1)
---------------------------------------------
Net investment income........ --- 1 11
Capital gains distributions.. 2 --- 13
Realized gain (loss)
on investments............. 2 100 101
Unrealized appreciation
(depreciation) on
investments................ (25) 297 297
---------------------------------------------
Net realized and unrealized
gain (loss) on investments. (21) 397 411
---------------------------------------------
Net increase (decrease)
in net assets resulting
from operations............ (21) 398 422
Variable annuity deposits
(NOTES 2 AND 3)............ 356 938 2,495
Terminations and withdrawals
(NOTES 2 AND 3)............ (244) --- (251)
---------------------------------------------
Net assets at end of period.. $ 91 $1,336 $2,666
=============================================
SEE ACCOMPANYING NOTES.
<PAGE>
Variable Annuity Account XI
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- Variable Annuity Account XI (the Account) is a separate
account of Security Benefit Life Insurance Company (SBL). The Account is
registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. Deposits received by the Account are
invested in the SBL Fund, the T. Rowe Price Equity Series, Inc., or the
Goldman Sachs Variable Insurance Trust, mutual funds not otherwise available
to the public. As directed by the owners, amounts deposited may be invested
in shares of Series O (T. Rowe Price Equity Income Series - emphasis on
substantial dividend income and also capital appreciation), Series I
(Bankers Trust International Series - emphasis on long-term capital
appreciation by investing primarily in non-U.S. equity securities and other
securities with equity characteristics), T. Rowe Price Mid-Cap Growth
Portfolio (emphasis on long-term capital appreciation by investing in
mid-cap stocks with potential for above-average growth), Goldman Sachs CORE
Small Cap Equity Fund (emphasis on long-term growth of capital through a
broadly diversified portfolio of equity securities which are included in the
Russell 2000 Index at the time of investment) and Goldman Sachs Capital
Growth Fund (emphasis on long-term growth of capital primarily through
investment in U.S. equity securities that offer long-term capital
appreciation potential).
Under the terms of the investment advisory contracts, portfolio investments
of the SBL Fund are made by Security Management Company, LLC (SMC), a
limited liability company controlled by its members, SBL and Security
Benefit Group, Inc., a wholly-owned subsidiary of SBL. SMC has engaged T.
Rowe Price Associates, Inc. to provide sub-advisory services for the Equity
Income Series, Bankers Trust Company to provide sub-advisory services for
the International Series, and Goldman Sachs Asset Management to provide
sub-advisory services for the CORE Small Cap Equity Fund and Capital Growth
Fund. Portfolio investments of the T. Rowe Price Mid-Cap Growth Portfolio
are made by T. Rowe Price, Inc. and investments in the CORE Small Cap Equity
Fund and Capital Growth Fund are made by Goldman Sachs Asset Management.
INVESTMENT VALUATION -- Investments in mutual fund shares are carried in the
balance sheet at market value (net asset value of the underlying mutual
fund). The average cost method is used to determine gains and losses.
Security transactions are accounted for on the trade date.
The cost of investments purchased and proceeds from investments sold for the
period from October 27,1999 (inception date) to December 31, 1999 were as
follows:
COST OF PROCEEDS
PURCHASES FROM SALES
------------------------
(IN THOUSANDS)
T. Rowe Price Equity Income Series.......... $709 $ 51
Bankers Trust International Series.......... 86 ---
T. Rowe Price Mid-Cap Growth Portfolio...... 490 19
Goldman Sachs CORE Small Cap Equity Fund.... 404 254
Goldman Sachs Capital Growth Fund........... 979 384
ANNUITY RESERVES -- As of December 31, 1999, annuity reserves have not been
established because there are no contracts that have matured and are in the
payout stage. Such reserves would be computed on the basis of published
mortality tables using assumed interest rates that would provide reserves as
prescribed by law. In cases where the payout option selected is life
contingent, SBL periodically recalculates the required annuity reserves, and
any resulting adjustment is either charged or credited to SBL and not to the
Account.
REINVESTMENT OF DIVIDENDS -- Dividend and capital gains distributions paid
by the mutual fund to the Account are reinvested in additional shares of
each respective series. Dividend income and capital gains distributions are
recorded as income on the ex-dividend date.
FEDERAL INCOME TAXES -- The operations of the Account are a part of the
operations of SBL. Under current law, no federal income taxes are allocated
by SBL to the operations of the Account.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
2. VARIABLE ANNUITY CONTRACT CHARGES
SBL 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%. SBL is currently
charging an annual rate of 0.91% of each Subaccount's average daily net
assets, except the T. Rowe Price Equity Income and Bankers Trust
International Subaccounts which are being charged an annual rate of 0.56%.
When applicable, an amount for state premium taxes is deducted as provided
by pertinent state law either from the purchase payments or from the amount
applied to effect an annuity at the time annuity payments commence.
3. SUMMARY OF UNIT TRANSACTIONS
PERIOD FROM
OCTOBER 27, 1999
(INCEPTION DATE) TO
DECEMBER 31, 1999
--------------------
(UNITS IN THOUSANDS)
T. Rowe Price Equity Income Series:
Variable annuity deposits......................... 36
Bankers Trust International Series:
Variable annuity deposits......................... 7
T. Rowe Price Mid-Cap Growth Portfolio:
Variable annuity deposits......................... 29
Goldman Sachs CORE Small Cap Equity Fund:
Variable annuity deposits......................... 36
Terminations, withdrawals and expense charges..... 24
Goldman Sachs Capital Growth Fund:
Variable annuity deposits......................... 72
Terminations, withdrawals and expense charges..... 1
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
The consolidated financial statements of Security Benefit Life
Insurance Company and Subsidiaries at December 31, 1999 and 1998,
and for each of the three years in the period ended December 31,
1999 are incorporated herein by reference to the financial
statements filed with the SBL Variable Annuity Account VIII Extra
Credit's Pre-Effective Amendment No. 1 under the Securities Act
of 1933 and Amendment No. 14 under the Investment Company Act of
1940 to Registration Statement No. 333-93947 (filed March 29,
2000).
b. Exhibits
(1) Resolution of the Board of Directors of Security Benefit
Life Insurance Company authorizing establishment of the
Separate Account(a)
(2) Not Applicable
(3) (a) Service Facilities Agreement(b)
(b) Form of Master Agreement
(c) Distribution Agreement(c)
(4) Group Unallocated Policy Form (GV6059 (1-99))(a)
(5) Application (GV7624 (6-99))
(6) (a) Composite of Articles of Incorporation of SBL(b)
(b) Bylaws of SBL(b)
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) Not Applicable
(12) Not Applicable
(13) Schedules of Computation of Performance
(14) Powers of Attorney of Howard R. Fricke, Kris A. Robbins,
Sister Loretto Marie Colwell, John C. Dicus, Steven J.
Douglass, William W. Hanna, John E. Hayes, Jr., Frank C.
Sabatini, and Robert C. Wheeler
(a) Incorporated herein by reference to the Exhibits filed with the Variable
Annuity Account XI Registration Statement No. 333-84159 (filed July 30,
1999).
(b) Incorporated herein by reference to the Exhibits filed with the Variflex
Separate Account's Post-Effective Amendment No. 20 under the Securities
Act of 1933 and Amendment No. 19 under the Investment Company Act of 1940
to Registration Statement No. 2-89328 (Filed August 17, 1998).
(c) Incorporated herein by reference to the Exhibits filed with the Variable
Annuity Account XI Pre-Effective Amendment No. 1 under the Securities Act
of 1933 and Amendment No. 1 under the Investment Company Act of 1940 to
Registration Statement No. 811-09517 (filed October 26, 1999).
