File No.
File No. 811-10011
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No.
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Post-Effective Amendment No.
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2 |X|
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(Check appropriate box or boxes)
SBL VARIABLE ANNUITY ACCOUNT XIV
(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
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Title of securities being registered: Interests in a separate account under
individual flexible premium deferred variable annuity contracts.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 18, 2000
_______________ VARIABLE ANNUITY
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY: MAILING ADDRESS:
SECURITY BENEFIT LIFE SECURITY BENEFIT LIFE
INSURANCE COMPANY 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 ______________ Variable Annuity--a flexible
purchase payment deferred variable annuity contract (the "Contract") offered by
Security Benefit Life Insurance Company ("Security Benefit"). The Contract is
available for individuals as a non-tax qualified retirement plan. The Contract
is also available for individuals in connection with a retirement plan qualified
under Section 403(b), 408, or 408A of the Internal Revenue Code. The Contract is
designed to give you flexibility in planning for retirement and other financial
goals.
You may allocate your purchase payments to one or more of the Subaccounts
that comprise a separate account of Security Benefit called the SBL Variable
Annuity Account XIV. Each Subaccount invests in a corresponding mutual fund (the
"Underlying Fund"). The Subaccounts currently available under the Contract are:
o AIM Capital Appreciation o Rydex Basic Materials
o Federated High Income Bond II o Rydex Biotechnology
o Federated U.S. Government Securities II o Rydex Consumer Products
o Fidelity VIP II Contrafund o Rydex Electronics
o Fidelity VIP II Index 500 o Rydex Energy
o Fidelity VIP II Investment-Grade Bond o Rydex Energy Services
o Fidelity VIP III Growth Opportunities o Rydex Financial Services
o Franklin Small Cap o Rydex Health Care
o MF Neuberger & Berman Guardian Trust o Rydex Internet
o Neuberger Berman Partners o Rydex Leisure
o Money Market o Rydex Precious Metals
o OppenheimerFunds Global o Rydex Retailing
o Rydex Arktos o Rydex Technology
o Rydex Nova o Rydex Telecommunications
o Rydex OTC o Rydex Transportation
o Rydex Ursa o Rydex Utilities
o Rydex Large Cap Europe o Strong Opportunity
o Rydex Large Cap Japan o Templeton Developing Markets
o Rydex Banking o Templeton International
Amounts that you allocate to the Subaccounts under a Contract will vary based
on investment performance of the Subaccounts. No minimum amount of Contract
Value is guaranteed.
When you are ready to receive annuity payments, the Contract provides several
options for annuity payments. See "Annuity Options," page 25.
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 February __, 2001, which has been
filed with the Securities and Exchange Commission ("SEC") 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, You may obtain a Statement of
Additional Information or a prospectus for any of the Underlying Funds by
writing Security Benefit at 700 Harrison Street, Topeka, Kansas 66636 or by
calling 1-800-888-2461. The table of contents of the Statement of Additional
Information is set forth on page 36 of this Prospectus.
The SEC maintains a web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference and other
information regarding companies that file electronically with the SEC.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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.
YOU SHOULD READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
EXPENSES FOR THIS CONTRACT, IF PURCHASED WITH AN EXTRA CREDIT RIDER, MAY BE
HIGHER THAN EXPENSES FOR A CONTRACT WITHOUT AN EXTRA CREDIT RIDER. THE AMOUNT OF
CREDIT ENHANCEMENT MAY BE MORE THAN OFFSET BY ANY ADDITIONAL FEES AND CHARGES.
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 CAN GO UP AND DOWN AND YOU COULD LOSE MONEY.
DATE: JANUARY __, 2001
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The variable annuity covered by this Prospectus is the subject of a
pending patent application in the United States Patent and Trademark Office.
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TABLE OF CONTENTS
Page
DEFINITIONS............................................................... 5
SUMMARY................................................................... 5
PURPOSE OF THE CONTRACT................................................. 5
THE SEPARATE ACCOUNT AND THE FUNDS...................................... 6
PURCHASE PAYMENTS....................................................... 6
CONTRACT BENEFITS....................................................... 6
FREE-LOOK RIGHT......................................................... 6
CHARGES AND DEDUCTIONS.................................................. 6
Contingent Deferred Sales Charge...................................... 6
Mortality and Expense Risk Charge..................................... 7
Optional Rider Charges................................................ 7
Administration Charge................................................. 8
Account Administration Charge......................................... 8
Premium Tax Charge.................................................... 8
Other Expenses........................................................ 8
CONTACTING SECURITY BENEFIT............................................. 8
EXPENSE TABLE............................................................. 8
CONTRACTUAL EXPENSES.................................................... 9
ANNUAL SEPARATE ACCOUNT EXPENSES........................................ 9
OPTIONAL RIDER EXPENSES................................................. 9
ANNUAL UNDERLYING FUND EXPENSES......................................... 10
EXAMPLES................................................................ 11
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND THE FUNDS... 12
SECURITY BENEFIT LIFE INSURANCE COMPANY................................. 12
PUBLISHED RATINGS....................................................... 12
SEPARATE ACCOUNT........................................................ 13
UNDERLYING FUNDS........................................................ 13
THE CONTRACT.............................................................. 13
GENERAL................................................................. 13
APPLICATION FOR A CONTRACT.............................................. 14
PURCHASE PAYMENTS....................................................... 14
ALLOCATION OF PURCHASE PAYMENTS......................................... 14
DOLLAR COST AVERAGING OPTION............................................ 14
ASSET REALLOCATION OPTION............................................... 15
TRANSFERS OF CONTRACT VALUE............................................. 15
CONTRACT VALUE.......................................................... 16
DETERMINATION OF CONTRACT VALUE......................................... 16
FULL AND PARTIAL WITHDRAWALS............................................ 16
SYSTEMATIC WITHDRAWALS.................................................. 17
FREE-LOOK RIGHT......................................................... 18
DEATH BENEFIT........................................................... 18
DISTRIBUTION REQUIREMENTS............................................... 18
DEATH OF THE ANNUITANT.................................................. 19
CHARGES AND DEDUCTIONS.................................................... 19
CONTINGENT DEFERRED SALES CHARGE........................................ 19
MORTALITY AND EXPENSE RISK CHARGE....................................... 19
ADMINISTRATION CHARGE................................................... 20
ACCOUNT ADMINISTRATION CHARGE........................................... 20
PREMIUM TAX CHARGE...................................................... 20
OTHER CHARGES........................................................... 20
VARIATIONS IN CHARGES................................................... 20
GUARANTEE OF CERTAIN CHARGES............................................ 21
UNDERLYING FUND EXPENSES................................................ 21
OPTIONAL RIDER CHARGES.................................................... 21
GUARANTEED MINIMUM INCOME BENEFIT....................................... 21
ANNUAL STEPPED UP DEATH BENEFIT......................................... 21
GUARANTEED GROWTH DEATH BENEFIT......................................... 22
COMBINED ANNUAL STEPPED UP AND GUARANTEED GROWTH DEATH BENEFIT.......... 22
EXTRA CREDIT............................................................ 23
WAIVER OF WITHDRAWAL CHARGE............................................. 23
ALTERNATIVE WITHDRAWAL CHARGE........................................... 24
ANNUITY PERIOD............................................................ 24
GENERAL................................................................. 24
ANNUITY OPTIONS......................................................... 25
Option 1--Life Income................................................. 25
Option 2--Life Income with Guaranteed Payments of 5,
10, 15 or 20 Years.................................................. 25
Option 3--Life with Installment or Unit Refund Option................. 25
Option 4--Joint and Last Survivor..................................... 25
Option 5--Payments for Specified Period............................... 25
Option 6--Payments of a Specified Amount.............................. 25
Option 7--Period Certain.............................................. 25
Option 8--Joint and Contingent Survivor Option........................ 25
Value of Variable Annuity Payments: Assumed Interest Rate............. 25
SELECTION OF AN OPTION.................................................. 26
MORE ABOUT THE CONTRACT................................................... 26
OWNERSHIP............................................................... 26
Joint Owners.......................................................... 26
DESIGNATION AND CHANGE OF BENEFICIARY................................... 26
DIVIDENDS............................................................... 27
PAYMENTS FROM THE SEPARATE ACCOUNT...................................... 27
PROOF OF AGE AND SURVIVAL............................................... 27
MISSTATEMENTS........................................................... 27
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS........................ 27
FEDERAL TAX MATTERS....................................................... 28
INTRODUCTION............................................................ 28
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT................. 28
General............................................................... 28
Charge for Security Benefit Taxes..................................... 28
Diversification Standards............................................. 28
INCOME TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS............ 29
Surrenders or Withdrawals Prior to the Annuity Start Date............. 29
Surrenders or Withdrawals on or after the Annuity Start Date.......... 29
Penalty Tax on Certain Surrenders and Withdrawals..................... 29
ADDITIONAL CONSIDERATIONS............................................... 30
Distribution-at-Death Rules........................................... 30
Gift of Annuity Contracts............................................. 30
Contracts Owned by Non-Natural Persons................................ 30
Multiple Contract Rule................................................ 30
Possible Tax Changes.................................................. 30
Transfers, Assignments or Exchanges of a Contract..................... 30
QUALIFIED PLANS......................................................... 30
Section 403(b)........................................................ 31
Section 408 and 408A.................................................. 31
Rollovers............................................................. 32
Tax Penalties......................................................... 32
Withholding........................................................... 33
OTHER INFORMATION......................................................... 33
VOTING OF UNDERLYING FUND SHARES........................................ 33
SUBSTITUTION OF INVESTMENTS............................................. 33
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................... 34
REPORTS TO OWNERS....................................................... 34
TELEPHONE TRANSFER PRIVILEGES........................................... 34
LEGAL PROCEEDINGS....................................................... 34
LEGAL MATTERS........................................................... 34
PERFORMANCE INFORMATION................................................... 35
ADDITIONAL INFORMATION.................................................... 36
REGISTRATION STATEMENT.................................................. 36
FINANCIAL STATEMENTS.................................................... 36
STATEMENT OF ADDITIONAL INFORMATION....................................... 36
APPENDIX A - IRA Disclosure Statement
APPENDIX B - Roth IRA Disclosure Statement
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YOU MAY NOT BE ABLE TO PURCHASE THE CONTRACT IN YOUR STATE. YOU SHOULD NOT
CONSIDER THIS PROSPECTUS TO BE AN OFFERING IF THE CONTRACT MAY NOT BE LAWFULLY
OFFERED IN YOUR STATE. YOU SHOULD ONLY RELY UPON INFORMATION CONTAINED IN THIS
PROSPECTUS OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
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DEFINITIONS
Various terms commonly used in this Prospectus are defined as follows:
ACCUMULATION UNIT -- A unit of measure used to calculate Contract Value.
ANNUITANT -- The person that you designate on whose life annuity payments may
be determined. If you designate Joint Annuitants, "Annuitant" means both
Annuitants unless otherwise stated.
ANNUITY -- A series of periodic income payments made by Security Benefit to
an Annuitant, Joint Annuitant, or Beneficiary during the period specified in the
Annuity Option.
ANNUITY OPTIONS -- Options under the Contract that prescribe the provisions
under which a series of annuity payments are made.
ANNUITY PERIOD -- The period beginning on the Annuity Start Date during which
annuity payments are made.
ANNUITY START DATE -- The date when annuity payments begin as elected by the
Owner.
ANNUITY UNIT -- A unit of measure used to calculate variable annuity payments
under Options 1 through 4, 7 and 8.
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 salary reduction agreement.
CONTRACT DATE -- The date the Contract begins as shown in your Contract.
Annual Contract anniversaries are measured from the Contract Date. It is usually
the date that your initial purchase payment is credited to the Contract.
CONTRACT VALUE -- The total value of your Contract as of any Valuation Date.
CONTRACT YEAR -- Each twelve-month period measured from the Contract Date.
CREDIT ENHANCEMENT -- An amount added to Contract Value under the Extra
Credit Rider.
DESIGNATED BENEFICIARY -- The person having the right to the death benefit,
if any, payable upon the death of the Owner or the Joint Owner 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 Owner or the Joint
Owner: the Owner; the Joint Owner; the Primary Beneficiary; the Secondary
Beneficiary; the Annuitant; or if none of the above are alive, the Owner's
Estate.
HOME OFFICE-- The Annuity Administration Department of Security Benefit, P.O.
Box 750497, Topeka, Kansas 66675-0497.
OWNER -- The person entitled to the ownership rights under the Contract and
in whose name the Contract is issued.
PARTICIPANT-- A Participant under a Qualified Plan.
PURCHASE PAYMENT -- An amount paid to Security Benefit as consideration for
the Contract.
SEPARATE ACCOUNT -- The Variable Annuity Account XIV, a separate account of
Security Benefit that consists of accounts, referred to as Subaccounts, each of
which invests in a corresponding Underlying Fund.
SUBACCOUNT -- A division of the Separate Account of Security Benefit which
invests in a corresponding Underlying Fund. Currently, 38 Subaccounts are
available under the Contract.
UNDERLYING FUND -- A mutual fund or series thereof that serves as an
investment vehicle for its corresponding Subaccount.
VALUATION DATE -- Each date on which the Separate Account is valued, which
currently includes each day that the New York Stock Exchange is open for
trading. The New York Stock Exchange is closed on weekends and on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
VALUATION PERIOD -- A period used in measuring the investment experience of
each Subaccount of the Separate Account. The Valuation Period begins at the
close of one Valuation Date and ends at the close of the next succeeding
Valuation Date.
WITHDRAWAL VALUE -- The amount you will receive upon full withdrawal of the
Contract. It is equal to Contract Value less any applicable withdrawal charges,
any pro rata account administration charge and any uncollected premium taxes. If
an Extra Credit Rider is in effect, Contract Value will also be reduced by any
Credit Enhancements that have not yet vested.
SUMMARY
This summary provides a brief overview of the more significant aspects of the
Contract. Further detail is provided in this Prospectus, the Statement of
Additional Information, and the Contract.
PURPOSE OF THE CONTRACT -- The flexible purchase payment deferred variable
annuity contract ("Contract") described in this Prospectus is designed to give
you flexibility in planning for retirement and other financial goals.
You may purchase the Contract as a non-tax qualified retirement plan for an
individual ("Non-Qualified Plan"). You may also purchase the Contract, on an
individual basis, in connection with a retirement plan qualified under Section
403(b), 408, or 408A of the Internal Revenue Code of 1986, as amended
("Qualified Plan").
THE SEPARATE ACCOUNT AND THE FUNDS -- The Separate Account is currently divided
into 38 accounts, each referred to as a Subaccount. See "Separate Account," page
13. Each Subaccount invests exclusively in shares of an Underlying Fund, each of
which has a different investment objective or objectives. The Subaccounts are as
follows:
o AIM Capital Appreciation o Rydex Basic Materials
o Federated High Income Bond II o Rydex Biotechnology
o Federated U.S. Government Securities II o Rydex Consumer Products
o Fidelity VIP II Contrafund o Rydex Electronics
o Fidelity VIP II Index 500 o Rydex Energy
o Fidelity VIP II Investment-Grade Bond o Rydex Energy Services
o Fidelity VIP III Growth Opportunities o Rydex Financial Services
o Franklin Small Cap o Rydex Health Care
o MF Neuberger & Berman Guardian Trust o Rydex Internet
o Neuberger Berman Partners o Rydex Leisure
o Money Market o Rydex Precious Metals
o OppenheimerFunds Global o Rydex Retailing
o Rydex Arktos o Rydex Technology
o Rydex Nova o Rydex Telecommunications
o Rydex OTC o Rydex Transportation
o Rydex Ursa o Rydex Utilities
o Rydex Large Cap Europe o Strong Opportunity
o Rydex Large Cap Japan o Templeton Developing Markets
o Rydex Banking o Templeton International
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 Underlying Fund in which
such Subaccount invests. You bear the investment risk for amounts allocated to a
Subaccount.
PURCHASE PAYMENTS -- Your initial purchase payment must be at least $10,000.
Thereafter, you may choose the amount and frequency of purchase payments, except
that the minimum subsequent purchase payment is $500 ($50 under an Automatic
Investment Program). See "Purchase Payments," page 14.
CONTRACT BENEFITS -- You may transfer Contract Value among the Subaccounts,
subject to certain restrictions as described in "The Contract," page 13.
At any time before the Annuity Start Date, you may surrender a Contract for
its Withdrawal Value, and may make partial withdrawals, including systematic
withdrawals, from Contract Value. See "Full and Partial Withdrawals," page 16
and "Federal Tax Matters," page 28 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 the Owner attaining
age 59 1/2.
The Contract provides for a death benefit upon the death of the Owner prior
to the Annuity Start Date. See "Death Benefit," page 18 for more information.
The Contract provides for several Annuity Options on either a variable basis, a
fixed basis, or both. Security Benefit guarantees annuity payments under the
fixed Annuity Options. See "Annuity Period," page 24.
FREE-LOOK RIGHT -- You may return the Contract within the Free-Look Period,
which is generally a ten-day period beginning when you receive the Contract. In
this event, Security Benefit will refund to you as of the Valuation Date on
which we receive your Contract any Contract Value, plus any charges deducted
from such Contract Value, less the Contract Value attributable to any Credit
Enhancements.
Some states' laws require us to refund your purchase payments instead of your
Contract Value. If your Contract is delivered in one of those states and you
return your Contract during the Free-Look Period, Security Benefit will refund
purchase payments allocated to the Subaccounts rather than Contract Value.
CHARGES AND DEDUCTIONS -- Security Benefit does not deduct sales load from
purchase payments before allocating them to your Contract Value. Certain charges
will be deducted in connection with the Contract as described below.
CONTINGENT DEFERRED SALES CHARGE. If you withdraw Contract Value, Security
Benefit may deduct a contingent deferred sales charge (which may also be
referred to as a withdrawal charge). The withdrawal charge will be waived on
withdrawals to the extent that total withdrawals in a Contract Year, including
systematic withdrawals, do not exceed the Free Withdrawal amount defined as
follows.
The Free Withdrawal amount is equal in the first Contract Year, to 10% of
purchase payments, excluding any Credit Enhancements, made during the year and,
in any subsequent Contract Year, to 10% of Contract Value as of the first day of
that Contract Year. The withdrawal charge applies to the portion of any
withdrawal consisting of purchase payments that exceeds the Free Withdrawal
amount. The withdrawal charge does not apply to withdrawals of earnings.