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR
Howard R. Fricke* Chairman of the Board, Chief Executive
Officer and Director
Kris A. Robbins* President, Chief Operating Officer
and Director
Sister Loretto Marie Colwell Director
1700 SW 7th Street
Topeka, Kansas 66044
John C. Dicus Director
700 Kansas Avenue
Topeka, Kansas 66603
Steven J. Douglass Director
3231 E. 6th Street
Topeka, Kansas 66607
William W. Hanna Director
P.O. Box 2256
Wichita, KS 67201
John E. Hayes, Jr. Director
200 Gulf Blvd.
Belleair Shore, FL 33786
Frank C. Sabatini Director
120 SW 6th Street
Topeka, Kansas 66603
Robert C. Wheeler Director
P.O. Box 148
Topeka, Kansas 66601
Donald J. Schepker* Senior Vice President, Chief Financial
Officer and Treasurer
Roger K. Viola* Senior Vice President, General Counsel
and Secretary
Malcolm E. Robinson* Senior Vice President and Assistant
to the Chairman and CEO
Richard K Ryan* Senior Vice President
John D. Cleland* Senior Vice President
Terry A. Milberger* Senior Vice President
Venette K. Davis* Senior Vice President
J. Craig Anderson* Senior Vice President
Gregory J. Garvin* Senior Vice President
James R. Schmank* Senior Vice President
Kalman Bakk, Jr.* Senior Vice President
Amy J. Lee* Associate General Counsel, Vice
President and Assistant Secretary
Thomas A. Swank* Senior Vice President and
Chief Investment Officer
*Located at 700 Harrison Street, Topeka, Kansas 66636.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Depositor, Security Benefit Life Insurance Company ("SBL" or "the
Company"), is owned by Security Benefit Corp. through the ownership of
700,000 of SBL's 700,010 issued and outstanding shares of common
stock. One share of SBL's issued and outstanding common stock is owned
by each director of SBL, in accordance with the requirements of Kansas
law. Security Benefit Corp. is wholly-owned by Security Benefit Mutual
Holding Company ("SBMHC"), which in turn is controlled by SBL
policyholders. As of December 31, 1999 no one person holds more than
approximately 0.0004% of the voting power of SBMHC. The Registrant is
a segregated asset account of SBL.
The following chart indicates the persons controlled by or under
common control with Variable Annuity Account XI or SBL:
PERCENT OF VOTING
SECURITIES OWNED
JURISDICTION OF OR CONTROLLED
NAME INCORPORATION BY SBMHC
---- --------------- ----------------
(directly or
indirectly)
Security Benefit Mutual Holding Kansas ---
Company (Holding Company)
Security Benefit Corp. Kansas 100%
(Holding Company)
Security Benefit Life Kansas 100%
Insurance Company
(Stock Life Insurance Company)
Security Benefit Group, Inc. Kansas 100%
(Holding Company)
Security Management Company, LLC Kansas 100%
(Investment Adviser)
Security Distributors, Inc. Kansas 100%
(Broker/Dealer, Principal
Underwriter of Mutual Funds)
First Advantage Insurance Kansas 100%
Agency, Inc. (Insurance Agency)
Security Benefit Academy, Inc. Kansas 100%
(Daycare Company)
Security Financial Resources, Inc. Kansas 100%
(Financial Services)
First Security Benefit Life New York 100%
Insurance and Annuity Company
of New York (Stock Insurance Company)
SBL is also the depositor of the following separate accounts: SBL
Variable Annuity Accounts I, III, IV and X, SBL Variable Life
Insurance Account Varilife, Security Varilife Separate Account, SBL
Variable Annuity Account VIII (Variflex LS), SBL Variable Annuity
Account VIII (Variflex Signature), Variflex Separate Account, T. Rowe
Price Variable Annuity Account and Parkstone Variable Annuity Separate
Account.
Through the above-referenced separate accounts, SBL might be deemed to
control the open-end management investment companies listed below. As
of December 31, 1999 the approximate percentage of ownership by the
separate accounts for each company is as follows:
Security Growth and Income Fund............ 40.0%
SBL Fund................................... 100.0%
Security Ultra Fund........................ 42.0%
Advisor's Fund............................. 100.0%
ITEM 27. NUMBER OF CONTRACTOWNERS
As of April 1, 2000, there was one contract owner and 3,308
participants under the Non-Qualified Contract issued under Variable
Annuity Account XI.
ITEM 28. INDEMNIFICATION
The bylaws of Security Benefit Life Insurance Company provide that the
Company shall, to the extent authorized by the laws of the State of
Kansas, indemnify officers and directors for certain liabilities
threatened or incurred in connection with such person's capacity as
director or officer.
The Articles of Incorporation include the following provision:
(a) No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of
his or her fiduciary duty as a director, PROVIDED that nothing
contained in this Article shall eliminate or limit the liability of
a director (a) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under the provisions of K.S.A. 17-6424 and
amendments thereto, or (d) for any transaction from which the
director derived an improper personal benefit. If the General
Corporation Code of the State of Kansas is amended after the filing
of these Articles of Incorporation to authorize corporate action
further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by
the General Corporation Code of the State of Kansas, as so amended.
(b) Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at
the time of such repeal or modification.
Insofar as indemnification for a liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Depositor has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses
incurred or paid by a director, officer or controlling person of the
Depositor in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the Securities being registered, the Depositor will,
unless in the opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Security Distributors, Inc. ("SDI"), a subsidiary of SBL, acts
as distributor of the Contract issued under Variable Annuity
Account XI. SDI receives no compensation for its distribution
function. SDI performs similar functions for SBL Variable
Annuity Accounts I, III, IV and X, SBL Variable Life Insurance
Account Varilife, Security Varilife Separate Account, SBL
Variable Annuity Account VIII (Variflex LS and Variflex
Signature), and Parkstone Variable Annuity Separate Account. SDI
also acts as principal underwriter for the following management
investment companies for which Security Management Company, LLC,
an affiliate of SBL, acts as investment adviser: Security Equity
Fund, Security Income Fund, Security Growth and Income Fund,
Security Municipal Bond Fund, SBL Fund and Security Ultra Fund.
(b) NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
------------------ ------------------
Gregory J. Garvin President
John D. Cleland Vice President and Director
Richard K Ryan Director
James R. Schmank Director
Mark E. Young Director
Amy J. Lee Secretary
Brenda M. Harwood Treasurer and Director
*700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by Section 31(a) of
the 1940 Act and the rules under it are maintained by SBL at its
administrative offices--700 SW Harrison, Topeka, Kansas 66636-0001.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a post-effective
amendment to this Registration Statement as frequently as
necessary to ensure that the audited financial statements in the
Registration Statement are never more than sixteen (16) months
old for so long as payments under the Variable Annuity contracts
may be accepted.
(b) Registrant undertakes that it will include as part of the
Variable Annuity contract application a space that an applicant
can check to request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form promptly upon written or oral request
to SBL at the address or phone number listed in the prospectus.
(d) Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the Registrant hereby
undertakes to file with the Securities and Exchange Commission
such supplementary and periodic information, documents, and
reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
(e) Depositor represents that the fees and charges deducted under
the Contract, in the aggregate, are reasonable in relation to
the services rendered, the expenses expected to be incurred, and
the risks assumed by the Depositor.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf in the City of Topeka, State of Kansas on this 26th day of April, 2000.
SIGNATURES AND TITLES
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of the (The Depositor)
Board, and Chief Executive
Officer By: ROGER K. VIOLA
-------------------------------------------
Roger K. Viola, Senior Vice President,
Kris A. Robbins General Counsel and Secretary as Attorney-
Director, President and In-Fact for the Officers and Directors
Chief Operating Officer Whose Names Appear Opposite
Sister Loretto Marie Colwell VARIABLE ANNUITY ACCOUNT XI
Director (The Registrant)
John C. Dicus By: SECURITY BENEFIT LIFE INSURANCE COMPANY
Director (the Depositor)
William W. Hanna By: HOWARD R. FRICKE
Director -------------------------------------------
Howard R. Fricke, Chief Executive Officer
John E. Hayes, Jr.
Director By: DONALD J. SCHEPKER
-------------------------------------------
Donald J. Schepker, Senior Vice President,
Frank C. Sabatini Chief Financial Officer and Treasurer
Director
(ATTEST): ROGER K. VIOLA
Robert C. Wheeler --------------------------------------
Director Roger K. Viola, Senior Vice President,
General Counsel and Secretary
Steven J. Douglass
Director
Date: April 26, 2000
<PAGE>
EXHIBIT INDEX
(1) None
(2) None
(3) (a) None
(b) Form of Master Agreement
(c) None
(4) None
(5) Application (GV7624 (6-99))
(6) (a) None
(b) None
(7) None
(8) None
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) None
(12) None
(13) Schedule of Computation of Performance
(14) Powers of Attorney
<PAGE>
FORM OF
MASTER AGREEMENT
AMONG
TRUSTEES OF THE MASTER TRUST FOR THE INTERNATIONAL BROTHERHOOD OF
ELECTRICAL WORKERS LOCAL UNIONS SAVINGS AND RETIREMENT PLAN AND TRUST,
SCARBOROUGH SECURITIES CORPORATION,
SECURITY BENEFIT LIFE INSURANCE COMPANY, AND
SECURITY DISTRIBUTORS, INC.