The amount of the charge will depend on how long your purchase payments have
been held under the Contract. Each purchase payment you make is considered to
have a certain "age," depending on the length of time since the purchase payment
was effective. A purchase payment is "age one" in the year beginning on the date
the purchase payment is received by Security Benefit and increases in age each
year thereafter. The withdrawal charge is calculated according to the following
schedule:
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PURCHASE PAYMENT AGE WITHDRAWAL
(IN YEARS) CHARGE
-----------------------------------
1 7%
2 7%
3 6%
4 5%
5 4%
6 3%
7 2%
8 and over 0%
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The amount of the withdrawal charge assessed against your Contract will never
exceed 7% of purchase payments paid under the Contract. In addition, no
withdrawal charge will be assessed upon: (1) payment of death benefit proceeds,
or (2) annuity payments under options that provide for payments for life, or a
period of at least 7 years. See "Contingent Deferred Sales Charge," page 19.
MORTALITY AND EXPENSE RISK CHARGE. Security Benefit deducts a charge for
mortality and expense risks assumed by Security Benefit under the Contract.
Security Benefit deducts a daily minimum charge equal to 0.85%, on an annual
basis, of each Subaccount's average daily net assets. If you are subject to
mortality and expense risk charge above the minimum charge, Security Benefit
deducts it from your Contract Value on a monthly basis. The mortality and
expense risk charge amount is determined each month by reference to the amount
of your Contract Value, as set forth in the table below.
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ANNUAL MORTALITY AND
CONTRACT VALUE EXPENSE RISK CHARGE
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Less than $25,000 ........................ 1.10%
At least $25,000 but less than $100,000 .. 0.95%
$100,000 or more ......................... 0.85%
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See "Mortality and Expense Risk Charge," page 19.
OPTIONAL RIDER CHARGES. Security Benefit deducts a monthly charge from
Contract Value for certain Riders that may be elected by the Owner. Security
Benefit makes each Rider, except the Extra Credit Rider, available only at
issue, and you may not terminate a Rider after issue, unless otherwise stated.
The amount of the charge is equal to a percentage, on an annual basis, of your
Contract Value. Each Rider and its charge are listed below. You may not select
Riders with a total charge that exceeds 2.00% of Contract Value. Currently, it
is not possible to exceed this limit even if you selected each Rider available;
however, Security Benefit may make additional Riders available in the future and
you would only be permitted to select Riders with a maximum combined cost of
2.00% of Contract Value.
GUARANTEED MINIMUM INCOME BENEFIT. This Rider makes available a minimum
amount for the purchase of a fixed Annuity ("Minimum Income Benefit"). The
Minimum Income Benefit is equal to Purchase Payments, net of any Premium tax,
less an adjustment for Withdrawals, increased at an annual effective rate of
interest of 3% or 5%, as elected in the application. The Minimum Income Benefit
may be applied to purchase a fixed Annuity under Option 2, life income with a
10-year period certain, or Option 4, joint and last survivor with a 10-year
period certain, within 30 days of any Contract Anniversary following the 10th
Contract Anniversary. The charge for this Rider is as follows:
------------------------------
INTEREST RATE RIDER CHARGE
------------------------------
3% 0.25%
5% 0.40%
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See "Guaranteed Minimum Income Benefit," page 21.
ANNUAL STEPPED UP DEATH BENEFIT. This Rider makes available an enhanced death
benefit upon the death of the Owner or any Joint Owner prior to the Annuity
Start Date. The death benefit under this Rider will be the greatest of: (1)
purchase payments, less any withdrawals and withdrawal charges; (2) Contract
Value on the date due proof of the Owner's death and instructions regarding
payment are received by Security Benefit; or (3) the Stepped Up Death Benefit.
The Stepped Up Death Benefit is the largest result for the following calculation
as of the date of receipt of instructions regarding payment of the death
benefit:
o The largest of (1) or (2) above on any Contract Anniversary that occurs prior
to the oldest Owner attaining age 81, plus
o Any purchase payments received by Security Benefit since the applicable
Contract Anniversary; less
o An adjustment for any withdrawals and withdrawal charges made since the
applicable anniversary.
The charge for this Rider is 0.25%. See "Annual Stepped Up Death Benefit," page
21.
GUARANTEED GROWTH DEATH BENEFIT. This Rider makes available an enhanced death
benefit upon the death of the Owner or any Joint Owner prior to the Annuity
Start Date. The death benefit under this Rider will be the greatest of: (1)
purchase payments, less any withdrawals and withdrawal charges; (2) Contract
Value on the date due proof of the Owner's death and instructions regarding
payment are received by Security Benefit; or (3) the Guaranteed Growth Death
Benefit. The Guaranteed Growth Death Benefit is an amount equal to purchase
payments, net of any premium tax, less an adjustment for any withdrawals,
increased at an annual effective rate of 3%, 5%, 6% or 7%, as elected in the
application. The charge for this Rider is as follows:
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INTEREST RATE RIDER CHARGE
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3% 0.15%
5% 0.25%
6% 0.30%
7% 0.35%
------------------------------
See "Guaranteed Growth Death Benefit," page 22.
COMBINED ANNUAL STEPPED UP AND GUARANTEED GROWTH DEATH BENEFIT. This rider
makes available an enhanced death benefit upon the death of the Owner or any
Joint Owner prior to the Annuity Start Date. The death benefit under this Rider
will be the greatest of: (1) purchase payments, less any withdrawals and
withdrawal charges; (2) Contract Value on the date due proof of the Owner's
death and instructions regarding payment are received by Security Benefit; (3)
the Annual Stepped Up Death Benefit (as described above); or (4) the Guaranteed
Growth Death Benefit at 5% (as described above). The charge for this Rider is
0.30%. See "Combined Annual Stepped Up and Guaranteed Growth Death Benefit,"
page 22.
EXTRA CREDIT. This Rider makes available a Credit Enhancement, which is an
amount added to your Contract Value by Security Benefit. You may purchase this
Rider at issue or after the Contract Date. If you purchase at issue, Security
Benefit will add a Credit Enhancement equal to 3%, 4% or 5% of purchase
payments, as elected in the application, for each purchase payment made in the
first Contract Year. If you purchase the Rider after the Contract Date, Security
Benefit will add a ONE-TIME Credit Enhancement to your Contract Value in an
amount equal to 3%, 4% or 5% of Contract Value, as elected in the application.
In the event of a full or partial withdrawal, Security Benefit will recapture
all or part of any Credit Enhancement that has not yet vested. Security Benefit
will deduct the charge for this Rider during the seven-year period beginning on
the date of the Rider's issue and you may not terminate this Rider, nor purchase
another Extra Credit Rider, during that period. The charge for this Rider varies
based upon the Credit Enhancement rate selected as set forth below:
----------------------------------------
CREDIT ENHANCEMENT RATE RIDER CHARGE
----------------------------------------
3% 0.45%
4% 0.60%
5% 0.75%
----------------------------------------
See "Extra Credit," page 23.
WAIVER OF WITHDRAWAL CHARGE. This Rider makes available a waiver of
withdrawal charge in the event of your confinement to a nursing home, terminal
illness, or total and permanent disability prior to age 65. If you have also
purchased an Extra Credit Rider you will forfeit all or part of any Credit
Enhancements applied during the 12 months preceding any withdrawal pursuant to
this Rider. The charge for this Rider is 0.05%. See "Waiver of Withdrawal
Charge," page 23.
ALTERNATIVE WITHDRAWAL CHARGE. This Rider makes available an alternative
withdrawal charge schedule as set forth below.
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PURCHASE PAYMENT AGE WITHDRAWAL
(IN YEARS) CHARGE
-----------------------------------
1 and over 0%
-----------------------------------
The charge for this Rider is 0.35%. See "Alternative Withdrawal Charge," page
24.
ADMINISTRATION CHARGE. Security Benefit deducts a daily administration charge
equal to an annual rate of each Subaccount's average daily net assets. The
amount of this charge differs by Subaccount and ranges from 0.25% to 0.60%. See
"Administration Charge," page 20.
ACCOUNT ADMINISTRATION CHARGE. Security Benefit deducts an account charge of
$30.00 at each Contract Anniversary. Security Benefit will waive the charge if
your Contract Value is $50,000 or more on the date the charge is to be deducted.
See "Account Administration Charge," page 20.
PREMIUM TAX CHARGE. Security Benefit assesses a premium tax charge to
reimburse itself for any premium taxes that it incurs with respect to this
Contract. This charge will usually be deducted on the Annuity Start Date or upon
a full or partial withdrawal if a premium tax was incurred 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 20.
OTHER EXPENSES. Security Benefit pays the operating expenses of the Separate
Account. Investment advisory fees and operating expenses of each Underlying Fund
are paid by the Underlying Fund and are reflected in the net asset value of its
shares. The Owner indirectly bears a pro rata portion of such fees and expenses.
See the prospectus for each Underlying Fund for more information.
CONTACTING SECURITY BENEFIT -- You should direct all written requests, notices,
and forms required by the Contract, and any questions or inquiries to Security
Benefit Life Insurance Company, P.O. Box 750497, Topeka, Kansas 66675-0497 or by
phone by calling (785) 431-3112 or 1-800-888-2461, extension 3112.
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly and indirectly under the Contract. The
table reflects any contractual charges, expenses of the Separate Account,
optional Rider charges, and charges and expenses of the Underlying Funds. The
table does not reflect premium taxes that may be imposed by various
jurisdictions. See "Premium Tax Charge," page 20.
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," page 19. For a more complete description of the Underlying
Funds' costs and expenses, see each Underlying Fund's prospectus.
================================================================================
CONTRACTUAL EXPENSES
--------------------------------------------------------------------------------
Sales Load on Purchase Payments ....................................... None
Contingent Deferred Sales Charge (as a percentage of amount withdrawn
attributable to Purchase Payments and Credit Enhancements) .......... 7%(1)
Transfer Fee (per transfer) ........................................... None
Annual Account Administration Charge .................................. $30(2)
--------------------------------------------------------------------------------
1. The amount of the contingent deferred sales charge is determined by
reference to how long your purchase payments have been held under the
Contract. A free withdrawal is available in each Contract Year equal to (1)
10% of purchase payments, excluding Credit Enhancements, in the first
Contract Year, and (2) 10% of Contract Value as of the beginning of the
Contract Year in each subsequent Contract Year. See "Full and Partial
Withdrawals," page 16 and "Contingent Deferred Sales Charge," page 19 for
more information.
2. A pro rata account administration charge is deducted (1) upon full
withdrawal of Contract Value; (2) upon the Annuity Start Date if one of
Annuity Options 1 through 4, 7 or 8 is elected; and (3) upon payment of a
death benefit. The account administration charge will be waived if your
Contract Value is $50,000 or more upon the date it is to be deducted.
================================================================================
================================================================================
ANNUAL SEPARATE ACCOUNT EXPENSES (as a percentage of each
Subaccount's average daily net assets)
--------------------------------------------------------------------------------
Annual Mortality and Expense Risk Charge ............................ 1.10%(1)
Annual Administration Charge ........................................ 0.60%(2)
----
Total Separate Account Annual Expenses .............................. 1.70%
--------------------------------------------------------------------------------
1. The mortality and expense risk charge is reduced for larger Contracts as
follows: Less than $25,000 - 1.10%; At least $25,000 but less than $100,000
- 0.95%; $100,000 or more - 0.85%. The mortality and expense risk charge
during the Annuity Period is 1.25% for Annuity Options 1 through 4, 7 and 8.
2. The administration charge differs by Subaccount and ranges from 0.25% to
0.60% on an annual basis. See "Administration Charge," page 20 for more
information.
================================================================================
================================================================================
OPTIONAL RIDER EXPENSES (as a percentage of Contract Value)
--------------------------------------------------------------------------------
INTEREST RIDER
RATE CHARGE
--------------------------------------------------------------------------------
Guaranteed Minimum 3% 0.25%
Income Benefit Rider 5% 0.40%
--------------------------------------------------------------------------------
Annual Stepped Up --- 0.25%
Death Benefit Rider
--------------------------------------------------------------------------------
3% 0.15%
Guaranteed Growth 5% 0.25%
Death Benefit Rider 6% 0.30%
7% 0.35%
--------------------------------------------------------------------------------
Combined Annual Stepped Up Death Benefit Rider 5% 0.30%
and Guaranteed Growth Death Benefit Rider
--------------------------------------------------------------------------------
3% 0.45%
Extra Credit Rider 4% 0.60%
5% 0.75%
--------------------------------------------------------------------------------
Waiver of Withdrawal Charge Rider --- 0.05%
--------------------------------------------------------------------------------
Alternative Withdrawal Charge Rider --- 0.35%
================================================================================
================================================================================
ANNUAL UNDERLYING FUND EXPENSES
(as a percentage of each Underlying Fund's average daily net assets)
--------------------------------------------------------------------------------
ADVISORY OTHER TOTAL FUND
FEE(1) EXPENSES(2) EXPENSES(1)
--------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund
--------------------------------------------------------------------------------
Federated High Income Bond Fund II
--------------------------------------------------------------------------------
Federated Fund for U.S.
Government Securities II
--------------------------------------------------------------------------------
Fidelity VIP Contrafund
Portfolio Service Class II
--------------------------------------------------------------------------------
Fidelity VIP Index 500
Portfolio Service Class II
--------------------------------------------------------------------------------
Fidelity VIP Investment Grade
Bond Portfolio Service Class II
--------------------------------------------------------------------------------
Fidelity VIP Growth Opportunities
Portfolio Service Class II
--------------------------------------------------------------------------------
Franklin Small Cap Fund Class 2
--------------------------------------------------------------------------------
Neuberger Berman Advisers
Management Trust Guardian Portfolio
--------------------------------------------------------------------------------
Neuberger Berman Advisers
Management Trust Partners Portfolio
--------------------------------------------------------------------------------
SBL Fund, Series D (Global)
--------------------------------------------------------------------------------
Money Market
--------------------------------------------------------------------------------
Rydex Arktos
--------------------------------------------------------------------------------
Rydex Nova
--------------------------------------------------------------------------------
Rydex OTC
--------------------------------------------------------------------------------
Rydex Ursa
--------------------------------------------------------------------------------
Rydex Large Cap Europe
--------------------------------------------------------------------------------
Rydex Large Cap Japan
--------------------------------------------------------------------------------
Rydex Banking
--------------------------------------------------------------------------------
Rydex Basic Materials
--------------------------------------------------------------------------------
Rydex Biotechnology
--------------------------------------------------------------------------------
Rydex Consumer Products
--------------------------------------------------------------------------------
Rydex Electronics
--------------------------------------------------------------------------------
Rydex Energy
--------------------------------------------------------------------------------
Rydex Energy Services
--------------------------------------------------------------------------------
Rydex Financial Services
--------------------------------------------------------------------------------
Rydex Health Care
--------------------------------------------------------------------------------
Rydex Internet
--------------------------------------------------------------------------------
Rydex Leisure
--------------------------------------------------------------------------------
Rydex Precious Metals
--------------------------------------------------------------------------------
Rydex Retailing
--------------------------------------------------------------------------------
Rydex Technology
--------------------------------------------------------------------------------
Rydex Telecommunications
--------------------------------------------------------------------------------
Rydex Transportation
--------------------------------------------------------------------------------
Rydex Utilities
--------------------------------------------------------------------------------
Strong Opportunity Fund II
--------------------------------------------------------------------------------
Templeton Developing Markets
Securities Fund Class 2
--------------------------------------------------------------------------------
Templeton International
Securities Fund Class 2
================================================================================
EXAMPLES -- The examples presented below assume the maximum separate account and
optional Rider charges of 3.70%. The examples show the expenses that you would
pay at the end of one, three, five or ten years (except for the _________
Subaccounts, which show expenses for only the one and three year periods). The
information presented applies if, at the end of those time periods, the Contract
is (1) surrendered, or (2) annuitized or otherwise not surrendered. The examples
show expenses based upon an allocation of $1,000 to each of the Subaccounts and
a hypothetical return of 5%. For those Contracts that do not elect the maximum
amount of Riders, or with Contract Value in excess of $25,000, the expenses
would be reduced.
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 assuming full withdrawal of
the Contract at the end of the applicable time period:
================================================================================
1 3 5 10
YEAR YEARS YEARS YEARS
--------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund
--------------------------------------------------------------------------------
Federated High Income Bond Fund II
--------------------------------------------------------------------------------
Federated Fund for U.S.
Government Securities II
--------------------------------------------------------------------------------
Fidelity VIP Contrafund
Portfolio Service Class II
--------------------------------------------------------------------------------
Fidelity VIP Index 500
Portfolio Service Class II
--------------------------------------------------------------------------------
Fidelity VIP Investment Grade
Bond Portfolio Service Class II
--------------------------------------------------------------------------------
Fidelity VIP Growth Opportunities
Portfolio Service Class II
--------------------------------------------------------------------------------
Franklin Small Cap Fund Class 2
--------------------------------------------------------------------------------
Neuberger Berman Advisers
Management Trust Guardian Portfolio
--------------------------------------------------------------------------------
Neuberger Berman Advisers
Management Trust Partners Portfolio
--------------------------------------------------------------------------------
SBL Fund, Series D (Global)
--------------------------------------------------------------------------------
Rydex Money Market
--------------------------------------------------------------------------------
Rydex Arktos
--------------------------------------------------------------------------------
Rydex Nova
--------------------------------------------------------------------------------
Rydex OTC
--------------------------------------------------------------------------------
Rydex Ursa
--------------------------------------------------------------------------------
Rydex Large Cap Europe
--------------------------------------------------------------------------------
Rydex Large Cap Japan
--------------------------------------------------------------------------------
Rydex Banking
--------------------------------------------------------------------------------
Rydex Basic Materials
--------------------------------------------------------------------------------
Rydex Biotechnology
--------------------------------------------------------------------------------
Rydex Consumer Products
--------------------------------------------------------------------------------
Rydex Electronics
--------------------------------------------------------------------------------
Rydex Energy
--------------------------------------------------------------------------------
Rydex Energy Services
--------------------------------------------------------------------------------
Rydex Financial Services
--------------------------------------------------------------------------------
Rydex Health Care
--------------------------------------------------------------------------------
Rydex Internet
--------------------------------------------------------------------------------
Rydex Leisure
--------------------------------------------------------------------------------
Rydex Precious Metals
--------------------------------------------------------------------------------
Rydex Retailing
--------------------------------------------------------------------------------
Rydex Technology
--------------------------------------------------------------------------------
Rydex Telecommunications
--------------------------------------------------------------------------------
Rydex Transportation
--------------------------------------------------------------------------------
Rydex Utilities
--------------------------------------------------------------------------------
Strong Opportunity Fund II
--------------------------------------------------------------------------------
Templeton Developing Markets
Securities Fund Class 2
--------------------------------------------------------------------------------
Templeton International
Securities Fund Class 2
================================================================================
Example -- You would pay the expenses shown below assuming no withdrawals:
================================================================================
1 3 5 10
YEAR YEARS YEARS YEARS
--------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund
--------------------------------------------------------------------------------
Federated High Income Bond Fund II
--------------------------------------------------------------------------------
Federated Fund for U.S.