THIS AGREEMENT is made as of the 1st day of July, 1999, by and among the
following: Trustees of the Master Trust for the International Brotherhood of
Electrical Workers Local Unions Savings and Retirement Plan and Trust (the
"Trustees"); Scarborough Securities Corporation ("Scarborough"), One Bridge
Street, Irvington, NY 10533; Security Benefit Life Insurance Company ("SBL"),
with principal offices at 700 SW Harrison Street, Topeka, Kansas 66636; and
Security Distributors, Inc. ("SDI"), 700 SW Harrison Street, Topeka, Kansas
66636; all parties to this Agreement.
WITNESSETH:
WHEREAS, certain local unions of the International Brotherhood of Electrical
Workers ("IBEW") have established a Savings and Retirement Plan ("Plan") to
allow their members to have the opportunity for a convenient method of regular
savings, to receive higher rates of return than Plan participants could obtain
individually, and to accumulate savings for the purchase of a supplementary
retirement annuity or for such other purposes as the circumstances of a
participant might require;
WHEREAS, assets under the Plan have been held in trust for the benefit of
eligible members of IBEW that participate in the Plan;
WHEREAS, the Trustees wish to expand the investment options available to
Eligible Persons consistent with the retirement purposes of the Plan;
WHEREAS, the Trustees have determined that it would be in the best interests
of the Eligible Persons and consistent with the retirement purposes of the Plan
if a group variable annuity contract that offers multiple investment options
were to serve as the investment vehicle for the Plan;
WHEREAS, the Trustees, with the assistance of Scarborough, wish to take the
steps necessary to permit Eligible Persons to participate in the Annuity
Contract pursuant to the Plan, including amending the Plan to the extent
necessary to permit investment in the Annuity Contract, amending the trust
agreement under which assets are held in trust under the Plan for purposes of
holding the Annuity Contract, and investing existing assets of the Plan in the
Annuity Contract;
WHEREAS, Scarborough, a registered broker-dealer with the Securities and
Exchange Commission ("SEC") and a member of the National Association of
Securities Dealers, Inc. ("NASD") has been retained by the Trustees to, among
other things, facilitate the offering of the Annuity Contract to Eligible
Persons;
WHEREAS, SBL wishes to issue and administer a group annuity contract for
purposes of investment by Eligible Persons pursuant to the Plan (the "Annuity
Contract");
WHEREAS, SDI, a wholly-owned subsidiary of SBL, and a registered
broker-dealer with the SEC and a member of the NASD, wishes to serve as the
distributor of the Annuity Contract;
WHEREAS, this Agreement together with the Annuity Contract, the Trust as set
forth in Section 2.1, the Distribution Agreement as described in Section 4.1,
and the Custody Agreements as set forth in Section 3.5 are intended to serve as
the framework for setting forth the contractual relationships, rights,
responsibilities and obligations of the parties vis-a-vis one another; and
WHEREAS, the parties have entered into a letter of intent dated June 30, 1999
which provides, among other things, that the parties shall enter into a Master
Agreement setting forth the respective duties and obligations of the parties.
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE 1
ADDITIONAL DEFINITIONS
1.1 ACCOUNT VALUE - The amount held under the Annuity Contract, consisting
of amounts credited to the account of each Participant.
1.2 AFFILIATE - With respect to a party, any person controlling, controlled
by, or under common control with, such party, but shall not include a
Fund or Fund Series.
1.3 ANNUITY CONTRACT - The group unallocated variable annuity contract
developed by SBL in accordance with Article 3, as amended or revised
from time to time in accordance with Article 3 of this Agreement.
1.4 DISTRIBUTOR - SDI or any successor thereto.
1.5 EFFECTIVE DATE - This Agreement shall be effective as of July 1, 1999.
1.6 ELIGIBLE PERSONS - Any individual who is eligible to participate in the
Plan under the terms of the Plan or the Trust.
1.7 FUND and FUND SERIES - An investment company or series thereof serving
as a funding medium for the Annuity Contract, which, subject to Section
3.3, shall include those Funds and Fund Series named in Section 3.3 of
this Agreement as of the Effective Date, and any other investment
company or series thereof that may be added as a funding medium for the
Annuity Contract pursuant to a fund participation agreement with SBL as
described in Section 3.3 of this Agreement.
1.8 GENERAL ACCOUNT - The general account assets of SBL, which includes the
assets of SBL other than those allocated to a separate account.
1.9 INSURANCE COMMISSION - The appropriate agency charged with regulating
insurance activities in a state or other jurisdiction.
1.10 PARTICIPANT - A person eligible to participate in the Plan under the
terms of the Plan and who participates in the Annuity Contract.
1.11 PROSPECTUS - Unless the context otherwise requires, the prospectus and
statement of additional information included in a Registration Statement
or the definitive form thereof for the Annuity Contract and the Separate
Account funding the Annuity Contract, including any supplement thereto,
as filed with the SEC under the Securities Act of 1933 (the "1933 Act").
1.12 RELATED AGREEMENTS - The final executed forms of the agreements that are
the subject of exhibits to this agreement.
1.13 REGISTRATION STATEMENT - Unless the context otherwise requires, a
Registration Statement or amendment thereto for the Annuity Contract and
the Separate Account funding the Annuity Contract, as filed with the SEC
under the 1933 Act.
1.14 THE 1933 ACT - The Securities Act of 1933, as amended.
1.15 THE 1940 ACT - The Investment Company Act of 1940, as amended.
1.16 SEC - The U.S. Securities and Exchange Commission.
1.17 SEPARATE ACCOUNT - Each separate account of SBL supporting the Annuity
Contract.
1.18 SUBACCOUNT - A sub-division of the Separate Account representing an
investment option available under the Annuity Contract.
1.19 TRUST - A trust established to hold the Annuity Contract on behalf of
Eligible Persons.
1.20 TRUSTEES - The persons designated above and any persons who are
successors to those persons as trustees of the International Brotherhood
of Electrical Workers Local Unions Savings and Retirement Plan and
Trust.
ARTICLE 2
THE PLAN AND TRUST
2.1 ORGANIZATION. The Trustees have established or will establish the Trust,
which may be the successor to a trust that held assets under the Plan
prior to the offering of the Annuity Contract and may incorporate in its
terms the Plan, to serve as the contract holder of the Annuity Contract
on behalf of Participants. The Trust shall be established by the
Trustees entering into the International Brotherhood of Electrical
Workers Local Unions Savings and Retirement Plan and Trust Agreement in
the form attached in Exhibit 2.1.A. The Trust may be amended from time
to time provided that such amendment is approved by the Trustees,
Scarborough, and SBL, except that termination of the Trust shall not be
considered an amendment for these purposes, and the Trust may be
terminated pursuant to its terms, subject to Section 3.6 of this
Agreement. Approval by SBL of any change or amendment to the Trust as
provided above may be withheld only if SBL reasonably believes that the
amendment would render the Trust other than a fixed investment trust as
described in Treas. Reg. Section 301.7701-4(c), or if the amendment
would render any aspect of the Trust or its operation unlawful.
2.2 REPRESENTATIONS AND WARRANTIES. Each of the Trustees and Scarborough
represent and warrant to SBL and SDI that on and after the earlier of
the Effective Date or the date that the Trust first becomes the contract
holder of the Annuity Contract that the Trust may lawfully be entered
into on behalf of IBEW by those persons executing the Trust, the Trust
is a duly organized trust under Kansas law and is validly existing; and
the Trustees have all requisite power to carry on the business of the
Trust as contemplated under its terms.
2.3 COVENANTS. The Trustees covenant that they shall take all steps
necessary to maintain the Trust and the Plan so that the representations
and warranties set forth in Section 2.2 continue to be true for the
duration of this Agreement. The Trustees further covenant that they
shall take all steps necessary to maintain the Trust as a fixed
investment trust as described in Treas. Reg. Section 301.7701-4(c) so
that the participations in the Annuity Contract for Participants are
deemed to be held by such individuals and not by the Trust for tax
purposes and that they shall not take any action or omit to take any
action for the duration of this Agreement that would render the Trust
and the Plan other than a fixed investment trust as described in Treas.
Reg. Section 301.7701-4(c). The Trustees agree to promptly notify SBL
and SDI in the event that any of the representations and warranties set
forth in Section 2.2 no longer continue to be true or in the event that
the Trust and Plan cease to be a fixed investment trust as described in
Treas. Reg. Section 301.7701.4(c).
2.4 TRANSFER OF ASSETS. As soon as practicable after the Effective Date, the
Trustees shall cause the assets of the Plan to be invested in the
Annuity Contract. Scarborough agrees to facilitate and coordinate such
investment of assets, and to provide to SBL information as to the names
of the persons participating in the Plan as of such date to which the
transferred amounts should be credited as Account Value under the terms
of the Annuity Contract, and who shall become participants in the
Annuity Contract on such date.