Government Securities II
--------------------------------------------------------------------------------
Fidelity VIP Contrafund
Portfolio Service Class II
--------------------------------------------------------------------------------
Fidelity VIP Index 500
Portfolio Service Class II
--------------------------------------------------------------------------------
Fidelity VIP Investment Grade
Bond Portfolio Service Class II
--------------------------------------------------------------------------------
Fidelity VIP Growth Opportunities
Portfolio Service Class II
--------------------------------------------------------------------------------
Franklin Small Cap Fund Class 2
--------------------------------------------------------------------------------
Neuberger Berman Advisers
Management Trust Guardian Portfolio
--------------------------------------------------------------------------------
Neuberger Berman Advisers
Management Trust Partners Portfolio
--------------------------------------------------------------------------------
SBL Fund, Series D (Global)
--------------------------------------------------------------------------------
Rydex Money Market
--------------------------------------------------------------------------------
Rydex Arktos
--------------------------------------------------------------------------------
Rydex Nova
--------------------------------------------------------------------------------
Rydex OTC
--------------------------------------------------------------------------------
Rydex Ursa
--------------------------------------------------------------------------------
Rydex Large Cap Europe
--------------------------------------------------------------------------------
Rydex Large Cap Japan
--------------------------------------------------------------------------------
Rydex Banking
--------------------------------------------------------------------------------
Rydex Basic Materials
--------------------------------------------------------------------------------
Rydex Biotechnology
--------------------------------------------------------------------------------
Rydex Consumer Products
--------------------------------------------------------------------------------
Rydex Electronics
--------------------------------------------------------------------------------
Rydex Energy
--------------------------------------------------------------------------------
Rydex Energy Services
--------------------------------------------------------------------------------
Rydex Financial Services
--------------------------------------------------------------------------------
Rydex Health Care
--------------------------------------------------------------------------------
Rydex Internet
--------------------------------------------------------------------------------
Rydex Leisure
--------------------------------------------------------------------------------
Rydex Precious Metals
--------------------------------------------------------------------------------
Rydex Retailing
--------------------------------------------------------------------------------
Rydex Technology
--------------------------------------------------------------------------------
Rydex Telecommunications
--------------------------------------------------------------------------------
Rydex Transportation
--------------------------------------------------------------------------------
Rydex Utilities
--------------------------------------------------------------------------------
Strong Opportunity Fund II
--------------------------------------------------------------------------------
Templeton Developing Markets
Securities Fund Class 2
--------------------------------------------------------------------------------
Templeton International
Securities Fund Class 2
================================================================================
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 were Owners 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 $8.7 billion. Together with
its subsidiaries, Security Benefit has total funds under management of
approximately $9.9 billion.
The Principal Underwriter for the Contracts is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company wholly owned by
Security Benefit.
PUBLISHED RATINGS -- Security Benefit may from time to time publish in
advertisements, sales literature and reports to Owners, the ratings and other
information assigned to it by one or more independent rating organizations such
as A. M. Best Company and Standard & Poor's. The purpose of the ratings is to
reflect the financial strength and/or claims-paying ability of Security Benefit
and should not be considered as bearing on the investment performance of assets
held in the Separate Account. Each year A. M. Best Company reviews the financial
status of thousands of insurers, culminating in the assignment of Best's
Ratings. These ratings reflect their current opinion of the relative financial
strength and operating performance of an insurance company in comparison to the
norms of the life/health insurance industry. In addition, the claims-paying
ability of Security Benefit as measured by Standard & Poor's Insurance Ratings
Services may be referred to in advertisements or sales literature or in reports
to Owners. These ratings are opinions of an operating insurance company's
financial capacity to meet the obligations of its insurance and annuity policies
in accordance with their terms. Such ratings do not reflect the investment
performance of the Separate Account or the degree of risk associated with an
investment in the Separate Account.
SEPARATE ACCOUNT -- Security Benefit established the Separate Account under
Kansas law on June 26, 2000. 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 a
contract may not be charged with liabilities arising from any other business
that the insurance company conducts if, and to the extent the contract so
provides. 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 38 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 corresponding Underlying Fund. Security Benefit may
in the future establish additional Subaccounts of the Separate Account, which
may invest in other Underlying Funds or in other securities 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.
UNDERLYING FUNDS -- Each Underlying Fund is an open-end management investment
company of the series type. It is registered with the SEC under the 1940 Act.
Such registration does not involve supervision by the SEC of the investments or
investment policy of the Underlying Fund. Each Underlying Fund pursues different
investment objectives and policies.
Shares of the Underlying Funds currently are not publicly traded mutual
funds. They are available only as investment options in variable annuity or
variable life insurance policies issued by life insurance companies or in some
cases, through participation in certain qualified pension or retirement plans.
Because the Underlying Funds may serve as investment vehicles for both
variable life insurance policies and variable annuity contracts ("mixed
funding") and shares of the Underlying Funds also may be sold to separate
accounts of other insurance companies ("shared funding"), material conflicts
could occur. Security Benefit currently does not foresee any disadvantages to
Owners arising from either mixed or shared funding; however, due to differences
in tax treatment or other considerations, it is possible that the interests of
Owners of various contracts for which the Underlying Funds serve as investment
media might at some time be in conflict. However, Security Benefit, each
Underlying Fund's Board of Directors, and any other insurance companies that
participate in the Underlying Funds are required to monitor events in order to
identify any material conflicts that arise from mixed and/or shared funding. If
such a conflict were to occur, Security Benefit would take steps necessary to
protect Owners including withdrawal of the Separate Account from participation
in the Underlying Fund(s) involved in the conflict. This might force the
Underlying Fund to sell securities at disadvantageous prices.
A summary of the investment objective of each of the Underlying Funds is set
forth as Appendix A to this Prospectus. We cannot assure that any Underlying
Fund will achieve its objective. More detailed information is contained in the
prospectus of each Underlying Fund, including information on the risks
associated with its investments and investment techniques.
Prospectuses for the Underlying Funds should be read in conjunction with this
Prospectus.
THE CONTRACT
GENERAL -- Security Benefit issues the Contract offered by this Prospectus. It
is a flexible purchase payment deferred variable annuity. The Contract is
significantly different from a fixed annuity contract in that it is the Owner
under a Contract who assumes the risk of investment gain or loss rather than
Security Benefit. When you are ready to begin receiving annuity payments, the
Contract provides several Annuity Options under which Security Benefit will pay
periodic annuity payments on a variable basis, a fixed basis or both, beginning
on the Annuity Start Date. The amount that will be available for annuity
payments will depend on the investment performance of the Subaccounts to which
you have allocated purchase payments.
The Contract is available for purchase by an individual as a non-tax
qualified retirement plan ("Non-Qualified Plan"). The Contract is also eligible
for purchase in connection with certain tax qualified retirement plans that meet
the requirements of Section 403(b), 408, or 408A of the Internal Revenue Code
("Qualified Plan"). Certain federal tax advantages are currently available to
retirement plans that qualify as (1) annuity purchase plans of public school
systems and certain tax-exempt organizations under Section 403(b), or (2)
individual retirement accounts or annuities, including those established by an
employer as a simplified employee pension plan, under Section 408. Joint Owners
are permitted only on a Contract issued pursuant to a Non-Qualified Plan.
APPLICATION FOR A CONTRACT -- If you wish to purchase a Contract, you may submit
an application and an initial purchase payment to Security Benefit, as well as
any other form or information that Security Benefit may require. Security
Benefit reserves the right to reject an application or purchase payment for any
reason, subject to Security Benefit's underwriting standards and guidelines and
any applicable state or federal law relating to nondiscrimination.
The maximum age of an Owner or Annuitant for which a Contract will be issued
is age 90 (age 85 in Florida). If there are Joint Owners or Annuitants, the
maximum issue age will be determined by reference to the older Owner or
Annuitant.
PURCHASE PAYMENTS -- The minimum initial purchase payment for the purchase of a
Contract is $10,000. Thereafter, you may choose the amount and frequency of
purchase payments, except that the minimum subsequent purchase payment is $500.
The minimum subsequent purchase payment if you elect an Automatic Investment
Program is $50. Security Benefit may reduce the minimum purchase payment
requirement under certain circumstances. Purchase payments exceeding $1 million
will not be accepted without prior approval of Security Benefit.
Security Benefit will apply the initial purchase payment not later than the
end of the second Valuation Date after the Valuation Date it is received by
Security Benefit; provided that the purchase payment is preceded or accompanied
by an application that contains sufficient information to establish an account
and properly credit such purchase payment. The application form will be provided
by Security Benefit. If Security Benefit does not receive a complete
application, Security Benefit will notify you that it does not have the
necessary information to issue a Contract. If you do not provide the necessary
information to Security Benefit within five Valuation Dates after the Valuation
Date on which Security Benefit first receives the initial purchase payment or if
Security Benefit determines it cannot otherwise issue the Contract, Security
Benefit will return the initial purchase payment to you unless you consent to
Security Benefit retaining the purchase payment until the application is made
complete.
Security Benefit will credit subsequent purchase payments as of the end of
the Valuation Period in which they are received by Security Benefit at its Home
Office. Purchase payments after the initial purchase payment may be made at any
time prior to the Annuity Start Date, so long as the Owner is living. Subsequent
purchase payments under a Qualified Plan may be limited by the terms of the plan
and provisions of the Internal Revenue Code. Subsequent purchase payments may be
paid under an Automatic Investment Program. The initial purchase payment
required must be paid before the Automatic Investment Program will be accepted
by Security Benefit.
ALLOCATION OF PURCHASE PAYMENTS -- In an application for a Contract, you select
the Subaccounts to which purchase payments will be allocated. Purchase payments
will be allocated according to your instructions contained in the application or
more recent instructions received, if any, except that no purchase payment
allocation is permitted that would result in less than $25.00 per payment being
allocated to any one Subaccount. The allocations may be a whole dollar amount or
a whole percentage. Available allocation alternatives include the 38
Subaccounts.
You may change the purchase payment allocation instructions by submitting a
proper written request to Security Benefit's Home Office. A proper change in
allocation instructions will be effective upon receipt by Security Benefit at
its Home Office and will continue in effect until you submit a change in
instructions to 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
application or an Authorization for Telephone Requests form is properly
completed, signed, and filed at Security Benefit's Home Office. Changes in the
allocation of future purchase payments have no effect on existing Contract
Value. You may, however, transfer Contract Value among the Subaccounts in the
manner described in "Transfers of Contract Value," page 15.
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, a fixed period or earnings only, the Subaccount or
Subaccounts to and from which the transfers will be made, the desired frequency
of the transfers, which may be on a monthly or quarterly basis, and the length
of time during which the transfers shall continue or the total amount to be
transferred over time.
After Security Benefit has received a Dollar Cost Averaging Request in proper
form at its Home Office, Security Benefit will transfer Contract Value in the
amounts you designate from the Subaccount from which transfers are to be made to
the Subaccount or Subaccounts you have chosen. Security Benefit will effect each
transfer on the date you specify or if no date is specified, on the monthly or
quarterly anniversary, whichever corresponds to the period selected, of the date
of receipt at the Home Office of a Dollar Cost Averaging Request in proper form.
Transfers will be made until the total amount elected has been transferred, or
until Contract Value in the Subaccount from which transfers are made has been
depleted. Amounts periodically transferred under this option are not included in
the 14 transfers per Contract Year that are allowed as discussed under
"Transfers of Contract Value," page 15.
You may instruct Security Benefit at any time to terminate the option by
written request to Security Benefit's Home Office. In that event, the Contract
Value in the Subaccount from which transfers were being made that has not been
transferred will remain in that Subaccount unless you instruct us otherwise. If
you wish to continue transferring on a dollar cost averaging basis after the
expiration of the applicable period, the total amount elected has been
transferred, or the Subaccount has been depleted, or after the Dollar Cost
Averaging Option has been canceled, a new Dollar Cost Averaging Request must be
completed and sent to the Home Office. Security Benefit requires that you wait
at least a month (or a quarter if transfers were made on a quarterly basis)
before reinstating Dollar Cost Averaging after it has been terminated for any
reason. Security Benefit may discontinue, modify, or suspend the Dollar Cost
Averaging Option at any time. Security Benefit does not currently charge a fee
for this option.
ASSET REALLOCATION OPTION -- Prior to the Annuity Start Date, you may authorize
Security Benefit to automatically transfer Contract Value on a quarterly,
semiannual or annual basis to maintain a particular percentage allocation among
the Subaccounts. The Contract Value allocated to each Subaccount will grow or
decline in value at different rates during the selected period, and Asset
Reallocation automatically reallocates the Contract Value in the Subaccounts to
the allocation you selected on a quarterly, semiannual or annual basis, as you
select. Asset Reallocation is intended to transfer Contract Value from those
Subaccounts that have increased in value to those Subaccounts that have declined
in value. Over time, this method of investing may help you buy low and sell
high. This investment method does not guarantee profits, nor does it assure that
you will not have losses.
To elect this option an Asset Reallocation Request in proper form must be
received by Security Benefit at its Home Office. An Asset Reallocation Request
form is available upon request. On the form, you must indicate the applicable
Subaccounts, the applicable time period and the percentage of Contract Value to
be allocated to each Subaccount.
Upon receipt of the Asset Reallocation Request, Security Benefit will effect
a transfer or, in the case of a new Contract, will allocate the initial purchase
payment, among the Subaccounts based upon the percentages that you selected.
Thereafter, Security Benefit will transfer Contract Value to maintain that
allocation on each quarterly, semiannual or annual anniversary, as applicable,
of the date of Security Benefit's receipt of the Asset Reallocation Request in
proper form. The amounts transferred will be credited at the price of the
Subaccount as of the end of the Valuation Date on which the transfer is
effected. Amounts periodically transferred under this option are not included in
the 14 transfers per Contract Year that are allowed as discussed under
"Transfers of Contract Value," page 15.
You may instruct Security Benefit at any time to terminate this option by
written request to Security Benefit's Home Office. In that event, the Contract
Value in the Subaccounts that has not been transferred will remain in those
Subaccounts regardless of the percentage allocation unless you instruct us
otherwise. If you wish to continue Asset Reallocation after it has been
canceled, a new Asset Reallocation Request form must be completed and sent to
Security Benefit's Home Office. Security Benefit may discontinue, modify, or
suspend, and reserves the right to charge a fee for the Asset Reallocation
Option at any time. Security Benefit does not currently charge a fee for this
option.
TRANSFERS OF CONTRACT VALUE -- You may transfer Contract Value among the
Subaccounts upon proper written request to Security Benefit's Home Office. You
may make transfers (other than transfers pursuant to the Dollar Cost Averaging
and Asset Reallocation Options) by telephone if the Telephone Transfer section
of the application or an Authorization for Telephone Requests form has been
properly completed, signed and filed at Security Benefit's Home Office. The
minimum transfer amount is $500, or the amount remaining in a given Subaccount.
The minimum transfer amount does not apply to transfers under the Dollar Cost
Averaging or Asset Reallocation Options.
Security Benefit effects transfers between Subaccounts at their respective
Accumulation Unit values as of the close of the Valuation Period during which
the transfer request is received.
Security Benefit generally does not limit the frequency of transfers,
although Security Benefit reserves the right at a future date to limit the
number of transfers to 14 in a Contract Year. Security Benefit also reserves the
right to limit the size and frequency of such transfers, and to discontinue
telephone transfers.
CONTRACT VALUE -- The Contract Value is the sum of the amounts under the
Contract held in each Subaccount 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
o Investment performance of the Subaccounts to which you have allocated
Contract Value,
o Payment of purchase payments,
o Full and partial withdrawals, and
o Charges assessed in connection with the Contract, including charges for any
optional Riders selected.
The amounts allocated to a Subaccount will be invested in shares of the
corresponding Underlying Fund. The investment performance of each Subaccount
will reflect increases or decreases in the net asset value per share of the
corresponding Underlying Fund and any dividends or distributions declared by the
Underlying Fund. Any dividends or distributions from any Underlying Fund will be
automatically reinvested in shares of the same Underlying Fund, 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 an Owner's interest
in a Subaccount. When you allocate purchase payments to a Subaccount, your
Contract is credited with Accumulation Units. The number of Accumulation Units
to be credited is determined by dividing the dollar amount, including any Credit
Enhancements, allocated to the particular Subaccount by the price for the
Subaccount's Accumulation Units 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
Accumulation Unit 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 Underlying Fund, (2) any dividends or
distributions paid by the corresponding Underlying Fund, (3) the charges, if
any, that may be assessed by Security Benefit for taxes attributable to the
operation of the Subaccount, (4) the minimum mortality and expense risk charge
under the Contract of 0.85%, and (5) the administration charge under the
Contract.
The minimum mortality and expense risk charge of 0.85% and the administration
charge, which ranges from 0.25% to 0.60%, are factored into the Accumulation
Unit value or "price" of each Subaccount on each Valuation Date. Security
Benefit deducts any mortality and expense risk charge above the minimum charge
and the charge for any optional Riders (the "Excess Charge") on a monthly basis.
Each Subaccount declares a monthly dividend and Security Benefit deducts the
Excess Charge from this monthly dividend upon its reinvestment in the
Subaccount. The Excess Charge is a percentage of your Contract Value allocated
to the Subaccount as of the reinvestment date. The monthly dividend is paid only
for the purpose of collecting the Excess Charge. Assuming that you owe a charge
above the minimum mortality and expense risk charge and the administration
charge, your Contract Value will be reduced in the amount of your Excess Charge
upon reinvestment of the Subaccount's monthly dividend. Security Benefit
reserves the right to compute and deduct the Excess Charge from each Subaccount
on each Valuation Date. See the Statement of Additional Information for a more
detailed discussion of how the Excess Charge is deducted.
FULL AND PARTIAL WITHDRAWALS -- An Owner may make a partial withdrawal of
Contract Value, or surrender the Contract for its Withdrawal Value. A full or
partial withdrawal, including a systematic withdrawal, may be taken from
Contract Value at any time while the Owner is living and before the Annuity
Start Date, subject to limitations under the applicable plan for Qualified Plans
and applicable law. A full or partial withdrawal request will be effective as of
the end of the Valuation Period that a proper written request is received by
Security Benefit at its Home Office. A proper written request must include the
written consent of any effective assignee or irrevocable Beneficiary, if
applicable.
The proceeds received upon a full withdrawal will be the Contract's
Withdrawal Value. The Withdrawal Value is equal to the Contract Value as of the
end of the Valuation Period during which a proper withdrawal request is received
by Security Benefit at its Home Office, less any applicable withdrawal charges,
any pro rata account charge and any uncollected premium taxes. If an Extra
Credit Rider is in effect, Contract Value will also be reduced by any Credit
Enhancements that have not yet vested. See the discussion of vesting of Credit
Enhancements under "Extra Credit," page 23.
Security Benefit requires the signature of all Owners on any request for
withdrawal, and a guarantee of all such signatures to effect the transfer or
exchange of all or part of the Contract for another investment. The signature
guarantee must be provided by an eligible guarantor, such as a bank, broker,
credit union, national securities exchange or savings association. Security
Benefit further requires that any request to transfer or exchange all or part of
the Contract for another investment be made upon a transfer form provided by
Security Benefit which is available upon request.
A partial withdrawal may be requested for a specified percentage or dollar
amount of Contract Value. Each partial withdrawal must be at least $500 except
systematic withdrawals discussed below. A request for a partial withdrawal will
result in a payment by Security Benefit of the amount specified in the partial
withdrawal request provided there is sufficient Contract Value to meet the
request. Any withdrawal charge will be deducted from remaining Contract Value,
provided there is sufficient Contract Value available. Alternatively, you may
request that any withdrawal charge be deducted from your payment. Upon payment,
your Contract Value will be reduced by an amount equal to the payment, plus any
applicable withdrawal charge, or if you requested that any withdrawal charge be
deducted from your payment, your payment will be reduced by the amount of any
such charge. Contract Value will also be reduced by a percentage of any Credit
Enhancements that have not yet vested. See "Extra Credit," page 23. If a partial
withdrawal is requested after the first Contract Year that would leave the
Withdrawal Value in the Contract less than $2,000, Security Benefit reserves the
right to treat the partial withdrawal as a request for a full withdrawal.
Security Benefit will deduct the amount of a partial withdrawal from the
Contract Value in the Subaccounts, according to the Owner's instructions to
Security Benefit. If you do not specify the allocation, Security Benefit will
deduct the withdrawal in the same proportion that Contract Value is allocated
among the Subaccounts.
A full or partial withdrawal, including a systematic withdrawal, may be
subject to a withdrawal charge if a withdrawal is made from purchase payments
that have been held in the Contract for less than seven years and may be subject
to a premium tax charge to reimburse Security Benefit for any tax on premiums on
a Contract that may be imposed by various states and municipalities. See
"Contingent Deferred Sales Charge," page 19, and "Premium Tax Charge," page 20.
A full or partial withdrawal, including a systematic withdrawal, may result
in receipt of taxable income to the Owner and, if made prior to the Owner
attaining age 59 1/2, may be subject to a 10% penalty tax. In the case of
Contracts issued in connection with retirement plans that meet the requirements
of Section 403(b) or 408 of the Internal Revenue Code, reference should be made
to the terms of the particular Qualified Plan for any limitations or
restrictions on withdrawals. For more information, see "Restrictions on
Withdrawals from Qualified Plans," page 27. The tax consequences of a withdrawal
under the Contract should be carefully considered. See "Federal Tax Matters,"
page 28.
SYSTEMATIC WITHDRAWALS -- Security Benefit currently offers a feature under
which you may select systematic withdrawals. Under this feature, an Owner may
elect to receive systematic withdrawals while the Owner is living and before the
Annuity Start Date by sending a properly completed Systematic Withdrawal Request
form to Security Benefit at its Home Office. This option may be elected at any
time. An Owner may designate the systematic withdrawal amount as a percentage of
Contract Value allocated to the Subaccounts, as a fixed period, as level
payments, as a specified dollar amount, as all earnings in the Contract, or
based upon the life expectancy of the Owner or the Owner and a Beneficiary. An
Owner also may designate the desired frequency of the systematic withdrawals,
which may be monthly, quarterly, semiannually or annually. The Owner may stop or
modify systematic withdrawals upon proper written request received by Security
Benefit at its Home Office at least 30 days in advance of the requested date of
termination or modification. A proper request must include the written consent
of any effective assignee or irrevocable Beneficiary, if applicable.
Each systematic withdrawal must be at least $100. Upon payment, your Contract
Value will be reduced by an amount equal to the payment proceeds plus any
applicable withdrawal charge and premium tax. Contract Value will also be
reduced by a percentage of any Credit Enhancements that have not yet vested. See
"Extra Credit," page 23. Any systematic withdrawal that equals or exceeds the
Withdrawal Value will be treated as a full withdrawal. In no event will payment
of a systematic withdrawal exceed the Withdrawal Value. The Contract will
automatically terminate if a systematic withdrawal causes the Contract's
Withdrawal Value to equal zero.
Security Benefit will effect each systematic withdrawal as of the end of the
Valuation Period during which the withdrawal is scheduled. The deduction caused
by the systematic withdrawal, including any applicable withdrawal charge, will
be allocated to your Contract Value in the Subaccounts, as you have directed. If
you do not specify the allocation, Security Benefit will deduct the systematic
withdrawal in the same proportion that Contract Value is allocated among the
Subaccounts.
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 which may
be imposed on withdrawals made prior to the Owner attaining age 59 1/2. See
"Federal Tax Matters," page 28.
FREE-LOOK RIGHT -- You may return a Contract within the Free-Look Period, which
is generally a ten-day period beginning when you receive the Contract. In this
event, Security Benefit will then deem void the returned Contract and will
refund to you as of the Valuation Date on which we receive your Contract any
Contract Value allocated to the Subaccounts, plus any charges deducted from such
Contract Value, less the Contract Value attributable to any Credit Enhancements.
Some states' laws require us to refund your purchase payments instead of your
Contract Value. If your Contract is delivered in one of those states and you
return your Contract during the Free-Look Period, Security Benefit will refund
purchase payments allocated to the Subaccounts rather than Contract Value.
DEATH BENEFIT -- If the Owner dies prior to the Annuity Start Date while this
Contract is in force, Security Benefit will pay the death benefit proceeds to
the Designated Beneficiary upon receipt of due proof of the Owner's death and
instructions regarding payment to the Designated Beneficiary. If there are Joint
Owners, the death benefit proceeds will be payable upon receipt of due proof of
death of either Owner and instructions regarding payment.
If the surviving spouse of the deceased Owner is the sole Designated
Beneficiary, such spouse may elect to continue the Contract in force, subject to
certain limitations. See "Distribution Requirements" below. If the Owner is not
a natural person, the death benefit proceeds will be payable upon receipt of due
proof of death of the Annuitant prior to the Annuity Start Date and instructions
regarding payment. If the death of the Owner occurs on or after the Annuity
Start Date, any death benefit will be determined according to the terms of the
Annuity Option. See "Annuity Options," page 25.
The death benefit proceeds will be the death benefit reduced by any pro rata
account charge and any uncollected premium tax. If the age of each Owner was 80
or younger on the Contract Date and an Owner dies prior to the Annuity Start
Date while this Contract is in force, the amount of the death benefit will be
the greater of:
1. The sum of all purchase payments (not including any Credit Enhancements if
an Extra Credit Rider was in effect), less any reductions caused by previous
withdrawals, including withdrawal charges, or
2. The Contract Value on the date due proof of death and instructions regarding
payment are received by Security Benefit (less any Credit Enhancements
applied during the 12 months prior to the date of the Owner's death).
If any Owner was age 81 or older on the Contract Date, or if due proof of
death and instructions regarding payment are not received by Security Benefit at
its Home Office within six months of the date of the Owner's death, the death
benefit will be as set forth in item 2 above.
If you purchased one or more of the optional Riders that provide an enhanced
death benefit, your death benefit will be determined in accordance with the
terms of the Rider. See the discussion of Annual Stepped Up Death Benefit Rider,
Guaranteed Growth Death Benefit Rider, and Combined Annual Stepped Up and
Guaranteed Growth Death Benefit Rider. Your death benefit proceeds under the
Rider will be the death benefit reduced by any pro rata account charge and any
uncollected premium tax.
The death benefit proceeds will be paid to the Designated Beneficiary in a
single sum or under one of the Annuity Options, as elected by the Designated
Beneficiary. If the Designated Beneficiary is to receive annuity payments under
an Annuity Option, there may be limits under applicable law on the amount and
duration of payments that the Beneficiary may receive, and requirements
respecting timing of payments. A tax adviser should be consulted in considering
Annuity Options. See "Federal Tax Matters," page 28 and "Distribution
Requirements," below for a discussion of the tax consequences in the event of
death.
DISTRIBUTION REQUIREMENTS -- For Contracts issued in connection with a
Non-Qualified Plan, if the surviving spouse of the deceased Owner is the sole
Designated Beneficiary, such spouse may elect to continue this Contract in force
until the earliest of the spouse's death or the Annuity Start Date or receive
the death benefit proceeds.
For any Designated Beneficiary other than a surviving spouse, only those
options may be chosen that provide for complete distribution of such Owner's
interest in the Contract within five years of the death of the Owner. If the
Designated Beneficiary is a natural person, that person alternatively can elect
to begin receiving annuity payments within one year of the Owner's death over a
period not extending beyond his or her life or life expectancy. If the Owner of
the Contract is not a natural person, these distribution rules are applicable
upon the death of or a change in the primary Annuitant.
For Contracts issued in connection with a Qualified Plan, the terms of the
particular Qualified Plan and the Internal Revenue Code should be reviewed with
respect to limitations or restrictions on distributions following the death of
the Owner or Annuitant. Because the rules applicable to Qualified Plans are
extremely complex, a competent tax adviser should be consulted.
DEATH OF THE ANNUITANT -- If the Annuitant dies prior to the Annuity Start Date,
and the Owner is a natural person and is not the Annuitant, no death benefit
proceeds will be payable under the Contract. The Owner may name a new Annuitant
within 30 days of the Annuitant's death. If a new Annuitant is not named,
Security Benefit will designate the Owner as Annuitant. On the death of the
Annuitant after the Annuity Start Date, any guaranteed payments remaining unpaid
will continue to be paid to the Designated Beneficiary pursuant to the Annuity
Option in force at the date of death.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE -- Security Benefit does not deduct sales
charges from purchase payments before allocating them to Contract Value.
However, except as set forth below, Security Benefit may assess a contingent
deferred sales charge (which may also be referred to as a withdrawal charge) on
a full or partial withdrawal, including systematic withdrawals, depending on how
long your purchase payments have been held under the Contract.
Security Benefit will waive the withdrawal charge on withdrawals to the
extent that total withdrawals in a Contract Year, including systematic
withdrawals, do not exceed the Free Withdrawal amount. The Free Withdrawal
amount is equal in the first Contract Year, to 10% of purchase payments,
excluding any Credit Enhancements, made during the year and for any subsequent
Contract Year, to 10% of Contract Value as of the first day of that Contract
Year.
The withdrawal charge applies to the portion of any withdrawal, consisting of
purchase payments, that exceeds the Free Withdrawal amount. For purposes of
determining the withdrawal charge, withdrawals are considered to come first from
purchase payments in the order they were received and then from earnings. The
withdrawal charge does not apply to withdrawals of earnings. Free withdrawal
amounts do not reduce purchase payments for the purpose of determining future
withdrawal charges.
The amount of the charge will depend on how long your purchase payments have
been held under the Contract. Each purchase payment you make is considered to
have a certain "age," depending on the length of time since the purchase payment
was effective. A purchase payment is "age one" in the year beginning on the date
the purchase payment is received by Security Benefit and increases in age each
year thereafter. The withdrawal charge is calculated according to the following
schedule:
-----------------------------------
PURCHASE PAYMENT AGE WITHDRAWAL
(IN YEARS) CHARGE
-----------------------------------
1 7%
2 7%
3 6%
4 5%
5 4%
6 3%
7 2%
8 and over 0%
-----------------------------------
In no event will the amount of any withdrawal charge, when added to such
charge previously assessed against any amount withdrawn from the Contract,
exceed 7% of purchase payments paid under the Contract. In addition, no
withdrawal charge will be imposed upon: (1) payment of death benefit proceeds;
or (2) annuity payments under options that provide for payments for life, or a
period of at least 7 years. Security Benefit will assess the withdrawal charge
against the Subaccounts in the same proportion as the withdrawal proceeds are
allocated.
Security Benefit pays sales commissions to broker-dealers and other expenses
associated with the promotion and sales of the Contracts. The withdrawal charge
is designed to reimburse Security Benefit for these costs, although it is
expected that actual expenses will be greater than the amount of the charge. To
the extent that all sales expenses are not recovered from the charge, such
expenses may be recovered from other charges, including amounts derived
indirectly from the charge for mortality and expense risk. Broker-dealers may
receive aggregate commissions of up to 6.5% of aggregate purchase payments.
Security Benefit also may pay override payments, expense allowances, bonuses,
wholesaler fees and training allowances. Registered representatives earn
commissions from the broker-dealers with which they are affiliated and such
arrangements will vary.
MORTALITY AND EXPENSE RISK CHARGE -- Security Benefit deducts a charge for
mortality and expense risks assumed by Security Benefit under the Contract.
Security Benefit deducts a daily minimum charge equal to 0.85%, on an annual
basis, of each Subaccount's average daily net assets. If you are subject to
mortality and expense risk charge above the minimum charge, Security Benefit
deducts it from your Contract Value on a monthly basis. The mortality and
expense risk charge amount is determined each month by reference to the amount
of your Contract Value, as set forth in the table below.
--------------------------------------------------------------
ANNUAL MORTALITY AND
CONTRACT VALUE EXPENSE RISK CHARGE
--------------------------------------------------------------
Less than $25,000 ........................ 1.10%
At least $25,000 but less than $100,000 .. 0.95%
$100,000 or more ......................... 0.85%
--------------------------------------------------------------
During the Annuity Period, the mortality and expense risk charge is 1.25% under
Options 1 through 4, 7 and 8, in lieu of the amounts set forth above. The
mortality and expense risk charge 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 Contracts and operating the Subaccounts will be
more than the charges assessed for such expenses. The mortality risk borne by
Security Benefit is the risk that Annuitants, as a group, will live longer than
Security Benefit's actuarial tables predict. In this event, Security Benefit
guarantees that annuity payments will not be affected by a change in mortality
experience that results in the payment of greater annuity income than assumed
under the Annuity Options in the Contract. Security Benefit also assumes a
mortality risk in connection with the death benefit under the Contract.
Security Benefit may ultimately realize a profit from this charge to the
extent it is not needed to cover mortality and administrative expenses, but
Security Benefit may realize a loss to the extent the charge is not sufficient.
Security Benefit may use any profit derived from this charge for any lawful
purpose, including distribution expenses. See "Determination of Contract Value,"
page 16, for more information about how Security Benefit deducts the mortality
and expense risk charge.
ADMINISTRATION CHARGE -- Security Benefit deducts a daily administration charge
equal to an annual percentage rate of each Subaccount's average daily net
assets. The administration charge varies by Subaccount and is 0.25% for the
OppenheimerFunds Global Subaccount; 0.45% for the Money Market, Rydex Arktos,
Rydex Nova, Rydex OTC, Rydex Ursa, Rydex Large Cap Europe, Rydex Large Cap
Japan, Rydex Banking, Rydex Basic Materials, Rydex Biotechnology, Rydex Consumer
Products, Rydex Electronics, Rydex Energy, Rydex Energy Services, Rydex
Financial Services, Rydex Health Care, Rydex Internet, Rydex Leisure, Rydex
Precious Metals, Rydex Retailing, Rydex Technology, Rydex Telecommunications,
Rydex Transportation and Rydex Utilities Subaccounts; 0.50% for the Federated
High Income Bond II, Fidelity VIP II Contrafund, Fidelity VIP II Index 500,
Fidelity VIP II Investment-Grade Bond and Fidelity VIP III Growth Opportunities
Subaccounts; 0.55% for the Strong Opportunity Subaccount; and 0.60% for the AIM
Capital Appreciation, Federated U.S. Government Securities II, Franklin Small
Cap, Neuberger & Berman Guardian Trust, Neuberger Berman Partners, Templeton
Developing Markets, and Templeton International Subaccounts. The purpose of this
charge is to compensate Security Benefit for the expenses associated with
administration of the Contracts and operation of the Subaccounts.
ACCOUNT ADMINISTRATION CHARGE -- Security Benefit deducts an account
administration charge of $30.00 from Contract Value at each Contract
Anniversary. Security Benefit will waive the charge if your Contract Value is
$50,000 or more on the date the charge is to be deducted. Security Benefit will
deduct a pro rata account administration charge (1) upon a full withdrawal; (2)
upon the Annuity Start Date if one of the Annuity Options 1 through 4, 7 or 8 is
chosen; and (3) upon payment of a death benefit. This charge is not deducted
during the Annuity Period if one of the Annuity Options 1 through 4, 7 or 8 is
chosen. The purpose of the charge is to compensate Security Benefit for the
expenses associated with administration of the Contract.
PREMIUM TAX CHARGE -- Various states and municipalities impose a tax on premiums
on annuity contracts received by insurance companies. Whether or not a premium
tax is imposed will depend upon, among other things, the Owner's state of
residence, the Annuitant's state of residence, and the insurance tax laws and
Security Benefit's status in a particular state. Security Benefit assesses a
premium tax charge to reimburse itself for premium taxes that it incurs in
connection with a Contract. Security Benefit deducts this charge when due,
typically upon the Annuity Start Date or payment of a purchase payment. Security
Benefit may deduct premium tax upon a full or partial withdrawal if a premium
tax has been incurred and is not refundable. Security Benefit reserves the right
to deduct premium taxes when due or any time thereafter. Premium tax rates
currently range from 0% 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
contingent deferred sales charge and certain other charges for a Contract where
the expenses associated with the sale of the Contract or the administrative and
maintenance costs associated with the Contract are reduced for reasons such as
the amount of the initial purchase payment or projected purchase payments or the
Contract is sold in connection with a group or sponsored arrangement.
GUARANTEE OF CERTAIN CHARGES -- Security Benefit guarantees that: (1) the charge
for mortality and expense risks will not exceed an annual rate of 1.10% (1.25%
during the Annuity Period) of each Subaccount's average daily net assets; (2)
the administration charge will not exceed an annual rate of 0.60% of each
Subaccount's average daily net assets; and (3) the account administration charge
will not exceed $30 per year. Security Benefit also guarantees that the charge
for any Rider will not exceed the annual rate in effect when the Rider is
issued.
UNDERLYING FUND EXPENSES -- Each Subaccount of the Separate Account purchases
shares at the net asset value of the corresponding Underlying Fund. Each
Underlying Fund's net asset value reflects the investment advisory fee and other
expenses that are deducted from the assets of the Underlying Fund. These fees
and expenses are not deducted from the Subaccounts, but are paid from the assets
of the corresponding Underlying Fund. As a result, the Owner indirectly bears a
pro rata portion of such fees and expenses. The advisory fees and other
expenses, if any, which are more fully described in each Underlying Fund's
prospectus, are not specified or fixed under the terms of the Contract.