2.5 TRUST EXPENSES. SBL agrees to pay Scarborough an amount not to exceed an
annual rate of 0.07% of the total Account Value under the Annuity
Contract so that Scarborough may pay the administrative expenses of the
Trust. SBL shall pay such amount on a monthly or other period agreeable
to SBL as directed by the Trustees or a person designated by the
Trustees.
ARTICLE 3
DEVELOPMENT AND ADMINISTRATION OF THE ANNUITY CONTRACT
3.1 DEVELOPMENT OF THE ANNUITY CONTRACT. The parties acknowledge that SBL
has consulted with Scarborough on the terms of the Annuity Contract and
the investment options to be offered thereunder. SBL agrees that it
shall develop the Annuity Contract, participation interests of which
shall be offered to Eligible Persons and held by the Trust. The Annuity
Contract shall be the form of annuity contract included in Exhibit 3.1.A
of this Agreement. The Annuity Contract may be amended from time to time
by SBL in accordance with its terms, provided that any such amendments
are approved in advance by the Trustees or a person designated by the
Trustees. As soon as possible following the Effective Date, SBL shall,
at its own expense, file an appropriate Registration Statement with the
SEC with respect to the Annuity Contract.
3.2 PRODUCT DESIGN. The parties agree that SBL shall require from each
Eligible Person who becomes a Participant after the Effective Date, a
minimum initial purchase payment of $2,000 and that the minimum
subsequent purchase payment shall be $100, except that there is no
minimum for automatic investments. The maximum purchase payment is
$1,000,000 per Participant. The parties further agree that the minimum
partial withdrawal and the minimum systematic withdrawal amount is $100
and SBL may limit the frequency of transfers among investment options in
the future. The foregoing requirements are not set forth in the Annuity
Contract. SBL and the Trustees agree that the Annuity Contract shall
contain, among other terms as provided in the form of Annuity Contract
in Exhibit 3.1.A, the following terms:
(a) annuity options;
(b) overall limits on charges and expenses, including a limit of an
annual rate of 1.29% of Separate Account assets for mortality and
expense risk, and a guaranteed limit of 0.10% of Separate Account
assets for administrative expenses;
(c) no sales charge or deferred sales charge;
(d) an allocation option ("Stable Value Option") that pays interest
guaranteed by SBL and that is supported for accounting purposes by
an insulated non-unitized separate account of SBL (and which
separate account shall not be commingled with any other assets of
SBL or any third party nor used for any other SBL annuity or life
insurance contract other than the Annuity Contract) under which the
current rate of interest, subject to crediting consistent with an
option that is not a security pursuant to Section 3(a)(8) of the
1933 Act, under which SBL would pay a current rate based upon the
projected rate of interest that SBL, in its reasonable business
judgment, taking into account factors including its own investment
risk, believes can be earned on any assets allocated by
Participants to the Stable Value Option ("Allocated Assets"), less
a spread, which will be a percentage of Allocated Assets and any
credit allocated thereto in an amount equal to the charges imposed
on the Separate Account for administration and mortality and
expense risks plus the investment advisory fee payable to an
investment adviser engaged to manage the assets allocated to the
Stable Value Option and amortizing any unrealized gain or loss with
respect to the Allocated Assets; and (e) the right to substitute
securities for securities underlying the Separate Account.
3.3 FUND OPTIONS. The parties agree that the Annuity Contract will offer
multiple investment options. SBL agrees to use its reasonable best
efforts to enter into fund participation agreements with the investment
companies that follow, or the investment companies containing the series
that follow, and, as appropriate, the investment adviser or other
service providers to such investment companies or series, with a view
that each shall become a Fund that underlies the Separate Account: the
International Series and Equity Income Series of SBL Fund; the T. Rowe
Price Mid Cap Growth Portfolio of the T. Rowe Price Equity Series, Inc.;
and the Goldman Sachs Capital Growth Fund and the Goldman Sachs CORE
Small Cap Equity Fund of the Goldman Sachs Variable Insurance Trust. The
parties acknowledge that SBL is under no obligation to enter into an
agreement with any of the aforesaid investment companies (and investment
advisers or other service providers) in the event that such parties are
not willing to provide SBL with the contractual protection reasonably
requested by SBL consistent with industry practice. In the event that
SBL is not able to reach agreement and one or more of the aforesaid
investment companies does not become a Fund under the Annuity Contract,
SBL shall use its reasonable best efforts to enter into fund
participation agreements with other investment companies identified by
the Trustees and acceptable to SBL. SBL shall enter into an investment
advisory agreement with T. Rowe Price Stable Asset Management, Inc.
("TRP") in substantially the form set forth in Exhibit 3.3A, pursuant to
which TRP shall become the investment adviser to the Allocated Assets in
connection with the Stable Value Option. SBL agrees to consider in good
faith upon reasonable request of the Trustees at any time during the
term of this Agreement the addition of new investment options to become
Funds under the Annuity Contract. The parties acknowledge that SBL is
not responsible for the actions or omissions of any Fund underlying the
Separate Account, except to the extent that SBL has contractual
obligations to any such Fund.
3.4 EXCLUSIVITY OF ANNUITY CONTRACT. SBL shall offer participation interests
in the Annuity Contract solely to Eligible Persons. Nothing in this
Agreement shall prevent SBL from offering to other persons annuity
contracts containing terms that are the same as those in the Annuity
Contract. Nothing in this Agreement shall prohibit SBL, or an Affiliate
thereof, from entering into a participation agreement with a Fund so
that such Fund may act as an investment vehicle for a variable annuity
or life insurance product of SBL or an Affiliate thereof other than the
Annuity Contract.
3.5 CUSTODY. The Trustees shall enter into a Custody Agreement between the
Trustees on behalf of the Trust and a bank acceptable to SBL in the form
of the Custody Agreement included in Exhibit 3.5.A, under which the
Custodian shall be appointed by the Trustees to accept delivery of the
Annuity Contract on behalf of the Trust. SBL shall deliver the Annuity
Contract to the Trust through delivery to the Custodian. In the event
that the Custody Agreement shall be terminated for any reason, the
Annuity Contract shall be held by the Trustees in a manner acceptable to
the Trustees and to SBL. SBL shall enter into a Custody Agreement
between SBL and a bank acceptable to the Trustees in the form of the
Custody Agreement included in Exhibit 3.5.B, under which the Custodian
shall be appointed by SBL to maintain custody of the assets allocated
under the Annuity Contract to the Stable Value Option and deposited by
SBL for accounting purposes to a non-unitized separate account.
3.6 EARLY TERMINATION. If during the five year period beginning on the
Effective Date, the Trustees or Scarborough (1) dissolve or terminate
the Trust, or (2) establish, facilitate, or permit another substantially
similar investment or savings option, plan, or vehicle for Eligible
Persons other than the Annuity Contract, whether through the Trust or
otherwise, then the Trustees shall authorize and direct the Trust to pay
liquidated damages to SBL of an amount equal to the following: (1) 0.35%
of the greater of (a) the total Account Value under the Annuity Contract
as of the date of the violation or (b) $100 million times the number of
years (including fractional amounts for any portion of a year) remaining
in the initial five-year term of this Agreement, plus (2) $200,000 times
a percentage equal to x/60 where x is equal to the number of months
remaining in the initial five-year term of this Agreement; provided,
however, that the foregoing liquidated damages shall not be paid or
apply in the event that (i) SBL consents in writing to such action by
the Trustees, or (ii) an Excusing Condition occurs. An Excusing
Condition shall occur if:
(a) SBL should fail to maintain the financial standards set forth in
Schedule 3.6A, or
(b) SBL continues to fail to meet the service standards specified in
Schedule 3.8A for 120 days or more after being notified in writing
by Scarborough or the Trustees of any such failure, or
(c) SBL should no longer be able to act as an insurance company under
applicable law.
3.7 CONTINUOUS OFFERING. SBL agrees to take all steps necessary to
continuously offer during the term of this Agreement participation
interests in the Annuity Contract to Eligible Persons. Accordingly, SBL,
with the assistance of SDI where appropriate, agrees at its expense:
(a) to develop and prepare all necessary annuity contract forms,
participation forms, related applications, Registration Statements,
Prospectuses and other documents in the appropriate form, and for
establishing the appropriate Separate Account and Subaccounts to
support the Annuity Contract and invest in each Fund;
(b) to file all such annuity contract forms, participation enrollment
forms, applications, Registration Statements, Prospectuses and
other documents with the SEC and any Insurance Commission as deemed
appropriate by SBL; and
(c) to file amendments to the annuity contract forms, participation
forms, applications, Registration Statements, Prospectuses and
other documents to the extent appropriate or required by applicable
law.