OPTIONAL RIDER CHARGES
In addition to the charges and deductions discussed above, you may purchase
certain optional Riders under the Contract. Security Benefit makes each Rider,
except the Extra Credit Rider, available only at issue, and you may not
terminate a Rider after issue, unless otherwise stated. Security Benefit deducts
a monthly charge from Contract Value for any Riders elected by the Owner. The
amount of the charge is equal to a percentage, on an annual basis, of your
Contract Value. Each Rider and its charge are listed below. You may not select
Riders with a total charge that exceeds 2.00% of Contract Value. Currently, it
is not possible to exceed this limit even if you selected each Rider available;
however, Security Benefit may make additional Riders available in the future and
you would only be permitted to select Riders with a maximum combined cost of
2.00% of Contract Value.
GUARANTEED MINIMUM INCOME BENEFIT -- This Rider makes available a minimum amount
for the purchase of a fixed Annuity ("Minimum Income Benefit"). The Minimum
Income Benefit is equal to Purchase Payments and any Credit Enhancements, net of
any premium tax, less an adjustment for Withdrawals, increased at an annual
effective rate of interest of 3% or 5%, as elected in the application. (Security
Benefit will credit a maximum rate of 4% for amounts allocated to the Money
Market Subaccount.)
In crediting interest, Security Benefit takes into account the timing of when
each purchase payment and withdrawal occurred and accrues such interest until
the earlier of: (1) the Annuity Start Date, or (2) the Contract Anniversary
following the oldest Annuitant's 80th birthday. In the event of a withdrawal,
the Minimum Income Benefit is reduced as of the date of the withdrawal by a
percentage found by dividing the withdrawal amount, including any withdrawal
charges, by Contract Value immediately prior to the withdrawal.
You may apply the Minimum Income Benefit, less any applicable Premium tax and
pro rata account administration charge, to purchase a fixed Annuity within 30
days of any Contract Anniversary following the 10th Contract Anniversary. You
may apply the Minimum Income Benefit to purchase only a fixed Annuity under
Option 2, life income with a 10-year period certain, or Option 4, joint and last
survivor with a 10-year period certain. See the discussion of Options 2 and 4
under "Annuity Options," page 25. The Annuity rates for this Rider are based
upon the 1983(a) mortality table with mortality improvement under projection
scale G and an interest rate of 2 1/2%. The charge for this Rider varies based
upon the interest rate selected as set forth below:
------------------------------
INTEREST RATE RIDER CHARGE
------------------------------
3% 0.25%
5% 0.40%
------------------------------
ANNUAL STEPPED UP DEATH BENEFIT -- This Rider makes available an enhanced death
benefit upon the death of the Owner or any Joint Owner prior to the Annuity
Start Date. The death benefit proceeds will be the death benefit reduced by any
pro rata account administration charge and any uncollected premium tax. If an
Extra Credit Rider was in effect, the death benefit also will be reduced by any
Credit Enhancements applied during the 12 months preceding the Owner's date of
death; provided that the death benefit defined in 1 below will not be so
reduced. If an Owner dies prior to the Annuity Start Date, the amount of the
death benefit under this Rider will be the greatest of:
1. The sum of all purchase payments (not including any Credit Enhancements),
less any withdrawals and withdrawal charges;
2. The Contract Value on the date due proof of death and instructions regarding
payment for each Designated Beneficiary are received by Security Benefit; or
3. The Stepped Up Death Benefit.
The Stepped Up Death Benefit is the largest result for the following calculation
as of the date of receipt of instructions regarding payment of the death
benefit:
o The largest of 1 or 2 above on any Contract Anniversary that occurs prior to
the oldest Owner attaining age 81, plus
o Any purchase payments received by Security Benefit since the applicable
Contract Anniversary; less
o An adjustment for any withdrawals and withdrawal charges made since the
applicable anniversary. In the event of a withdrawal, the Stepped Up Death
Benefit is reduced as of the date of the withdrawal by a percentage found by
dividing the withdrawal amount, including any withdrawal charges, by Contract
Value immediately prior to the withdrawal.
If an Owner dies prior to the Annuity Start Date, but due proof of death and
instructions regarding payment are not received by Security Benefit at its Home
Office within six months of the date of the Owner's death, the death benefit
will be as set forth in item 2 above.
The charge for this Rider is 0.25%. See the discussion under "Death Benefit,"
page 18.
GUARANTEED GROWTH DEATH BENEFIT -- This Rider makes available an enhanced death
benefit upon the death of the Owner or any Joint Owner prior to the Annuity
Start Date. The death benefit proceeds will be the death benefit reduced by any
pro rata account administration charge and any uncollected premium tax. If an
Extra Credit Rider was in effect, the death benefit also will be reduced by any
Credit Enhancements applied during the 12 months preceding the Owner's date of
death; provided that the death benefit defined in 1 below will not be so
reduced. If an Owner dies prior to the Annuity Start Date, the amount of the
death benefit under this Rider will be the greatest of:
1. The sum of all purchase payments (not including any Credit Enhancements),
less any withdrawals and withdrawal charges;
2. The Contract Value on the date due proof of death and instructions regarding
payment for each Designated Beneficiary are received by Security Benefit; or
3. The Guaranteed Growth Death Benefit.
The Guaranteed Growth Death Benefit is an amount equal to purchase payments and
any Credit Enhancements, net of any Premium tax, less an adjustment for
withdrawals, increased at an annual effective rate of interest of 3%, 5%, 6% or
7%, as elected in the application. (Security Benefit will credit a maximum rate
of 4% for amounts allocated to the Money Market Subaccount.) In crediting
interest, Security Benefit takes into account the timing of when each purchase
payment and withdrawal occurred. Security Benefit accrues such interest until
the earliest of: (1) the Annuity Start Date; (2) the Contract Anniversary
following the oldest Owner's 80th birthday; (3) the date due proof of the
Owner's death and instructions regarding payment are received; or (4) the
six-month anniversary of the Owner's date of death. In the event of a
withdrawal, the Guaranteed Growth Death Benefit is reduced as of the date of the
withdrawal by a percentage found by dividing the withdrawal amount, including
any withdrawal charges, by Contract Value immediately prior to the withdrawal.
The amount of the Guaranteed Growth Death Benefit shall not exceed an amount
equal to 200% of purchase payments (not including any Credit Enhancements), net
of premium tax and any withdrawals, including withdrawal charges.
If an Owner dies prior to the Annuity Start Date, but due proof of death and
instructions regarding payment are not received by Security Benefit at its Home
Office within six months of the date of the Owner's death, the death benefit
will be Contract Value, as set forth in item 2 above.
The charge for this Rider varies based upon the interest rate selected as set
forth below:
------------------------------
INTEREST RATE RIDER CHARGE
------------------------------
3% 0.15%
5% 0.25%
6% 0.30%
7% 0.35%
------------------------------
See the discussion under "Death Benefit," page 18.
COMBINED ANNUAL STEPPED UP AND GUARANTEED GROWTH DEATH BENEFIT -- This Rider
makes available an enhanced death benefit upon the death of the Owner or any
Joint Owner prior to the Annuity Start Date. If an Owner dies prior to the
Annuity Start Date, the amount of the death benefit under this Rider will be the
greatest of:
1. The sum of all purchase payments (not including any Credit Enhancements),
less any withdrawals and withdrawal charges;
2. The Contract Value on the date due proof of death and instructions regarding
payment for each Designated Beneficiary are received by Security Benefit;
3. The Annual Stepped Up Death Benefit (as described above); or
4. The Guaranteed Growth Death Benefit at 5% (as described above).
If an Owner dies prior to the Annuity Start Date, but due proof of death and
instructions regarding payment are not received by Security Benefit at its Home
Office within six months of the date of the Owner's death, the death benefit
will be as set forth in item 2 above.
The charge for this Rider is 0.30%. See the discussion under "Death Benefit,"
page 18.
EXTRA CREDIT -- This Rider makes available a Credit Enhancement, which is an
amount added to your Contract Value by Security Benefit. You may purchase this
Rider at issue or after the Contract Date. If you purchase at issue, a Credit
Enhancement of 3%, 4% or 5% of purchase payments, as elected in the application,
will be added to Contract Value for each purchase payment made in the first
Contract Year. If you purchase the Rider after the Contract Date, Security
Benefit will add a ONE-TIME Credit Enhancement to your Contract Value in an
amount of 3%, 4% or 5% of Contract Value, as elected in the application. Any
Credit Enhancement will be allocated among the Subaccounts in the same
proportion as your purchase payment or Contract Value, as applicable.
In the event of a full or partial withdrawal, Security Benefit will recapture
all or part of any Credit Enhancement that has not yet vested. An amount equal
to 1/7 of the Credit Enhancement will vest as of each anniversary of the Rider's
date of issue and the Credit Enhancement will be fully vested at the end of
seven years from that date. The amount to be forfeited in the event of a
withdrawal is equal to a percentage of the Credit Enhancement that has not yet
vested. The percentage is determined for each withdrawal as of the date of the
withdrawal by dividing:
1. The amount of the withdrawal, including any withdrawal charges, by
2. Contract Value immediately prior to the withdrawal.
The charge for this Rider will be deducted for a period of seven years from
its date of issue. The charge varies based upon the Credit Enhancement rate
selected as set forth below:
----------------------------------------
CREDIT ENHANCEMENT RATE RIDER CHARGE
----------------------------------------
3% 0.45%
4% 0.60%
5% 0.75%
----------------------------------------
You may not at any time have more than one Extra Credit Rider in effect on your
Contract.
Security Benefit may recapture Credit Enhancements in the event of a full or
partial withdrawal as discussed above. If you exercise your right to return the
Contract during the Free-Look period, your Contract Value will be reduced by the
value of any Credit Enhancements applied. See "Free-Look Right," page 18. In the
event of a withdrawal under the terms of the Waiver of Withdrawal Charge Rider,
you will forfeit all or part of any Credit Enhancements applied during the 12
months preceding such a withdrawal. See "Waiver of Withdrawal Charge," below.
Death benefit proceeds may exclude all or part of any Credit Enhancements. See
"Death Benefit," page 18 and the discussions of the Annual Stepped Up,
Guaranteed Growth and Combined Annual Stepped Up and Guaranteed Growth Death
Benefits, above.
Security Benefit expects to make a profit from the charge for this Rider and
funds payment of the Credit Enhancements through the Rider charge and the
vesting schedule. The Extra Credit Rider would make sense for you only if you
expect your average annual return (net of expenses of the Contract and the
Underlying Funds) to exceed the applicable amount set forth in the table below.
The returns below represent the amount that must be earned EACH year during the
seven-year period beginning on the Rider's date of issue to break even on the
Rider. If your actual returns are greater than this amount, you will profit from
the purchase of the Rider. If your actual returns are less, for example, in a
down market, you will be worse off than if you had not purchased the Rider.
Please note that the returns below are net of Contract and Underlying Fund
expenses so that you would need to earn the amount in the table plus the amount
of applicable expenses to break even on the Rider.
-----------------------------------
RATE OF RETURN
INTEREST RATE (NET OF EXPENSES)
-----------------------------------
3% 6.85%
4% 7.45%
5% 8.05%
-----------------------------------
WAIVER OF WITHDRAWAL CHARGE -- This Rider makes available a waiver of withdrawal
charge in the event of your confinement to a nursing home, terminal illness, or
total and permanent disability prior to age 65.
The Rider defines confinement to a hospital or nursing facility, as follows:
(1) you have been confined to a "hospital" or "qualified skilled nursing
facility" for at least 90 consecutive days prior to the date of the withdrawal;
and (2) you are so confined when Security Benefit receives the waiver request
and became so confined after the Contract Date.
Security Benefit defines terminal illness as follows: (1) the Owner has been
diagnosed by a licensed physician with a "terminal illness"; and (2) such
illness was first diagnosed after the Contract was issued.
Security Benefit defines disability as follows: (1) the Owner is unable,
because of physical or mental impairment, to perform the material and
substantial duties of any occupation for which the Owner is suited by means of
education, training or experience; (2) the impairment has been in existence for
more than 180 days and began before the Owner attained age 65 and after the
Contract Date; and (3) the impairment is expected to result in death or be
long-standing and indefinite.
Prior to making a withdrawal pursuant to this Rider, you must submit to
Security Benefit a properly completed claim form and a written physician's
statement acceptable to Security Benefit. Security Benefit will also accept as
proof of disability a certified Social Security finding of disability.
Security Benefit reserves the right to have a physician of its choice examine
the Owner to determine if the Owner is eligible for a waiver. The charge for
this Rider is 0.05%.
If you have also purchased an Extra Credit Rider, you will forfeit all or
part of any Credit Enhancements applied during the 12 months preceding any
withdrawal pursuant to this Rider. The amount of Credit Enhancements to be
forfeited is a percentage determined by dividing the amount of the withdrawal by
the total purchase payments made in the 12 months preceding the withdrawal if
the Extra Credit Rider was purchased at issue. The percentage is determined by
dividing the amount of the withdrawal by Contract Value on the date of the
Rider's issue if the Extra Credit Rider was purchased after the Contract Date.
The maximum percentage that may be forfeited is 100% of Credit Enhancements
earned during the 12 months preceding the withdrawal.
ALTERNATIVE WITHDRAWAL CHARGE -- This Rider makes available an alternative
withdrawal charge schedule as set forth below.
-----------------------------------
PURCHASE PAYMENT AGE WITHDRAWAL
(IN YEARS) CHARGE
-----------------------------------
1 and over 0%
-----------------------------------
The charge for this Rider is 0.35%. If you have also purchased an Extra Credit
Rider, you may forfeit all or part of any Credit Enhancement in the event of a
full or partial withdrawal. See "Extra Credit," page 23.
ANNUITY PERIOD
GENERAL -- You select the Annuity Start Date at the time of application. The
Annuity Start Date may not be prior to the third annual Contract anniversary and
may not be deferred beyond the Annuitant's 95th birthday, although the terms of
a Qualified Plan and the laws of certain states may require that you start
annuity payments at an earlier age. If you do not select an Annuity Start Date,
the Annuity Start Date will be the later of the Annuitant's 70th birthday or the
tenth annual Contract Anniversary. If you do not select an Annuity Option,
annuity payments will not begin until you make a selection, which may be after
the Annuity Start Date. See "Selection of an Option," page 26. If there are
Joint Annuitants, the birthdate of the older Annuitant will be used to determine
the latest Annuity Start Date.
On the Annuity Start Date, the proceeds under the Contract will be applied to
provide an Annuity under one of the options described below. Each option is
available in two forms--either as a variable Annuity for use with the
Subaccounts or as a fixed Annuity. A combination variable and fixed Annuity is
also available. Variable annuity payments will fluctuate with the investment
performance of the applicable Subaccounts while fixed annuity payments will not.
The proceeds under the Contract will be equal to your Contract Value as of the
Annuity Start Date, reduced by any applicable premium taxes and, for Options 1
through 4, 7 and 8, a pro rata account administration charge, if applicable.
The Contract provides for eight Annuity Options. Security Benefit may make
other Annuity Options available upon request. Annuity payments under Annuity
Options 1 through 4, 7 and 8 are based upon annuity rates that vary with the
Annuity Option selected. In the case of Options 1 through 4 and 8, the annuity
rates will vary based on the age and sex of the Annuitant, except that unisex
rates are available where required by law. The annuity rates reflect your life
expectancy based upon your age as of the Annuity Start Date and your gender,
unless unisex rates apply. The annuity rates are based upon the 1983(a)
mortality table with mortality improvement under projection scale G and are
adjusted to reflect an assumed interest rate of 3.5%, compounded annually. In
the case of Options 5 and 6 as described below, annuity payments are based upon
Contract Value without regard to annuity rates.
Annuity Options 1 through 4 and 8 provide for payments to be made during the
lifetime of the Annuitant. Annuity payments under such options cease in the
event of the Annuitant's death, unless the option provides for a guaranteed
minimum number of payments, for example a life income with guaranteed payments
of 5, 10, 15 or 20 years. The level of annuity payments will be greater for
shorter guaranteed periods and less for longer guaranteed periods. Similarly,
payments will be greater for life annuities than for joint and survivor
annuities, because payments for life annuities are expected to be made for a
shorter period.
You may elect to receive annuity payments on a monthly, quarterly,
semiannual, or annual basis, although no payments will be made for less than
$100. If the frequency of payments selected would result in payments of less
than $100, Security Benefit reserves the right to change the frequency.
You may designate or change an Annuity Start Date, Annuity Option, or
Annuitant, provided proper written notice is received by Security Benefit at its
Home Office at least 30 days prior to the Annuity Start Date set forth in the
Contract. The date selected as the new Annuity Start Date must be at least 30
days after the date written notice requesting a change of Annuity Start Date is
received at Security Benefit's Home Office.
Once annuity payments have commenced under Annuity Options 1 through 4 and 8,
an Annuitant or Owner cannot change the Annuity Option and cannot surrender his
or her annuity and receive a lump-sum settlement in lieu thereof. Under Annuity
Options 5 through 7, full or partial withdrawals may be made after the Annuity
Start Date, subject to any applicable withdrawal charge. The Contract specifies
annuity tables for Annuity Options 1 through 4, 7 and 8, described below. The
tables contain the guaranteed minimum dollar amount (per $1,000 applied) of the
FIRST annuity payment for a variable Annuity and each annuity payment for a
fixed Annuity.
ANNUITY OPTIONS--
OPTION 1 -- LIFE INCOME. Periodic annuity payments will be made during the
lifetime of the Annuitant. It is possible under this Option for any Annuitant to
receive only one annuity payment if the Annuitant's death occurred prior to the
due date of the second annuity payment, two if death occurred prior to the due
date of the third annuity payment, etc. THERE IS NO MINIMUM NUMBER OF PAYMENTS
GUARANTEED UNDER THIS OPTION. PAYMENTS WILL CEASE UPON THE DEATH OF THE
ANNUITANT REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 2 -- LIFE INCOME WITH GUARANTEED PAYMENTS OF 5, 10, 15 OR 20 YEARS.
Periodic annuity payments will be made during the lifetime of the Annuitant with
the promise that if, at the death of the Annuitant, payments have been made for
less than a stated period, which may be five, ten, fifteen or twenty years, as
elected by the Owner, annuity payments will be continued during the remainder of
such period to the Designated Beneficiary. Upon the Annuitant's death after the
period certain, no further annuity payments will be made.
OPTION 3 -- LIFE WITH INSTALLMENT OR UNIT 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. Annuity payments will be made as long as
either Annuitant is living. Upon the death of one Annuitant, annuity payments
continue to the surviving Annuitant at the same or a reduced level of 75%, 66
2/3% or 50% of annuity payments as elected by the Owner at the time the Annuity
Option is selected. With respect to fixed annuity payments, the amount of the
annuity payment, and with respect to variable annuity payments, the number of
Annuity Units used to determine the annuity payment, is reduced as of the first
annuity payment following the Annuitant's death. 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 -- PAYMENTS FOR SPECIFIED PERIOD. Periodic annuity payments will be
made for a fixed period, which may be from 5 to 20 years, as elected by the
Owner. The amount of each Annuity Payment is determined by dividing Contract
Value by the number of Annuity Payments remaining in the period. If, at the
death of all Annuitants, payments have been made for less than the selected
fixed period, the remaining unpaid payments will be paid to the Designated
Beneficiary.
OPTION 6 -- PAYMENTS OF A SPECIFIED AMOUNT. Periodic annuity payments of the
amount elected by the Owner will be made until Contract Value is exhausted, with
the guarantee that, if, at the death of all Annuitants, all guaranteed payments
have not yet been made, the remaining unpaid payments will be paid to the
Designated Beneficiary.
OPTION 7 -- PERIOD CERTAIN. Periodic annuity payments will be made for a
stated period, which may be 5, 10, 15 or 20 years, as elected by the Owner. This
option differs from Option 5 in that Annuity Payments are calculated on the
basis of Annuity Units. If the Annuitant dies prior to the end of the period,
the remaining payments will be made to the Designated Beneficiary.
OPTION 8 -- JOINT AND CONTINGENT SURVIVOR OPTION. Periodic annuity payments
will be made during the life of the primary Annuitant. Upon the death of the
primary Annuitant, payments will be made to the contingent Annuitant during his
or her life. If the contingent Annuitant is not living upon the death of the
primary Annuitant, no payments will be made to the contingent Annuitant. It is
possible under this Option for only one annuity payment to be made if both
Annuitants died prior to the second annuity payment due date, two if both died
prior to the third annuity payment due date, etc. AS IN THE CASE OF OPTIONS 1
AND 4, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION.
PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT, REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
VALUE OF VARIABLE ANNUITY PAYMENTS: ASSUMED INTEREST RATE. The annuity tables
in the Contract which are used to calculate variable annuity payments for
Annuity Options 1 through 4, 7 and 8 are based on an "assumed interest rate" of
3 1/2%, compounded annually. Variable annuity payments generally increase or
decrease from one annuity payment date to the next based upon the performance of
the applicable Subaccounts during the interim period adjusted for the assumed
interest rate. If the performance of the Subaccount selected is equal to the
assumed interest rate, the annuity payments will remain constant. If the
performance of the Subaccounts is greater than the assumed interest rate, the
annuity payments will increase and if it is less than the assumed interest rate,
the annuity payments will decline. A higher assumed interest rate would mean a
higher initial annuity payment but the amount of the annuity payment would
increase more slowly in a rising market (or the amount of the annuity payment
would decline more rapidly in a declining market). A lower assumption would have
the opposite effect. Security Benefit calculates variable annuity payments under
Options 1 through 4, 7 and 8 using Annuity Units. The value of an Annuity Unit
for each Subaccount is determined as of each Valuation Date and was initially
$1.00. The Annuity Unit value of a Subaccount as of any subsequent Valuation
Date is determined by adjusting the Annuity Unit value on the previous Valuation
Date for (1) the interim performance of the corresponding Underlying Fund; (2)
any dividends or distributions paid by the corresponding Underlying Fund; (3)
the mortality and expense risk and administration charges; (4) the charges, if
any, that may be assessed by the Company for taxes attributable to the operation
of the Subaccount; and (5) the assumed interest rate.
Security Benefit determines the number of Annuity Units used to calculate
each variable annuity payment as of the Annuity Start Date. As discussed above,
the Contract specifies annuity rates for Options 1 through 4, 7 and 8 for each
$1,000 applied to an Annuity Option. The proceeds under the Contract as of the
Annuity Start Date, are divided by $1,000 and the result is multiplied by the
rate per $1,000 specified in the annuity tables to determine the initial annuity
payment for a variable annuity and the guaranteed monthly annuity payment for a
fixed annuity.
On the Annuity Start Date, Security Benefit divides the initial variable
annuity payment by the value as of that date of the Annuity Unit for the
applicable Subaccount to determine the number of Annuity Units to be used in
calculating subsequent annuity payments. If variable annuity payments are
allocated to more than one Subaccount, the number of Annuity Units will be
determined by dividing the portion of the initial variable annuity payment
allocated to a Subaccount by the value of that Subaccount's Annuity Unit as of
the Annuity Start Date. The initial variable annuity payment is allocated to the
Subaccounts in the same proportion as the Contract Value is allocated as of the
Annuity Start Date. The number of Annuity Units will remain constant for
subsequent annuity payments, unless the Owner exchanges Annuity Units among
Subaccounts or makes a withdrawal under Option 7.
Subsequent variable annuity payments are calculated by multiplying the number
of Annuity Units allocated to a Subaccount by the value of the Annuity Unit as
of the date of the annuity payment. If the annuity payment is allocated to more
than one Subaccount, the annuity payment is equal to the sum of the payment
amount determined for each Subaccount.
SELECTION OF AN OPTION -- You should carefully review the Annuity Options with
your financial or tax advisers. For Contracts used in connection with a
Qualified Plan, reference should be made to the terms of the particular plan and
the requirements of the Internal Revenue Code for pertinent limitations
respecting annuity payments and other matters. For instance, Qualified Plans
generally require that annuity payments begin no later than April 1 of the
calendar year following the year in which the Annuitant reaches age 70 1/2. In
addition, under a Qualified Plan, the period elected for receipt of annuity
payments under Annuity Options (other than Life Income) generally may be no
longer than the joint life expectancy of the Annuitant and beneficiary in the
year that the Annuitant reaches age 70 1/2, and must be shorter than such joint
life expectancy if the beneficiary is not the Annuitant's spouse and is more
than ten years younger than the Annuitant. For a Non-Qualified Plan, Security
Benefit does not allow annuity payments to be deferred beyond the Annuitant's
95th birthday.
MORE ABOUT THE CONTRACT
OWNERSHIP -- The Owner is the person named as such in the application or in any
later change shown in Security Benefit's records. While living, the Owner alone
has the right to receive all benefits and exercise all rights that the Contract
grants or Security Benefit allows. The Owner may be an entity that is not a
living person such as a trust or corporation referred to herein as "Non-natural
Persons." See "Federal Tax Matters," page 28.
JOINT OWNERS. The Joint Owners will be joint tenants with rights of
survivorship and upon the death of an Owner, the surviving Owner shall be the
sole Owner. Any Contract transaction requires the signature of all persons named
jointly.
DESIGNATION AND CHANGE OF BENEFICIARY -- The Designated Beneficiary is the
person having the right to the death benefit, if any, payable upon the death of
the Owner or Joint Owner 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 Owner or the Joint Owner: the Owner; the Joint Owner; the
Primary Beneficiary; the Secondary Beneficiary; the Annuitant; or if none of the
above are alive, the Owner's estate. The Primary Beneficiary is the individual
named as such in the application or any later change shown in Security Benefit's
records. The Primary Beneficiary will receive the death benefit of the Contract
only if he or she is alive on the date of death of both the Owner and any Joint
Owner prior to the Annuity Start Date. Because the death benefit of the Contract
goes to the first person on the above list who is alive on the date of death of
any Owner, careful consideration should be given to the manner in which the
Contract is registered, as well as the designation of the Primary Beneficiary.
The Owner may change the Primary Beneficiary at any time while the Contract is
in force by written request on forms provided by Security Benefit and received
by Security Benefit at its Home Office. The change will not be binding on
Security Benefit until it is received and recorded at its Home Office. The
change will be effective as of the date this form is signed subject to any
payments made or other actions taken by Security Benefit before the change is
received and recorded. A Secondary Beneficiary may be designated. The Owner may
designate a permanent Beneficiary whose rights under the Contract cannot be
changed without his or her consent.
Reference should be made to the terms of a particular Qualified Plan and any
applicable law for any restrictions or limitations on the designation of a
Beneficiary.
DIVIDENDS -- The Contract does not share in the surplus earnings of Security
Benefit, and no dividends will be paid.
PAYMENTS FROM THE SEPARATE ACCOUNT -- Security Benefit will pay any full or
partial withdrawal benefit or death benefit proceeds from Contract Value
allocated to the Subaccounts, and will effect a transfer between Subaccounts on
the Valuation Date a proper request is received at Security Benefit's Home
Office. However, Security Benefit can postpone the calculation or payment of
such a payment or transfer of amounts from the Subaccounts to the extent
permitted under applicable law, which is currently permissible only for any
period:
o During which the New York Stock Exchange is closed other than customary
weekend and holiday closings,
o During which trading on the New York Stock Exchange is restricted as
determined by the SEC,
o 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
o For such other periods as the SEC may by order permit for the protection of
investors.
PROOF OF AGE AND SURVIVAL -- Security Benefit may require proof of age or
survival of any person on whose life annuity payments depend.
MISSTATEMENTS -- If you misstate the age or sex of an Annuitant or age of an
Owner, the correct amount paid or payable by Security Benefit under the Contract
shall be such as the Contract Value would have provided for the correct age or
sex (unless unisex rates apply).
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS -- Generally, a Qualified Plan
may not provide for the distribution or withdrawal of amounts accumulated under
the Plan until after a fixed number of years, the attainment of a stated age or
upon the occurrence of a specific event such as hardship, disability,
retirement, death or termination of employment. Therefore, if you own a Contract
purchased in connection with a Qualified Plan, you may not be entitled to make a
full or partial withdrawal, as described in this Prospectus, unless one of the
above-described conditions has been satisfied. For this reason, you should refer
to the terms of your particular Qualified Plan, the Internal Revenue Code and
other applicable law for any limitation or restriction on distributions and
withdrawals, including the 10% penalty tax that may be imposed in the event of a
distribution from a Qualified Plan before the participant reaches age 59 1/2.
See the discussion under "Tax Penalties," page 32.
Section 403(b) imposes restrictions on certain distributions from
tax-sheltered annuity contracts meeting the requirements of Section 403(b). The
restrictions apply to tax years beginning on or after January 1, 1989. Section
403(b) requires that distributions from Section 403(b) tax-sheltered annuities
that are attributable to employee contributions made after December 31, 1988
under a salary reduction agreement begin only after the employee (i) reaches age
59 1/2, (ii) separates from service, (iii) dies, (iv) becomes disabled, or (v)
incurs a hardship. Furthermore, distributions of gains attributable to such
contributions accrued after December 31, 1988 may not be made on account of
hardship. Hardship, for this purpose, is generally defined as an immediate and
heavy financial need, such as paying for medical expenses, the purchase of a
residence, or paying certain tuition expenses, that may ONLY be met by the
distribution.
If you own a Contract purchased as a tax-sheltered Section 403(b) annuity
contract, you will not, therefore, be entitled to make a full or partial
withdrawal, as described in this Prospectus, in order to receive proceeds from
the Contract attributable to contributions under a salary reduction agreement or
any gains credited to such Contract after December 31, 1988 unless one of the
above-described conditions has been satisfied. In the case of transfers of
amounts accumulated in a different Section 403(b) contract to this Contract
under a Section 403(b) program, the withdrawal constraints described above would
not apply to the amount transferred to the Contract attributable to the Owner's
December 31, 1988 account balance under the old contract, provided the amounts
transferred between contracts qualified as a tax-free exchange under the
Internal Revenue Code. An Owner of a Contract may be able to transfer the
Contract's Withdrawal Value to certain other investment alternatives meeting the
requirements of Section 403(b) that are available under an employer's Section
403(b) arrangement.
The distribution or withdrawal of amounts under a Contract purchased in
connection with a Qualified Plan may result in the receipt of taxable income to
the Owner or Annuitant and in some instances may also result in a penalty tax.
Therefore, you should carefully consider the tax consequences of a distribution
or withdrawal under a Contract and you should consult a competent tax adviser.
See "Federal Tax Matters," below.
FEDERAL TAX MATTERS
INTRODUCTION -- The Contract described in this Prospectus is designed for use by
individuals in retirements plans which may or may not be Qualified Plans under
the provisions of the Internal Revenue Code ("Code"). The ultimate effect of
federal income taxes on the amounts held under a Contract, on annuity payments,
and on the economic benefits to the Owner, the Annuitant, and the Beneficiary or
other payee will depend upon the type of retirement plan, if any, for which the
Contract is purchased, the tax and employment status of the individuals involved
and a number of other factors. The discussion contained herein and in the
Statement of Additional Information is general in nature and is not intended to
be an exhaustive discussion of all questions that might arise in connection with
a Contract. It is based upon Security Benefit's understanding of the present
federal income tax laws as currently interpreted by the Internal Revenue Service
("IRS"), and is not intended as tax advice. No representation is made regarding
the likelihood of continuation of the present federal income tax laws or of the
current interpretations by the IRS or the courts. Future legislation may affect
annuity contracts adversely. Moreover, no attempt has been made to consider any
applicable state or other laws. Because of the inherent complexity of the tax
laws and the fact that tax results will vary according to the particular
circumstances of the individual involved and, if applicable, the Qualified Plan,
a person should consult with a qualified tax adviser regarding the purchase of a
Contract, the selection of an Annuity Option under a Contract, the receipt of
annuity payments under a Contract or any other transaction involving a Contract.
SECURITY BENEFIT DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF, OR TAX
CONSEQUENCES ARISING FROM, ANY CONTRACT OR ANY TRANSACTION INVOLVING THE
CONTRACT.
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT--
GENERAL. Security Benefit intends to be taxed as a life insurance company
under Part I, Subchapter L of the Code. Because the operations of the Separate
Account form a part of Security Benefit, Security Benefit will be responsible
for any federal income taxes that become payable with respect to the income of
the Separate Account and its Subaccounts.
CHARGE FOR SECURITY BENEFIT TAXES. A charge may be made for any federal taxes
incurred by Security Benefit that are attributable to the Separate Account, the
Subaccounts or to the operations of Security Benefit with respect to the
Contracts or attributable to payments, premiums, or acquisition costs under the
Contracts. Security Benefit will review the question of a charge to the Separate
Account, the Subaccounts or the Contracts for Security Benefit's federal taxes
periodically. Charges may become necessary if, among other reasons, the tax
treatment of Security Benefit or of income and expenses under the Contracts is
ultimately determined to be other than what Security Benefit currently believes
it to be, if there are changes made in the federal income tax treatment of
variable annuities at the insurance company level, or if there is a change in
Security Benefit's tax status.
Under current laws, Security Benefit may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, Security Benefit reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS. Each Underlying Fund will be required to adhere to
regulations adopted by the Treasury Department pursuant to Section 817(h) of the
Code prescribing asset diversification requirements for investment companies
whose shares are sold to insurance company separate accounts funding variable
contracts. Pursuant to these regulations, on the last day of each calendar
quarter (or on any day within 30 days thereafter), no more than 55% of the total
assets of an Underlying Fund 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
Underlying Funds, intends to comply with the diversification requirements of
Section 817(h).
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contractowner's gross income. The IRS has stated in published rulings that a
variable contractowner will be considered the owner of separate account assets
if the contractowner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the contract owner),
rather than the insurance company, to be treated as the owner of the assets in
the account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example, the Owner has additional flexibility in allocating purchase payments
and Contract Values. These differences could result in an Owner 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 an Owner 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 Underlying Funds will be able to operate as currently
described in the Prospectus, or that the Underlying Funds will not have to
change their 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 30 and "Diversification Standards" above.
Withholding of federal income taxes on all distributions may be required unless
a recipient who is eligible elects not to have any amounts withheld and properly
notifies Security Benefit of that election.
SURRENDERS OR WITHDRAWALS PRIOR TO THE ANNUITY START DATE. Code Section 72
provides that amounts received upon a total or partial withdrawal (including
systematic withdrawals) from a Contract prior to the Annuity Start Date
generally will be treated as gross income to the extent that the cash value of
the Contract immediately before the withdrawal (determined without regard to any
surrender charge in the case of a partial withdrawal) exceeds the "investment in
the contract." The "investment in the contract" is that portion, if any, of
purchase payments paid under a Contract less any distributions received
previously under the Contract that are excluded from the recipient's gross
income. The taxable portion is taxed at ordinary income tax rates. For purposes
of this rule, a pledge or assignment of a contract is treated as a payment
received on account of a partial withdrawal of a Contract.
SURRENDERS OR WITHDRAWALS ON OR AFTER THE ANNUITY START DATE. Upon a complete
surrender, the receipt is taxable to the extent that the cash value of the
Contract exceeds the investment in the Contract. The taxable portion of such
payments will be taxed at ordinary income tax rates.
For fixed annuity payments, the taxable portion of each payment generally is
determined by using a formula known as the "exclusion ratio," which establishes
the ratio that the investment in the Contract bears to the total expected amount
of annuity payments for the term of the Contract. That ratio is then applied to
each payment to determine the non-taxable portion of the payment. The remaining
portion of each payment is taxed at ordinary income rates. For variable annuity
payments, the taxable portion of each payment is determined by using a formula
known as the "excludable amount," which establishes the non-taxable portion of
each payment. The non-taxable portion is a fixed dollar amount for each payment,
determined by dividing the investment in the Contract by the number of payments
to be made. The remainder of each variable annuity payment is taxable. Once the
excludable portion of annuity payments to date equals the investment in the
Contract, the balance of the annuity payments will be fully taxable.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS. With respect to amounts
withdrawn or distributed before the taxpayer reaches age 59 1/2, a penalty tax
is imposed equal to 10% 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 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
a Contract, the designation of an Annuitant, Payee or other Beneficiary who is
not also the Owner, the selection of certain Annuity Start Dates or the exchange
of a Contract may result in certain tax consequences to the Owner that are not
discussed herein. An Owner contemplating any such transfer, assignment,
selection or exchange should contact a competent tax adviser with respect to the
potential effects of such a transaction.
QUALIFIED PLANS -- The Contract may be used with Qualified Plans that meet the
requirements of Section 403(b), 408 or 408A of the Code. The tax rules
applicable to participants in such Qualified Plans vary according to the type of
plan and the terms and conditions of the plan itself. No attempt is made herein
to provide more than general information about the use of the Contract with the
various types of Qualified Plans. These Qualified Plans may permit the purchase
of the Contracts to accumulate retirement savings under the plans. Adverse tax
or other legal consequences to the plan, to the participant or to both may
result if this Contract is assigned or transferred to any individual as a means
to provide benefit payments, unless the plan complies with all legal
requirements applicable to such benefits prior to transfer of the Contract.