3.8 ANNUITY CONTRACT AND SEPARATE ACCOUNT ADMINISTRATION. SBL shall be
responsible for the insurance underwriting, issuance, and administration
of the Annuity Contract and Separate Account. Accordingly, SBL shall
provide the following services: calculation of Separate Account
accumulation and annuity unit values; and processing premiums,
withdrawals and transfers of Account Value. In addition, with respect to
interests of Participants, SBL shall provide the following services:
establishing individual accounts for Participants; tracking Participant
account balances and cost basis; generation and delivery of
confirmations of Participant transactions under the Annuity Contract;
generation and delivery of Participant quarterly or other periodic
statements; and tax reporting with respect to Participant transactions
under the Annuity Contract. In rendering these services, SBL shall
exercise reasonable care and perform at a level commensurate with the
standards set forth in Schedule 3.8.A.
ARTICLE 4
DISTRIBUTION
4.1 DISTRIBUTION. SDI shall serve as the distributor for the Annuity
Contract. SDI and Scarborough shall enter into a Distribution Agreement
in substantially the form set forth in Exhibit 4.1.A. Pursuant to the
Distribution Agreement, Scarborough shall be authorized to solicit
Eligible Persons to become Participants in the Annuity Contract.
4.2 EXCLUSIVITY FOR SCARBOROUGH. SBL and SDI agree that Scarborough is the
exclusive person that may be appointed to solicit Eligible Persons to
become Participants in the Annuity Contract, and no other person may be
so appointed unless:
(a) Otherwise agreed to in writing by Scarborough;
(b) Scarborough should become ineligible to render the services under
the Distribution Agreement for any reason under applicable law,
including, but not limited to, suspension of its registration as a
broker-dealer with the SEC, or if Scarborough should no longer be
registered as a broker-dealer with the SEC or with any state where
necessary to solicit Eligible Persons to become Participants in the
Annuity Contract, or if Scarborough or its pertinent associated
persons should not be licensed under applicable insurance law to
solicit participation in the Annuity Contract; or
(c) Approved by the Trustees.
4.3 OTHER SERVICES. Scarborough shall perform the following administrative
functions relating to the Annuity Contract: (i) preparing information
relating to the Annuity Contract for delivery to Eligible Persons or to
Participants; (ii) preparing communications for Participants and
Eligible Persons, responding to questions from Participants and Eligible
Persons, and performing general customer service functions; (iii)
preparing year-end reports for the Trustees; (iv) effecting changes
relating to the Participants, including change of address; (v) effecting
transfers of Account Value or changes in the allocation of future
purchase payments as instructed by Participants; (vi) authorizing
telephone transfers of Account Value upon receipt of written
instructions from a Participant; and (vii) providing other necessary
documents and reports in an efficient and timely manner. Scarborough
will effect changes in Participant records either through e-mail
instructions to SBL, or if available, through direct access to SBL's
Participant recordkeeping system. In rendering these services,
Scarborough shall exercise reasonable care and perform at a level
commensurate with standards then prevailing in the industry. Scarborough
and SBL shall indemnify and hold harmless one another for any losses,
claims, damages or expenses (including attorneys' fees) arising from its
bad faith, willful misfeasance, negligence or failure to properly
perform its administrative functions as set forth in this Section 4.3.
ARTICLE 5
COMPENSATION AND EXPENSES
5.1 COMPENSATION FOR SBL. Unless the parties otherwise agree in writing and
except as provided in this Section 5.1 or Section 3.6, the sole source
of compensation for SBL for carrying out its responsibilities and
obligations assumed under this Agreement or the Related Agreements shall
be the revenues derived from the charges deducted under the Annuity
Contract. The parties acknowledge that SBL has incurred significant
administrative, systems, and development expenses in exploring the
feasibility of offering the Annuity Contract to Eligible Persons, and
acknowledge that additional fees will be incurred by SBL on and after
the Effective Date in meeting the obligations set forth herein and in
designing and offering the Annuity Contract in a manner which is
anticipated to meet the needs of the parties and the requirements of
applicable law. Within fifteen (15) days of the Effective Date, the
Trustees agree to authorize, and make payment, from the Trust to SBL in
the amount of $230,000 for such development expenses.
5.2 COMPENSATION FOR SCARBOROUGH. Unless the parties otherwise agree in
writing, the sole source of compensation for Scarborough for carrying
out its responsibilities and obligations under this Agreement and the
Distribution Agreement shall be compensation paid to Scarborough by SDI
under the Distribution Agreement. Such compensation shall be paid
monthly in an amount equal to 1/12 of 0.75% applied to Account Value as
of each calendar month end.
5.3 EXPENSES. Except as otherwise provided herein and in the Related
Agreements, each party shall bear the expenses it incurs in carrying out
its responsibilities and obligations assumed under this Agreement or the
Related Agreements. SBL or SDI shall bear the cost of printing
Prospectuses and participation enrollment forms for the Annuity Contract
and mailing Prospectuses to Participants. Scarborough shall bear the
cost of development and printing of any advertisements or sales
literature for the Annuity Contract; provided that SBL shall assist
Scarborough in developing the initial marketing brochure and will pay
the cost of printing the initial brochure, subject to a maximum cost of
$10,000.
ARTICLE 6
PROPRIETARY MATTERS
6.1 TRADEMARKS.
(a) SBL LICENSED MARKS.
SBL is the owner of all right, title and interest in and to the
name, trademark and service mark "SBL" used in connection with the
sale and promotion of financial and insurance products and any
other names, trademarks, service marks or logos later specified by
SBL (the "SBL licensed marks" or the "licensor's licensed marks").
SBL hereby grants to Scarborough a non-exclusive license to use the
SBL licensed marks in connection with its performance of the
services contemplated by this Agreement and the Related Agreements,
subject to the terms and conditions set forth in paragraph (b)
hereof.
(b) TERMS AND CONDITIONS.
(i) TERM. The grant of license by SBL (a "licensor") to
Scarborough thereof (the "licensee") shall terminate
automatically when this Agreement ceases to be in effect or
sooner upon termination by the licensor by written notice,
unless otherwise agreed in writing by the parties. Upon
automatic termination, every licensee shall cease to use the
licensor's licensed marks.
(ii) APPROVAL OF TRADEMARK-BEARING MATERIALS. Licensee shall use
the SBL licensed marks in accordance with the instructions of
SBL and licensee shall not use the SBL licensed marks on any
advertising or other printed materials or other media unless
SBL has approved such use in advance; provided that licensee
may use the SBL licensed marks in the normal course of
performing its services and functions with respect to the
Annuity Contract, all as contemplated by this Agreement. SBL
shall have the right at reasonable times and upon reasonable
intervals upon 15 days' written notice to licensee to review
all literature and other media describing or offering the
Annuity Contract.
6.2 CONFIDENTIALITY. Each party to this Agreement shall keep confidential
the terms and provisions of this Agreement (except as otherwise required
by law or regulation), the parties' respective methods of doing
business, the names, addresses and other personal information relating
to Participants, and any other information proprietary to any party to
this Agreement, and shall not reproduce, disseminate or otherwise
publish the same to any person not a party to this Agreement, without
the prior written approval of the other parties to this Agreement
(except as required by law or regulation and then only upon prior
written notice to the other party). THE FOREGOING OBLIGATION OF
CONFIDENTIALITY SHALL NOT APPLY TO INFORMATION THAT: (A) IS OR BECOMES
PUBLICLY KNOWN OR READILY ASCERTAINABLE BY THE PUBLIC THROUGH NO
WRONGFUL ACT OF THE RECIPIENT; (B) IS ALREADY KNOWN TO THE RECIPIENT OR
HAS BEEN INDEPENDENTLY DEVELOPED BY OR FOR THE RECIPIENT WITHOUT
UTILIZING THE CONFIDENTIAL INFORMATION; (C) THE RECIPIENT RECEIVES FROM
A THIRD PARTY, IF THE RECIPIENT DOES NOT KNOW OF ANY RESTRICTIONS ON THE
DISCLOSURE OF THAT INFORMATION; (D) THE DISCLOSER DISCLOSES TO A THIRD
PARTY WITHOUT SIMILAR RESTRICTIONS ON DISCLOSURE; OR (E) IS LAWFULLY
REQUIRED TO BE DISCLOSED UNDER APPLICABLE LAW, PROVIDED THAT BEFORE
MAKING SUCH DISCLOSURE THE RECIPIENT SHALL GIVE THE DISCLOSER AN
ADEQUATE OPPORTUNITY TO INTERPOSE AN OBJECTION AND/OR TAKE ACTION TO
ASSURE CONFIDENTIAL TREATMENT OF SUCH INFORMATION.
6.3 PUBLIC ANNOUNCEMENTS. To the extent reasonably feasible, the parties
shall confer with one another prior to the issuance of any reports,
statements or releases pertaining to this Agreement, the Annuity
Contract and the transactions contemplated hereby, except that a party
will in any event have the right to issue any such reports, statements
or releases if such issuance is required to comply with the requirements
of any applicable federal, state or local laws and regulations.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 ORGANIZATION AND GOOD STANDING. Except for the Trustees, each party
hereto represents that it is a corporation duly organized, validly
existing and in good standing under the laws of that jurisdiction set
forth on page one of this Agreement; has all requisite corporate power
to carry on its businesses as it is now being conducted and is qualified
to do business in each jurisdiction in which it is required to be so
qualified; and is in good standing in each jurisdiction in which such
qualification is necessary under applicable law.
7.2 AUTHORIZATION. Each party hereto represents that the execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by all necessary corporate
or other action by such party, and when so executed and delivered, this
Agreement will be the valid and binding obligation of such party
enforceable in accordance with its terms.
7.3 NO CONFLICTS. Each party hereto represents that the consummation of the
transactions contemplated herein and in the Related Agreements, and the
fulfillment of the terms of this Agreement and the Related Agreements,
shall not conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time) a
default under, the articles of incorporation or bylaws of such party, or
any indenture, agreement, trust instrument, mortgage, deed of trust, or
other instrument to which such party is a party or by which it is bound,
or violate any law, or, to the best of such party's knowledge, any
order, rule or regulation applicable to such party of any court or of
any federal or state regulatory body, administrative agency or any other
governmental instrumentality having jurisdiction over such party or any
of its properties.
ARTICLE 8
REMEDIES AND DISPUTE RESOLUTION
8.1 RIGHTS, REMEDIES, ETC, ARE CUMULATIVE. The rights, remedies and
obligations contained in this Agreement are cumulative and are in
addition to any and all rights, remedies and obligations, at law or in
equity, which the parties hereto are entitled to under state and federal
laws. Failure of a party to insist upon strict compliance with any of
the conditions of this Agreement shall not be construed as a waiver of
any of the conditions, but the same shall remain in full force and
effect. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provisions, whether
or not similar, nor shall any waiver constitute a continuing waiver.
8.2 INTERPRETATION, JURISDICTION, ETC. This Agreement, together with the
Related Agreements, constitutes the whole agreement between the parties
hereto with respect to the subject matter hereof, and supersedes all
prior oral or written understandings, agreements or negotiations between
the parties with respect to such subject matter. This Agreement shall be
construed and its provisions interpreted under and in accordance with
the laws of the state of Kansas without giving effect to principles of
conflict of laws. This Section 8.2 shall not be construed to deny SBL,
or an Affiliate thereof, of any rights to which it is entitled as an
owner of shares of a Fund or Fund Series.
8.3 SEVERABILITY. This is a severable Agreement. In the event that any
provision of this Agreement would require a party to take action
prohibited by applicable federal or state law or prohibit a party from
taking action required by applicable federal or state law, then it is
the intention of the parties hereto that such provision shall be
enforced only to the extent permitted under the law, and, in any event,
that all other provisions of this Agreement shall remain valid and duty
enforceable as if the provision at issue had never been a part hereof.
ARTICLE 9
TERM AND TERMINATION
9.1 TERMINATION. This Agreement shall be in effect for an initial term of
five years from the Effective Date, which term is automatically
renewable for succeeding one-year terms ending on the anniversary of the
Effective Date. This Agreement will terminate automatically in the event
that the Trustees or Scarborough (1) dissolve or terminate the Trust, or
(2) establish, facilitate, or permit another substantially similar
investment or savings option, plan or vehicle for Eligible Persons other
than the Annuity Contract, whether through the Trust or otherwise. This
Agreement may be terminated by SBL or the Trustees after the initial
five-year term on the annual anniversary of the Effective Date provided
that 60 days' advance written notice is provided to the other party. In
addition, the following parties may terminate the Agreement as follows:
(a) The Trustees may terminate the Agreement at any time upon 60 days'
written notice in the event that an Excusing Condition as defined
in Section 3.6 of this Agreement, occurs.
(b) The Trustees may terminate the Agreement at any time SBL shall have
become insolvent or if, in the Trustees' reasonable good faith
judgment, there is an event, occurrence or circumstance, including
the enactment of federal or state legislation, a court decision, or
other change in circumstances which makes the Annuity Contract a
per se unsuitable investment for Eligible Persons;
(c) The Trustees may terminate this Agreement promptly upon written
notice to SBL in the event of a breach of a representation or
warranty by SBL or SDI or in the event that the Trustees reasonably
believe that performance of the obligations of any party under this
Agreement or the Related Agreements may involve a violation of
applicable law.
(d) SBL or SDI may terminate this Agreement immediately upon notice to
the Trustees and Scarborough (i) in the event of a breach of a
representation or warranty by the Trustees or Scarborough, or (ii)
in the event that SBL or SDI reasonably believes that performance
of the obligations of any party under this Agreement or the Related
Agreements may involve a violation of applicable law, or (iii) in
the event that Scarborough is no longer registered as a
broker-dealer with the SEC.
Upon termination of this Agreement, the parties shall cooperate and
use their best efforts to cause the Annuity Contract, without
penalty, to be assumed by one or more other insurance carriers
designated by the Trustees. It is understood that SBL may structure
the exchange as a reinsurance, coinsurance, or similar transaction,
or in the alternative, the Trustees or Scarborough shall have the
right to make arrangements for an exchange of all or a portion of
the Annuity Contract then outstanding, into insurance contracts
issued by another insurance carrier mutually acceptable to the
parties; provided that the Trustees or Scarborough first obtains an
opinion of counsel from counsel mutually acceptable to the parties
that such an exchange is consistent with, and does not affect, the
status of the trust as a fixed investment trust described in Treas.
Reg. Section 301.7701.4(c). SBL shall not be entitled to
compensation from such insurance carrier in connection with such
transaction or exchange other than to recover its expenses,
including the expense of disintermediation. The expense of
disintermediation shall be the amount by which the market value of
assets allocated to SBL's insulated non-unitized separate account
supporting the Stable Value Option is less than the amount of
Account Value allocated to the Stable Value Option under the
Annuity Contract, determined as of the date that the reinsurance,
coinsurance, exchange or similar transaction is effected.
Notwithstanding anything set forth herein to the contrary, the
respective rights and liabilities of the parties under this
Agreement and the Related Agreements shall survive the termination
of this Agreement.
9.2 CHANGES RELATING TO SCARBOROUGH OR THE TRUST. SBL shall have the right
in its sole discretion, to make changes in the Annuity Contract or
another Related Agreement, including causing a substitution of a Fund or
Fund Series, upon the occurrence or determination of any of the
following events:
(a) The Trust or Scarborough or an Affiliate thereof files a voluntary
petition in bankruptcy or for reorganization or shall be the
subject of an involuntary petition in bankruptcy for liquidation or
reorganization, or has a receiver, liquidator or trustee appointed
over its affairs; or
(b) In SBL's good faith judgment, there is an event, occurrence or
circumstance including the enactment of federal or state
legislation, court decision, a change in circumstances which makes
the Annuity Contract or insurance contracts of that type a PER SE
unsuitable investment for Eligible Persons.
9.3 ASSIGNMENT AND TRANSFER. This Agreement may not be assigned or
transferred by any party, except with the written consent of the other
parties hereto.
ARTICLE 10
GENERAL PROVISIONS
10.1 COOPERATION. Each party agrees to cooperate with the other party or
parties to this Agreement and with pertinent regulatory authorities in
the event that a regulatory authority, including, but not limited to,
the SEC, an Insurance Commissioner, or the Internal Revenue Service,
examines, investigates, or makes inquiries to any party to this
Agreement that relates directly or indirectly to this Agreement or the
Related Agreements.