Owners, Annuitants, and Beneficiaries, are cautioned that the rights of any
person to any benefits under such Qualified Plans may be subject to the terms
and conditions of the plans themselves or limited by applicable law, regardless
of the terms and conditions of the Contract issued in connection therewith. For
example, Security Benefit may accept beneficiary designations and payment
instructions under the terms of the Contract without regard to any spousal
consents that may be required under the Employee Retirement Income Security Act
of 1974 (ERISA). Consequently, an Owner's Beneficiary designation or elected
payment option may not be enforceable.
The amounts that may be contributed to Qualified Plans are subject to
limitations that vary depending on the type of Plan. In addition, early
distributions from most Qualified Plans may be subject to penalty taxes, or in
the case of distributions of amounts contributed under salary reduction
agreements, could cause the Plan to be disqualified. Furthermore, distributions
from most Qualified Plans are subject to certain minimum distribution rules.
Failure to comply with these rules could result in disqualification of the Plan
or subject the Owner or Annuitant to penalty taxes. As a result, the minimum
distribution rules may limit the availability of certain Annuity Options to
certain Annuitants and their beneficiaries. These requirements may not be
incorporated into Security Benefit's Contract administration procedures. Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law.
The following are brief descriptions of the various types of Qualified Plans
and the use of the Contract therewith:
SECTION 403(B). Code Section 403(b) permits public school employees and
employees of certain types of charitable, educational and scientific
organizations specified in Section 501(c)(3) of the Code to purchase annuity
contracts, and, subject to certain limitations, to exclude the amount of
purchase payments from gross income for tax purposes. The Contract may be
purchased in connection with a Section 403(b) annuity program.
Section 403(b) annuities must generally be provided under a plan which meets
certain minimum participation, coverage, and nondiscrimination requirements.
Each employee's interest in a retirement plan qualified under Code Section
403(b) must generally be distributed or begin to be distributed not later than
April 1 of the calendar year following the later of the calendar year in which
the employee reaches age 70 1/2 or retires ("required beginning date"). Periodic
distributions must not extend beyond the life of the employee or the lives of
the employee and a designated beneficiary (or over a period extending beyond the
life expectancy of the employee or the joint life expectancy of the employee and
a designated beneficiary).
If an employee dies before reaching his or her required beginning date, the
employee's entire interest in the plan must generally be distributed within five
years of the employee's death. However, the five-year rule will be deemed
satisfied, if distributions begin before the close of the calendar year
following the year of the employee's death to a designated beneficiary and are
made over the life of the beneficiary (or over a period not extending beyond the
life expectancy of the beneficiary). If the designated beneficiary is the
employee's surviving spouse, distributions may be delayed until the employee
would have reached age 70 1/2.
If an employee dies after reaching his or her required beginning date, the
employee's interest in the plan must generally be distributed at least as
rapidly as under the method of distribution in effect at the time of the
employee's death.
A Section 403(b) annuity contract may be purchased with employer
contributions, employee contributions or a combination of both. An employee's
rights under a Section 403(b) contract must be nonforfeitable. Numerous
limitations apply to the amount of contributions that may be made to a Section
403(b) annuity contract. The applicable limit will depend upon, among other
things, whether the annuity contract is purchased with employer or employee
contributions.
Amounts used to purchase Section 403(b) annuities generally are excludable
from the taxable income of the employee. As a result, all distributions from
such annuities are normally taxable in full as ordinary income to the employee.
A Section 403(b) annuity contract must prohibit the distribution of employee
contributions (including earnings thereon) until the employee: (i) attains age
59 1/2, (ii) terminates employment; (iii) dies; (iv) becomes disabled; or (v)
incurs a financial hardship (earnings may not be distributed in the event of
hardship).
Distributions from a Section 403(b) annuity contract may be eligible for a
tax-free rollover to either another Section 403(b) annuity contract or to an
individual retirement account or annuity (IRA). See "Rollovers" page 32.
SECTIONS 408 AND 408A. INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the
Code permits eligible individuals to establish individual retirement programs
through the purchase of Individual Retirement Annuities ("traditional IRAs").
The Contract may be purchased as an IRA. The IRAs described in this paragraph
are called "traditional IRAs" to distinguish them from the new "Roth IRAs" which
became available in 1998. (Roth IRAs are described below.)
IRAs are subject to limitations on the amount that may be contributed, the
persons who may be eligible and on the time when distributions must commence.
Depending upon the circumstances of the individual, contributions to a
traditional IRA may be made on a deductible or non-deductible basis. IRAs may
not be transferred, sold, assigned, discounted or pledged as collateral for a
loan or other obligation. The annual premium for an IRA may not be fixed and may
not exceed $2,000 (except in the case of a rollover contribution). Any refund of
premium must be applied to the payment of future premiums or the purchase of
additional benefits.
Sale of the Contract for use with IRAs may be subject to special requirements
imposed by the Internal Revenue Service. Purchasers of the Contract for such
purposes will be provided with such supplementary information as may be required
by the Internal Revenue Service or other appropriate agency, and will have the
right to revoke the Contract under certain circumstances. See the IRA Disclosure
Statement that accompanies this Prospectus.
In general, traditional IRAs are subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 403(b)
of the Code; however, the required beginning date for traditional IRAs is
generally the date that the contract owner reaches age 70 1/2--the contract
owner's retirement date, if any, will not affect his or her required beginning
date. See "Section 403(b)," page 31. Distributions from IRAs are generally taxed
under Code Section 72. Under these rules, a portion of each distribution may be
excludable from income. The amount excludable from the individual's income is
the amount of the distribution that bears the same ratio as the individual's
nondeductible contributions bears to the expected return under the IRA.
Distributions from a traditional IRA may be eligible for a tax-free rollover
to another traditional IRA. In certain cases, a distribution from a traditional
IRA may be eligible to be rolled over to a retirement plan qualified under Code
Section 401(a) or a Section 403(b) annuity contract. See "Rollovers" on page 32.
ROTH IRAS. Section 408A of the Code permits eligible individuals to establish
a Roth IRA, a new type of IRA which became available in 1998. The Contract may
be purchased as a Roth IRA. Contributions to a Roth IRA are not deductible, but
withdrawals that meet certain requirements are not subject to federal income
tax. Sale of the contract for use with Roth IRAs may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the Contract
for such purposes will be provided with such supplementary information as may be
required by the Internal Revenue Service or other appropriate agency, and will
have the right to revoke the Contract under certain requirements. Unlike a
traditional IRA, Roth IRAs are not subject to minimum required distribution
rules during the contract owner's lifetime. Generally, however, the amount in a
remaining Roth IRA must be distributed by the end of the fifth year after the
death of the contract owner.
The Internal Revenue Service has not reviewed the Contract for qualification
as a Roth IRA and has not addressed in a ruling of general applicability whether
a death benefit provision such as the provision in the Contract comports with
Roth IRA qualification requirements.
ROLLOVERS. A "rollover" is the tax-free transfer of a distribution from one
Qualified Plan to another. Distributions which are rolled over are not included
in the employee's gross income until some future time.
If any portion of the balance to the credit of an employee in a Section
403(b) plan is paid to the employee in an "eligible rollover distribution" and
the employee transfers any portion of the amount received to an "eligible
retirement plan," then the amount so transferred is not includable in income. An
"eligible rollover distribution" generally means any distribution that is not
one of a series of periodic payments made for the life of the distributee or for
a specified period of at least ten years. In addition, a required minimum
distribution will not qualify as an eligible rollover distribution. A rollover
must be completed within 60 days after receipt of the distribution.
In the case of a Section 403(b) plan, an "eligible retirement plan" will be
another Section 403(b) plan or an individual retirement account or annuity
described in Code Section 408.
A Section 403(b) plan must generally provide a participant receiving an
eligible rollover distribution, the option to have the distribution transferred
directly to another eligible retirement plan.
The owner of an IRA may make a tax-free rollover of any portion of the IRA.
The rollover must be completed within 60 days of the distribution and generally
may only be made to another IRA. However, an individual may receive a
distribution from his or her IRA and within 60 days roll it over into a
retirement plan qualified under Code Section 401(a) if all of the funds in the
IRA are attributable to a rollover from a Section 401(a) plan. Similarly, a
distribution from an IRA may be rolled over to a Section 403(b) plan only if all
of the funds in the IRA are attributable to a rollover from a Section 403(b)
annuity.
TAX PENALTIES. PREMATURE DISTRIBUTION TAX. Distributions from a Qualified
Plan before the participant reaches age 59 1/2 are generally subject to an
additional tax equal to 10% of the taxable portion of the distribution. The 10%
penalty tax does not apply to distributions: (i) made on or after the death of
the employee; (ii) attributable to the employee's disability; (iii) which are
part of a series of substantially equal periodic payments made (at least
annually) for the life (or life expectancy) of the employee or the joint lives
(or joint life expectancies) of the employee and a designated beneficiary and
which begin after the employee terminates employment; (iv) made to an employee
after termination of employment after reaching age 55; (v) made to pay for
certain medical expenses; (vi) that are exempt withdrawals of an excess
contribution; (vii) that is rolled over or transferred in accordance with Code
requirements; or (viii) that is transferred pursuant to a decree of divorce or
separate maintenance or written instrument incident to such a decree.
The exception to the 10% penalty tax described in item (iv) above is not
applicable to IRAs. However, distributions from an IRA to unemployed individuals
can be made without application of the 10% penalty tax to pay health insurance
premiums in certain cases. Starting January 1, 1998, there are two additional
exceptions to the 10% penalty tax on withdrawals from IRAs before age 59 1/2:
withdrawals made to pay "qualified" higher education expenses and withdrawals
made to pay certain "eligible first-time home buyer expenses."
MINIMUM DISTRIBUTION TAX. If the amount distributed from a Qualified Plan is
less than the minimum required distribution for the year, the participant is
subject to a 50% tax on the amount that was not properly distributed.
WITHHOLDING. Periodic distributions (e.g., annuities and installment
payments) from a Qualified Plan that will last for a period of ten or more years
are generally subject to voluntary income tax withholding. The amount withheld
on such periodic distributions is determined at the rate applicable to wages.
The recipient of a periodic distribution may generally elect not to have
withholding apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than ten years) from a Qualified Plan (other than IRAs) are
generally subject to mandatory 20% income tax withholding. However, no
withholding is imposed if the distribution is transferred directly to another
eligible Qualified Plan. Nonperiodic distributions from an IRA are subject to
income tax withholding at a flat 10% rate. The recipient of such a distribution
may elect not to have withholding apply.
The above description of the federal income tax consequences of the different
types of Qualified Plans which may be funded by the Contract offered by this
Prospectus is only a brief summary and is not intended as tax advice. The rules
governing the provisions of Qualified Plans are extremely complex and often
difficult to comprehend. Anything less than full compliance with the applicable
rules, all of which are subject to change, may have adverse tax consequences. A
prospective Owner considering adoption of a Qualified Plan and purchase of a
Contract in connection therewith should first consult a qualified and competent
tax adviser, with regard to the suitability of the Contract as an investment
vehicle for the Qualified Plan.
OTHER INFORMATION
VOTING OF UNDERLYING FUND SHARES -- Security Benefit is the legal owner of the
shares of Underlying Fund held by the Subaccounts. Security Benefit will
exercise voting rights attributable to the shares of each Underlying Fund held
in the Subaccounts at any regular and special meetings of the shareholders of
the Underlying 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 Underlying Funds in its own right, it may
elect to do so.
The person having the voting interest under a Contract is the Owner. Unless
otherwise required by applicable law, the number of shares of a particular
Underlying Fund 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 Underlying Fund 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 Underlying Fund for determining shareholders eligible to vote
at the meeting of the Underlying 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 Underlying 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 Owners, if any, in the same proportion as the voting
instructions that are received in a timely manner for all Contracts
participating in that Subaccount.
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 Underlying Funds should
no longer be available for investment, or if Security Benefit management
believes further investment in shares of any or all of the Underlying Funds
should become inappropriate in view of the purposes of the Contract, Security
Benefit may substitute shares of another Underlying Fund or of a different fund
for shares already purchased, or to be purchased in the future under the
Contract. Security Benefit may also purchase, through the Subaccount, other
securities for other classes or contracts, or permit a conversion between
classes of contracts on the basis of requests made by Owners.
In connection with a substitution of any shares attributable to an Owner's
interest in a Subaccount or the Separate Account, Security Benefit will, to the
extent required under applicable law, provide notice, seek Owner approval, seek
prior approval of the SEC, and comply with the filing or other procedures
established by applicable state insurance regulators.
Security Benefit also reserves the right to establish additional Subaccounts
of the Separate Account that would invest in a new Underlying Fund or in shares
of another investment company, a series thereof, or other suitable investment
vehicle. Security Benefit may establish new Subaccounts in its sole discretion,
and will determine whether to make any new Subaccount available to existing
Owners. Security Benefit may also eliminate or combine one or more Subaccounts
if, in its sole discretion, marketing, tax, or investment conditions so warrant.
Subject to compliance with applicable law, Security Benefit may transfer
assets to the General Account. Security Benefit also reserves the right, subject
to any required regulatory approvals, to transfer assets of any Subaccount to
another separate account or Subaccount.
In the event of any such substitution or change, Security Benefit may, by
appropriate endorsement, make such changes in these and other contracts as may
be necessary or appropriate to reflect such substitution or change. If Security
Benefit believes it to be in the best interests of persons having voting rights
under the Contracts, the Separate Account may be operated as a management
investment company under the 1940 Act or any other form permitted by law. The
Separate Account may be de-registered under that Act in the event such
registration is no longer required, or it may be combined with other separate
accounts of Security Benefit or an affiliate thereof. Subject to compliance with
applicable law, Security Benefit also may combine one or more Subaccounts and
may establish a committee, board, or other group to manage one or more aspects
of the operation of the Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS -- Security Benefit reserves the
right, without the consent of Owners, to suspend sales of the Contract as
presently offered and to make any change to the provisions of the Contracts to
comply with, or give Owners the benefit of, any federal or state statute, rule,
or regulation, including but not limited to requirements for annuity contracts
and retirement plans under the Internal Revenue Code and regulations thereunder
or any state statute or regulation.
REPORTS TO OWNERS -- Security Benefit will send you annually a statement setting
forth a summary of the transactions that occurred during the year, and
indicating the Contract Value as of the end of each year. In addition, the
statement will indicate the allocation of Contract Value among the 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 those Underlying Funds corresponding to the Subaccounts to which
you have allocated your Contract Value. Such reports will include a list of the
portfolio securities of the Underlying Fund, as required by the 1940 Act, and/or
such other reports the federal securities laws may require.
TELEPHONE TRANSFER PRIVILEGES -- You may request a transfer of Contract Value
and may make changes to an existing Dollar Cost Averaging or Asset Reallocation
option by telephone if the Telephone Transfer section of the application or an
Authorization for Telephone Requests form ("Telephone Authorization") has been
completed, signed, and filed at Security Benefit's Home Office. Security Benefit
has established procedures to confirm that instructions communicated by
telephone are genuine and will not be liable for any losses due to fraudulent or
unauthorized instructions provided it complies with its procedures. Security
Benefit's procedures require that any person requesting a transfer by telephone
provide the account number and the Owner's tax identification number and such
instructions must be received on a recorded line. Security Benefit reserves the
right to deny any telephone transfer request. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), you may not be able to request transfers by telephone and would
have to submit written requests.
By authorizing telephone transfers, you authorize Security Benefit to accept
and act upon telephonic instructions for transfers involving your Contract. You
agree that neither Security Benefit, any of its affiliates, nor any Underlying
Fund, will be liable for any loss, damages, cost, or expense (including
attorneys' fees) arising out of any telephone requests; provided that Security
Benefit effects such request in accordance with its procedures. As a result of
this policy on telephone requests, you bear the risk of loss arising from the
telephone transfer privilege. Security Benefit may discontinue, modify, or
suspend the telephone transfer privilege at any time.
LEGAL PROCEEDINGS -- There are no legal proceedings pending to which the
Separate Account is a party, or which would materially affect the Separate
Account.
LEGAL MATTERS -- Amy J. Lee, Esq., Associate General Counsel, Security Benefit,
has passed upon legal matters in connection with the issue and sale of the
Contracts described in this Prospectus, Security Benefit's authority to issue
the Contracts under Kansas law, and the validity of the forms of the Contracts
under Kansas law.
PERFORMANCE INFORMATION
Performance information for the Subaccounts, including the yield and
effective yield of the Money Market Subaccount, the yield of the remaining
Subaccounts, and the total return of all Subaccounts may appear in
advertisements, reports, and promotional literature to current or prospective
Owners.
Current yield for the Money Market Subaccount will be based on income
received by a hypothetical investment over a given 7-day period (less expenses
accrued during the period), and then "annualized" (i.e., assuming that the 7-day
yield would be received for 52 weeks, stated in terms of an annual percentage
return on the investment). "Effective yield" for the Money Market Subaccount is
calculated in a manner similar to that used to calculate yield, but reflects the
compounding effect of earnings.
For the remaining Subaccounts, quotations of yield will be based on all
investment income per Accumulation Unit earned during a given 30-day period,
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of an Accumulation Unit
on the last day of the period. Quotations of average annual total return for any
Subaccount will be expressed in terms of the average annual compounded rate of
return on a hypothetical investment in a Contract over a period of one, five,
and ten years (or, if less, up to the life of the Subaccount), and will reflect
any credit enhancement and the deduction of the account administration charge,
administration charge, mortality and expense risk charge and contingent deferred
sales charge and may simultaneously be shown for other periods.
Quotations of yield and effective yield do not reflect deduction of the
contingent deferred sales charge, and total return figures may be quoted that do
not reflect deduction of the charge. If reflected, the performance figures
quoted would be lower. Such performance information will be accompanied by total
return figures that reflect deduction of the contingent deferred sales charge
that would be imposed if Contract Value were withdrawn at the end of the period
for which total return is quoted.
Although the Contracts were not available for purchase until __, 2001,
certain of the Underlying 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 Underlying 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 Underlying Fund in which the
Subaccount invests, and the market conditions during the given time period, and
should not be considered as a representation of what may be achieved in the
future. 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
DISTRIBUTION OF THE CONTRACT............................................... 3
METHOD OF DEDUCTING THE EXCESS CHARGE...................................... 3
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS...... 4
Section 403(b)........................................................... 4
Section 408.............................................................. 4
PERFORMANCE INFORMATION.................................................... 4
EXPERTS.................................................................... 6
FINANCIAL STATEMENTS....................................................... 6
APPENDIX A
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OBJECTIVES FOR UNDERLYING FUNDS
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There is no guarantee that the investment objective of any Underlying Fund will
be met.