10.2 NOTICE, CONSENT AND REQUEST. Any notice, consent or request required or
permitted to be given by a party to any other party shall be deemed
sufficient if sent by facsimile transmission followed by Federal Express
or other overnight carrier, or if sent by registered or certified-mail,
postage prepaid, addressed by the party giving notice to any other party
at the following addresses (or at such other address for a party as
shall be specified by like notice);
if to the Trustees to:
c/o Scarborough Alliance Corporation
One Bridge Street, Irvington, NY 10533
Attn: Mr. Denis Cardone
if to Scarborough Securities Corporation to:
Attn: Mr. Dennis Cardone
One Bridge Street, Irvington, NY 10533
if to Security Benefit Life Insurance Company to:
Attn: Ms. Amy Lee, Esq.
700 SW Harrison Street, Topeka, Kansas 66636
10.3 CAPTIONS. The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect.
10.4 COUNTERPART. This Agreement may be executed in two or more counterparts,
each of which taken together shall be deemed to be one and the same
instrument.
10.5 AMENDMENT. No provisions of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
IN WITNESS WHEREOF, the parties hereto have each duly executed this Agreement
as of the day and year first above written.
SECURITY BENEFIT LIFE INSURANCE COMPANY
By its authorized officer
By:
----------------------------------------------
Title:
----------------------------------------------
Date:
SECURITY DISTRIBUTORS, INC.
By its authorized officer
By:
----------------------------------------------
Title:
----------------------------------------------
Date:
TRUSTEES OF THE INTERNATIONAL BROTHERHOOD
OF ELECTICAL WORKERS LOCAL UNIONS SAVINGS
AND RETIREMENT PLAN AND TRUST
By its authorized officer
By:
----------------------------------------------
Title:
----------------------------------------------
Date:
SCARBOROUGH SECURITIES CORPORATION
By its authorized officer
By:
----------------------------------------------
Title:
----------------------------------------------
Date:
<PAGE>
LIST OF EXHIBITS
Exhibit 2.1.A International Brotherhood of Electrical Workers Local Unions
Savings and Retirement Plan and Trust Agreement
Exhibit 3.1.A Annuity Contract
Exhibit 3.5.A Custody Agreement for holding the Annuity Contract
Exhibit 4.1.A Distribution Agreement between Securities Distributors, Inc.
and Scarborough Securities Corporation
LIST OF SCHEDULES
Schedule 3.6A Minimum Financial Ratios for Security Benefit Life
Schedule 3.8.A Standards of Service for Security Benefit Life
<PAGE>
[SBL LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW Harrison St., Topeka, Kansas 66636-0001
- --------------------------------------------------------------------------------
APPLICATION FOR GROUP ANNUITY CONTRACT
1. OWNER (APPLICANT)
Name _______________________________________________________________________
Address ____________________________________________________________________
TIN: _______________________________________________________________________
2. TYPE OF ANNUITY CONTRACT
[_] Qualified [_] Non-qualified
3. ALLOCATION OF PURCHASE PAYMENTS
___% Equity Income Subaccount* ___% Small Cap Subaccount*
___% Mid Cap Growth Subaccount* ___% Capital Growth Subaccount*
___% International Subaccount* ___% Fixed Account
100%
4. WILL THIS ANNUITY CHANGE OR REPLACE ANY OTHER INSURANCE OR ANNUITY?
[_] No [_] Yes If yes, state company(ies), contract number(s) and amounts(s)
____________________________________________________________________________
Type of contract ___________________________________________________________
If 1035 exchange or other transfer of assets, attach: 1) exchange form(s) or
letter(s); and 2) replacement form(s), if applicable.
5. SPECIAL INSTRUCTIONS _______________________________________________________
____________________________________________________________________________
- --------------------------------------------------------------------------------
I have been given, if applicable, a current prospectus that describes the
contract for which I am applying and a current prospectus for the fund that
underlies each Subaccount above. *I KNOW THAT ANNUITY PAYMENTS AND WITHDRAWAL
VALUES, IF ANY, WHEN BASED ON THE INVESTMENT EXPERIENCE THE SUBACCOUNTS, ARE
VARIABLE AND DOLLAR AMOUNTS ARE NOT GUARANTEED. The amount paid and the
application must be acceptable to Security Benefit Life Insurance Company (the
"Company") under its rules and practices. If they are, the contract applied for
will be in effect on its Contract Date. If they are not, the Company will be
liable only for the return of the amount paid.
- --------------------------------------------------------------------------------
TAX IDENTIFICATION NUMBER CERTIFICATION**
UNDER PENALTIES OF PERJURY I CERTIFY THAT:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me); and
2. I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(IRS) that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am
no longer subject to backup withholding.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP WITHHOLDING.
- --------------------------------------------------------------------------------
Signed at __________________________, this _____ day of _______________, 19____.
Owner Signature ________________________________________________________________
REPRESENTATIVE'S STATEMENT - To the best of my knowledge, this application is
not involved in replacement of life insurance or annuities, as defined in
applicable Insurance Department Regulations, except as stated in question 4
above. I have complied with the requirements for disclosure and/or replacement.
Representative/Witness Signature and Number: ____________________________
Print Representative's Full Name and Phone Number: ____________________________
Broker/Dealer Name and Number: ____________________________
- --------------------------------------------------------------------------------
**CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you have
been notified by IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return. For
contributions to an individual retirement arrangement (IRA), and generally
payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct Tax Identification Number.
- --------------------------------------------------------------------------------
[_] CHECK THIS BOX IF YOU WOULD LIKE A STATEMENT OF ADDITIONAL INFORMATION.
GV7624 (6-99)
<PAGE>
April 26, 2000
Security Benefit Life Insurance Company
700 SW Harrison Street
Topeka, KS 66636-0001
Re: Variable Annuity Account XI
Dear Sir/Madam:
This letter is with reference to the Registration Statement of Variable Annuity
Account XI of which Security Benefit Life Insurance Company (hereinafter "SBL")
is the Depositor. Said Registration Statement is being filed with the Securities
and Exchange Commission for the purpose of registering the variable annuity
contract issued by SBL and the interests in Variable Annuity Account XI under
such variable annuity contract which will be sold pursuant to an indefinite
registration.
I have examined the Articles of Incorporation and Bylaws of SBL, minutes of the
meetings of its Board of Directors and other records, and pertinent provisions
of the Kansas insurance laws, together with applicable certificates of public
officials and other documents which I have deemed relevant. Based on the
foregoing, it is my opinion that:
1. SBL is duly organized and validly existing as a stock life insurance company
under the laws of Kansas.
2. Variable Annuity Account XI has been validly created as a Separate Account
in accordance with the pertinent provisions of the insurance laws of Kansas.
3. SBL has the power, and has validly and legally exercised it, to create and
issue the variable annuity contract which is administered within and by
means of Variable Annuity Account XI.
4. The amount of the variable annuity contract to be sold pursuant to the
indefinite registration, when issued, will represent binding obligations of
SBL in accordance with their terms providing said contract was issued for
the considerations set forth therein and evidenced by appropriate policies
and certificates.
I hereby consent to the inclusion in the Registration Statement of my foregoing
opinion.
Respectfully submitted,
AMY J. LEE
Amy J. Lee
Associate General Counsel and Vice President
Security Benefit Life Insurance Company
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 4, 2000, with respect to the consolidated
financial statements of Security Benefit Life Insurance Company and Subsidiaries
and the financial statements of Variable Annuity Account XI included in
Post-Effective Amendment No. 1 to the Registration Statement under the
Securities Act of 1933 (Registration No. 333-84159) and Post-Effective Amendment
No. 2 to the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-09517) on Form N-4 and the related Statement of Additional
Information accompanying the Prospectus of Scarborough Advantage Variable
Annuity.
Ernst & Young LLP
Kansas City, Missouri
April 26, 2000
<PAGE>
SCARBOROUGH ADVANTAGE VARIABLE ANNUITY Item 24.b Exhibit (13)
STANDARDIZED
T. ROWE PRICE MID CAP GROWTH PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
(INCEPTION OF PRODUCT - OCTOBER 27, 1999)
.18 Year
1000 (1+T)^.18 = 1,037.17
(1+T)^.18 = (1.03717)^.18
1+T = 1.2248
T = .2248
NON-STANDARDIZED
T. ROWE PRICE MID CAP GROWTH PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
(INCEPTION OF UNDERLYING FUND - DECEMBER 31, 1996)
1 Year
1000 (1+T)^1 = 1,247.40
(1+T)^1 = (1.2474)^1
1+T = 1.2474
T = .2474
3 Years (From date of inception December 31, 1996)
1000 (1+T)^3 = 1,760.17
((1+T)^3)^1/3 = (1.76017)^1/3
1+T = 1.2074
T = .2074
<PAGE>
STANDARDIZED
GOLDMAN SACHS CAPITAL GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
(INCEPTION OF PRODUCT - DECEMBER 31, 1999)
.18 Year
1000 (1+T)^.18 = 1,034.14
(1+T)^.18 = (1.03414)^.18
1+T = 1.2050
T = .2050
NON-STANDARDIZED
GOLDMAN SACHS CAPITAL GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
(INCEPTION OF UNDERLYING FUND - APRIL 30, 1998)
1 Year
1000 (1+T)^1 = 1,253.30
(1+T)^1 = (1.2533)^1
1+T = 1.2533
T = .2533
1.67 Years (From date of inception April 30, 1998)
1000 (1+T)^1.67 = 1,031.09
((1+T)^1.67)^1/1.67 = (1.03109)^1/1.67
1+T = 1.0185
T = .0185
<PAGE>
STANDARDIZED
T. ROWE PRICE EQUITY INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
(INCEPTION OF PRODUCT - OCTOBER 27, 1999)
.18 Year
1000 (1+T)^.18 = 1,001.13
(1+T)^.18 = (1.0013)^.18
1+T = 1.0063
T = .0063
NON-STANDARDIZED
T. ROWE PRICE EQUITY INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
(INCEPTION OF UNDERLYING FUND - JUNE 1, 1995)
1 Year
1000 (1+T)^1 = 932.00
(1+T)^1 = (.932)^1
1+T = .932
T = -0.068
3 Years
1000 (1+T)^3 = 1,278.70
((1+T)^3)^1/3 = (1.27883)^1/3
1+T = 1.0854
T = .0854
4.59 Years (From date of inception June 1, 1995)
1000 (1+T)^4.59 = 1,768.10
((1+T)^4.59)^1/4.59 = (1.7681)^1/4.59
1+T = 1.1322
T = .1322
<PAGE>
STANDARDIZED
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
(INCEPTION OF PRODUCT - OCTOBER 27, 1999)
.18 Year
1000 (1+T)^.18 = 1,020.63
(1+T)^.18 = (1.02063)^.18
1+T = 1.1201
T = .1201
NON-STANDARDIZED
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
(INCEPTION OF UNDERLYING FUND - FEBRUARY 13, 1998)
1 Year
1000 (1+T)^1 = 1,160.30
(1+T)^1 = (1.1603)^1
1+T = 1.1603
T = .1603
1.88 Years from date of inception February 13, 1998
1000 (1+T)^1.88 = 1,035.06
((1+T)^1.88)^1/1.88 = (1.03506)^1/1.88
1+T = 1.0185
T = .0185
<PAGE>
STANDARDIZED
BANKERS TRUST INTERNATIONAL SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
(INCEPTION OF PRODUCT - OCTOBER 27, 1999)
.18 Year
1000 (1+T)^.18 = 1,047.54
(1+T)^.18 = (1.04754)^.18
1+T = 1.2944
T = .2944
NON-STANDARDIZED
BANKERS TRUST INTERNATIONAL SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
(INCEPTION OF UNDERLYING FUND - APRIL 30, 1999)
.67 Years from date of inception April 30, 1999
1000 (1+T)^.67 = 1,190.34
(1+T)^.67 = (1.19034)^.67
1+T = 1.297
T = .297
<PAGE>
SCARBOROUGH ADVANTAGE VARIABLE ANNUITY
NON-STANDARDIZED TOTAL RETURN
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO
Quotation of Total Return for the period of January 1, 1997 to December 31,
1999.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1999 $1,247.40 - $1,000 $247.40 / $1,000 = 24.74%
1998 1,203.90 - 1,000 203.90 / 1,000 = 20.39%
1997 1,172.00 - 1,000 172.00 / 1,000 = 17.20%
<PAGE>
SCARBOROUGH ADVANTAGE VARIABLE ANNUITY
NON-STANDARDIZED TOTAL RETURN
T. ROWE PRICE EQUITY INCOME SERIES
Quotation of Total Return for the period of June 1, 1995 to December 31, 1999.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1999 $ 932.00 - $1,000 $(68.00) / $1,000 = (6.80)%
1998 1,079.10 - 1,000 79.10 / 1,000 = 7.91
1997 1,271.40 - 1,000 271.40 / 1,000 = 27.14%
1996 1,188.30 - 1,000 188.30 / 1,000 = 18.83%
1995 1,093.18 - 1,000 93.18 / 1,000 = 16.3%
<PAGE>
SCARBOROUGH ADVANTAGE VARIABLE ANNUITY
NON-STANDARDIZED TOTAL RETURN
BANKERS TRUST INTERNATIONAL SERIES
Quotation of Total Return for the period of April 30, 1999 to December 31, 1999.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1999 $1,297.00 - $1,000 $297.00 / $1,000 = 29.70%
<PAGE>
SCARBOROUGH ADVANTAGE VARIABLE ANNUITY
NON-STANDARDIZED TOTAL RETURN
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Quotation of Total Return for the period of February 13, 1998 to December 31,
1999.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1999 $1,160.30 - $1,000 $160.30 / $1,000 = 16.03%
1998 904.32 - 1,000 (95.68) / 1,000 = (10.81)%
<PAGE>
SCARBOROUGH ADVANTAGE VARIABLE ANNUITY
NON-STANDARDIZED TOTAL RETURN
GOLDMAN SACHS CAPITAL GROWTH FUND
Quotation of Total Return for the period of April 30, 1998 to December 31, 1999.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1999 $1,253.30 - $1,000 $253.30 / $1,000 = 25.33%
1998 1,079.53 - 1,000 79.53 / 1,000 = 12.10%
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Sister Loretto Marie Colwell, being a Director of SECURITY BENEFIT LIFE
INSURANCE COMPANY (the "Company"), by these presents do make, constitute and
appoint Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them,
my true and lawful attorneys, each with full power and authority for me and in
my name and behalf to sign, as my agent, any Registration Statement applicable
to separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
SISTER LORETTO MARIE COLWELL
------------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
JULIA A. SMRHA
------------------------------
Notary Public
My Commission Expires:
7-8-2000
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John C. Dicus, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of April, 2000.
JOHN C. DICUS
-----------------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 6th day of April, 2000.
MARY R. FALTER
-----------------------
Notary Public
My Commission Expires:
1-30-2004
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Steven J. Douglass, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
STEVEN J. DOUGLASS
-----------------------
Steven J. Douglass
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
NANCY A. LEWIS
------------------------
Notary Public
My Commission Expires:
10-16-00
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Howard R. Fricke, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint James
R. Schmank and Roger K. Viola, and each of them, my true and lawful attorneys,
each with full power and authority for me and in my name and behalf to sign, as
my agent, any Registration Statement applicable to separate accounts of the
Company, as well as any pre-effective amendment, post-effective amendment and
any application for exemptive relief (including amendments to such applications)
for such separate accounts (now or hereafter established by the Company) and
filed pursuant to the Investment Company Act of 1940 or the Securities Act of
1933, each as amended, any instrument or document filed as part thereof, or in
connection therewith or in any way related thereto, with like effect as though
said Registration Statement or other document had been signed and filed
personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
HOWARD R. FRICKE
------------------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
ANNETTE E. CRIPPS
------------------------
Notary Public
My Commission Expires:
7/8/2001
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SEDGWICK )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, William W. Hanna, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
WILLIAM W. HANNA
------------------------
William W. Hanna
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
DOROTHY A. HERR
------------------------
Notary Public
My Commission Expires:
8-21-2002
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF FLORIDA )
) SS.
COUNTY OF PINELLAS )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John E. Hayes, Jr., being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of April, 2000.
JOHN E. HAYES, JR.
------------------------
John E. Hayes, Jr.
SUBSCRIBED AND SWORN to before me this 4th day of April, 2000.
DEBORAH K. WEST
-------------------------
Notary Public
My Commission Expires:
July 6, 2002
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Kris A. Robbins, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
KRIS A. ROBBINS
------------------------
Kris A. Robbins
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
ANNETTE E. CRIPPS
------------------------
Notary Public
My Commission Expires:
7/8/2001
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Frank C. Sabatini, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
FRANK C. SABATINI
------------------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
PATRICIA A. CLARK
------------------------
Notary Public
My Commission Expires:
3-5-2002
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Robert C. Wheeler, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
ROBERT C. WHEELER
--------------------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
NANCY G. DEBACKER
--------------------------
Notary Public
My Commission Expires:
12/15/03
- ---------------------