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AIM VARIABLE INSURANCE FUNDS -- AIM Variable Insurance Funds, an open-end series
management investment company, is a Delaware business trust. Currently, shares
of the Trust are sold only to insurance company separate accounts to fund the
benefits of variable annuity contracts and variable life insurance policies.
AIM V.I. CAPITAL APPRECIATION FUND. AIM V.I. Capital Appreciation Fund (the
"Fund") is a series portfolio of the AIM Variable Insurance Funds. A I M
Advisors, Inc. serves as the Fund's investment adviser.
INVESTMENT OBJECTIVE: To seek growth of capital. The Fund seeks to meet this
objective by investing principally in common stocks of companies the portfolio
managers believe are likely to benefit from new or innovative products, services
or processes as well as those that have experienced above-average, long-term
growth in earnings and have excellent prospects for future growth. The portfolio
managers consider whether to sell a particular security when any of those
factors materially change. The Fund may also invest up to 25% of its total
assets in foreign securities. Any percentage limitations with respect to assets
of the Fund are applied at the time of purchase.
FEDERATED INSURANCE SERIES -- Federated Insurance Series, an open-end management
investment company, was established as a Massachusetts business trust under a
Declaration of trust dated September 15, 1993. The Trust offers its shares only
as investment vehicles for variable annuity and variable life insurance products
of insurance companies. Federated Advisers serves as the investment adviser of
the Federated Insurance Series and its portfolios.
FEDERATED HIGH INCOME BOND FUND II. Federated High Income Bond Fund II (the
"Fund") is a portfolio of Federated Insurance Series.
INVESTMENT OBJECTIVE: To seek high current income by investing primarily in a
professionally managed, diversified portfolio of fixed income securities. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following its investment strategies. The Fund pursues its
investment objective by investing in a diversified portfolio of high-yield,
lower-rated corporate bonds (also known as "junk bonds"). The Fund limits its
investments to those that would enable it to qualify as a permissible investment
for variable annuity contracts and variable life insurance policies issued by
insurance companies.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II. Federated Fund For U.S.
Government Securities II (the "Fund") is a portfolio of Federated Insurance
Series.
INVESTMENT OBJECTIVE: The Fund seeks to provide current income. While there
is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following its investment strategies. The Fund pursues its
investment objective by investing at least 65% of its assets in U.S. government
securities, including mortgage backed securities issued by U.S. government
agencies. In addition, the Fund may invest up to 35% of its assets in investment
grade non-governmental mortgage backed securities. The Fund limits its
investments to those that would enable it to qualify as a permissible investment
for variable annuity contracts and variable life insurance policies issued by
insurance companies.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II -- The Fidelity Variable Insurance
Products Fund II (VIP II) is an open-end management investment company organized
as a Massachusetts business trust on March 21, 1988. The Fidelity Variable
Insurance Products Fund II's shares are purchased by insurance companies to fund
benefits under variable life insurance and variable annuity contracts. FMR is
the investment adviser of VIP II and its portfolios.
FIDELITY VIP II CONTRAFUND(R) - SERVICE CLASS 2. Fidelity VIP II
Contrafund(R) (the "Fund") is a portfolio of Fidelity Variable Insurance
Products Fund II. Effective January 1, 2001, FMR Co., Inc. ("FMRC") will serve
as subadviser to the fund. On behalf of VIP II Contrafund, FMR has entered into
subadvisory agreements with Fidelity Management & Research (U.K.) Inc. ("FMR
U.K.") and Fidelity Management & Research (Far East) Inc. ("FMR Far East"). On
behalf of VIP II Contrafund, FMR Far East has entered into a subadvisory
agreement with Fidelity Investments Japan Limited ("FIJ").
INVESTMENT OBJECTIVE: To seek long-term appreciation. The Fund seeks to meet
this objective by:
o Normally investing primarily in common stocks.
o Investing in securities of companies whose value it believes is not fully
recognized by the public.
o Investing in domestic and foreign issuers.
o Investing in either "growth" stocks or "value" stocks or both.
o Using fundamental analysis of each issuer's financial condition and industry
position and market and economic conditions to select investments.
FIDELITY VIP II INDEX 500 - SERVICE CLASS 2. Fidelity VIP II Index 500 (the
"Fund") is a portfolio of Fidelity Variable Insurance Products Fund II. FMRC
serves as subadviser to the Fund.
INVESTMENT OBJECTIVE: To seek investment results that correspond to the total
return of common stocks publicly traded in the United States, as represented by
the Standard & Poor's 500(SM) Index (S&P 500(R)). The Fund seeks to meet this
objective by:
o Normally investing at least 80% of assets in common stocks included in the
S&P 500.
o Using statistical sampling techniques based on such factors as
capitalization, industry exposures, dividend yield, price/earnings ratio,
price/book ratio, and earnings growth.
o Lending securities to earn income for the Fund.
FIDELITY VIP II INVESTMENT GRADE BOND - SERVICE CLASS 2. Fidelity VIP II
Investment Grade Bond (the "Fund") is a portfolio of VIP II. On behalf of VIP
II, the Fund has entered into a sub-advisory agreement with Fidelity Investments
Money Management, Inc. ("FIMM").
INVESTMENT OBJECTIVE: To seek a high level of current income as consistent
with the preservation of capital. The Fund seeks to meet this objective by:
o Normally investing in U.S. dollar-denominated investment-grade bonds (those
of medium and high quality).
o Managing the Fund to have similar overall interest rate risk to the Lehman
Brothers Aggregate Bond Index.
o Allocating assets across different market sectors and maturities.
o Analyzing a security's structural features and current pricing, trading
opportunities, and the credit quality of its issuer to select investments.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III -- The Fidelity Variable Insurance
Products Fund III (VIP III) is an open-end management investment company
organized as a Massachusetts business trust on March 14, 1994. VIP III's shares
are purchased by insurance companies to fund benefits under variable life
insurance and variable annuity contracts. FMR is the investment adviser of VIP
III and its portfolios.
VIP III GROWTH OPPORTUNITIES - SERVICE CLASS 2. VIP III Growth Opportunities
(the "Fund") is a portfolio of Fidelity Variable Insurance Products Fund III.
Effective January 1, 2001, FMRC will serve as subadviser to the portfolio. On
behalf of the Fund, FMR has entered into subadvisory agreements with FMR U.K.
and FMR Far East. On behalf of the Fund, FMR Far East has entered into a
subavisory agreement with FIJ.
INVESTMENT OBJECTIVE: To seek to provide capital growth. The Fund seeks to
meet this objective by:
o Normally investing primarily in common stocks.
o Potentially investing in other types of securities, including bonds which may
be lower-quality debt securities
o Investing in domestic and foreign issuers
o Investing in either "growth" stocks or "value" stocks or both.
o Using fundamental analysis of each issuer's financial condition and industry
position and market and economic conditions to select investments.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- Franklin Templeton
Variable Insurance Products Trust is an open-end management investment company
organized as a Massachusetts business trust on April 26, 1988. Franklin
Templeton Variable Insurance Products Trust shares are purchased by insurance
companies to fund benefits under variable life insurance and variable annuity
contracts.
FRANKLIN SMALL CAP FUND. Franklin Small Cap Fund (the "Fund") is a portfolio
of the Franklin Templeton Variable Insurance Products Trust. Franklin Advisers,
Inc. serves as the investment manager for the Fund.
INVESTMENT OBJECTIVE: To seek long-term capital growth. The Fund pursues its
investment objective by, under normal market conditions, investing at least 65%
of its total assets in the equity securities of U.S. small capitalization (small
cap) companies. For this Fund, small cap companies are those companies with
market cap values not exceeding (i) $1.5 billion; or (ii) the highest market cap
value in the Russell 2000 Index; whichever is greater, at the time of purchase.
In addition, to its main investments, the Fund may invest in equity securities
of larger companies. When suitable opportunities are available, the Fund may
also invest in initial public offerings of securities, and may invest a very
small portion of its assets in private or illiquid securities, such as late
stage venture capital financings.
THE NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST -- The Neuberger Berman Advisers
Management Trust is a diversified, open-end management company organized as a
Delaware business trust on May 23, 1994. Portfolios of the Trust are offered to
insurance companies to serve as an investment vehicle under their variable
annuity and variable life insurance contracts. The investment manager is
Neuberger Berman Management, Inc. in connection with Neuberger Berman, LLC, as
sub-adviser.
MF NEUBERGER & BERMAN GUARDIAN TRUST. The MF Neuberger & Berman Guardian
Trust (the "Fund") is a series of the Neuberger Berman Advisers Management
Trust.
INVESTMENT OBJECTIVE: To seek long-term growth of capital; current income is
a secondary goal. To pursue these objectives, the Fund invests mainly in common
stocks of large capitalization companies. Because the managers tend to find that
undervalued stocks may be more common in certain sectors of the economy at a
given time, the Fund may emphasize those sectors.
The Fund seeks to reduce risk by diversifying among a large number of
companies across many different industries and economic sectors, and by managing
its overall exposure to a wide variety of risk factors.
NEUBERGER BERMAN PARTNERS. Neuberger Berman Partners (the "Fund") is a series
of the Neuberger Berman Advisers Management Trust.
INVESTMENT OBJECTIVE: To seek growth of capital. To pursue this objective,
the Fund invests mainly in common stocks of mid-to-large capitalization
companies. The Fund seeks to reduce risk by diversifying among many companies
and industries. The managers look for well-managed companies whose stock prices
are believed to be undervalued.
THE RYDEX VARIABLE TRUST -- The Rydex Variable Trust, a non-diversified,
open-end investment company, was organized as a Delaware business trust on June
11, 1998. Shares of the Trust's portfolios are available exclusively for use as
the investment vehicle for variable annuity and variable life insurance
products, as well as for certain pension, profit sharing and other retirement
plans. Rydex Global Advisors serves as investment adviser and manager of the
portfolios of the Trust.
RYDEX U.S. GOVERNMENT MONEY MARKET FUND. Rydex U.S. Government Money Market
Fund (the "Fund") is a series of the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek security of principal, high current income, and
liquidity. The Fund invests primarily in money market instruments issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities, and enters into repurchase agreements fully collateralized by
U.S. Government securities.
RYDEX ARKTOS FUND. Rydex Arktos Fund (the "Fund") is a series of the Rydex
Variable Trust.
INVESTMENT OBJECTIVE: To seek investment results that will match the
performance of a specific benchmark. The Fund's current benchmark is the inverse
of the performance of the NASDAQ 100 Index(TM). Unlike a traditional index fund,
the Fund's benchmark is to perform exactly opposite the NASDAQ 100 Index(TM),
and the Fund will not own the securities included in the Index. Instead, as its
primary investment strategy, the Fund engages to a significant extent in short
sales of securities, futures contracts and options on: securities, futures
contracts, and stock indexes. On a day to day basis, the Fund holds U.S.
Government securities to collateralize these futures and options contracts. The
Fund may also enter into repurchase agreements.
RYDEX NOVA FUND. Rydex Nova Fund (the "Fund") is a series of the Rydex
Variable Trust.
INVESTMENT OBJECTIVE: To seek investment results that match the performance
of a specific benchmark on a daily basis. The Fund's current benchmark is 150%
of the performance of the S&P 500 Index(R). If the Fund meets its objective, the
value of the Fund's shares will tend to increase on a daily basis by 150% of the
value of any increase in the S&P 500 Index. When the value of the S&P 500 Index
declines, the value of the Fund's shares should also decrease on a daily basis
by 150% of the value of any decrease in the Index (e.g., if the S&P 500 Index
goes down by 5%, the value of the Fund's shares should go down by 7.5% on that
day). Unlike a traditional index fund, as its primary investment strategy, the
Fund invests to a significant extent in leveraged instruments, such as futures
contracts and options on securities, futures contracts, and stock indices, as
well as equity securities. Futures and options contracts enable the Fund to
pursue its objective without investing directly in the securities included in
the benchmark, or in the same proportion that those securities are represented
in that benchmark. On a day-to-day basis, the Fund holds U.S. Government
securities or cash equivalents to collateralize these futures and options
contracts. The Fund also may enter into repurchase agreements.
RYDEX OTC FUND. Rydex OTC Fund (the "Fund") is a series of the Rydex Variable
Trust.
INVESTMENT OBJECTIVE: To seek investment results that correspond to a
benchmark for over-the-counter securities. The Fund's current benchmark is the
NASDAQ 100 Index(R) (the "Index"). If the Funds meets its objective, the value
of the Fund's shares will tend to increase on a daily basis by the amount of the
increase in value of the NASDAQ 100 Index. However, when the value of the NASDAQ
100 Index declines, the value of the Fund's shares should also decrease on a
daily basis by the amount of the decease in value of the Index. The Fund invests
principally in securities of companies included in the NASDAQ 100 Index. It also
may invest in other instruments whose performance is expected to correspond to
that of the Index, and may engage in futures and options transactions. The Fund
may also purchase U.S. Government securities and enter into repurchase
agreements.
RYDEX URSA FUND. Rydex Ursa Fund (the "Fund") is a series of the Rydex
Variable Trust.
INVESTMENT OBJECTIVE: To seek investment results that will inversely
correlate to the performance of the S&P 500 Index (the "Index"). If the Fund
meets its objective, the value of the Fund's shares will tend to increase during
times when the value of the S&P 500 Index is decreasing. When the value of the
S&P 500 Index is increasing, however, the value of the Fund's shares should
decrease on a daily basis by an inversely proportionate amount (e.g., if the S&P
500 Index goes up by 5%, the value of the Fund's share should go down by 5% on
that day). Unlike a traditional index fund, the Fund's benchmark is to perform
exactly opposite the S&P 500 Index, and the Fund will not own the securities
included in the Index. Instead, as its primary investment strategy, the Fund
invests to a significant extent in futures contracts and options on securities,
futures contracts, and stock indices. On a day-to-day basis, the Fund holds U.S.
Government securities or cash equivalents to collateralize these futures and
options contracts. The Fund may enter into repurchase agreements and sell
securities short.
RYDEX LARGE CAP EUROPE FUND. Rydex Large Cap Europe Fund (the "Fund") is a
series of the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek investment results that correlate to the
performance of a specific benchmark. The Fund's current benchmark is the Dow
Jones Stoxx 50(SM) Index ("Stoxx 50 Index"). The Fund invests principally in
securities of companies included on the Stoxx 50 Index and in leveraged
instruments, such as futures contracts and options on securities, futures
contracts, and stock indices. Futures and options contracts, if used properly,
may enable the Fund to meet its objective by increasing the Fund's exposure to
the securities included in its benchmark or to securities whose performance is
highly correlated to its benchmark. The Fund's investment adviser will attempt
to consistently apply leverage to increase the Fund's exposure to 125% of the
Stoxx 50 Index. The Fund holds U.S. Government securities or cash equivalents to
collateralize these futures and options contracts. The Fund also may enter into
equity swap transactions and repurchase agreements.
RYDEX LARGE CAP JAPAN FUND. Rydex Large Cap Japan Fund (the "Fund") is a
series of the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek investment results that correlate to the
performance of a specific benchmark. The Fund's current benchmark is the Topix
100 Index. The Fund invests principally in securities of companies included on
the Topix 100 Index and in leveraged instruments, such as futures contracts and
options on securities, futures contracts, and stock indices. Futures and options
contracts, if used properly, may enable the Fund to meet its objective by
increasing the Fund's exposure to the securities included in its benchmark or to
securities whose performance is highly correlated to its benchmark. The Fund's
investment adviser will attempt to consistently apply leverage to increase the
Fund's exposure to 125% of the Topix 100 Index. The Fund holds U.S. Government
securities or cash equivalents to collateralize these futures and options
contracts. The Fund also may enter into equity swap transactions and repurchase
agreements.
RYDEX BANKING FUND. Rydex Banking Fund (the "Fund") is a series of the Rydex
Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
that are involved in the banking sector, including commercial banks (and their
holding companies) and savings and loan institutions ("Banking Companies"). The
Fund invests substantially all of its assets in a portfolio of equity securities
of Banking Companies that are traded in the United States. The Fund may also
invest in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RYDEX BASIC MATERIALS FUND. Rydex Basic Materials Fund (the "Fund") is a
series of the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
engaged in the mining, manufacture, or sale of basic materials, such as lumber,
steel, iron, aluminum, concrete, chemicals and other basic building and
manufacturing materials ("Basic Materials Companies"). The Fund invests
substantially all of its assets in a portfolio of equity securities of Basic
Materials Companies that are traded in the United States. The Fund may also
invest in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RYDEX BIOTECHNOLOGY FUND. Rydex Biotechnology Fund (the "Fund") is a series
of the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
that are involved in the biotechnology industry, including companies involved in
research and development, genetic or other biological engineering, and in the
design, manufacture, or sale of related biotechnology products or services
("Biotechnology Companies"). The Fund invests substantially all of its assets in
a portfolio of equity securities of Biotechnology Companies that are traded in
the United States. The Fund may also invest in futures and options transactions,
purchase ADRs and U.S. Government securities, and enter into repurchase
agreements.
RYDEX CONSUMER PRODUCTS FUND. Rydex Consumer Products Fund (the "Fund") is a
series of the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
engaged in manufacturing finished goods and services both domestically and
internationally ("Consumer Products Companies"). The Fund invests substantially
all of its assets in a portfolio of equity securities of Consumer Products
Companies that are traded in the United States. The Fund may also invest in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RYDEX ELECTRONICS FUND. Rydex Electronics Fund (the "Fund") is a series of
the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
that are involved in the electronics sector, including semiconductor
manufacturers and distributors, and makers and vendors of other electronic
components and devices ("Electronics Companies"). The Fund invests substantially
all of its assets in a portfolio of equity securities of Electronics Companies
that are traded in the United States. The Fund may also invest in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements.
RYDEX ENERGY FUND. Rydex Energy Fund (the "Fund") is a series of the Rydex
Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
involved in the energy field, including the exploration, production, and
development of oil, gas, coal and alternative sources of energy ("Energy
Companies"). The Fund invests substantially all of its assets in a portfolio of
equity securities of Energy Companies that are traded in the United States. The
Fund may also invest in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RYDEX ENERGY SERVICES FUND. Rydex Energy Services Fund (the "Fund") is a
series of the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
that are involved in the energy services field, including those that provide
services and equipment in the areas of oil, coal, and gas exploration and
production ("Energy Services Companies"). The Fund invests substantially all of
its assets in a portfolio of equity securities of Energy Services Companies that
are traded in the United States. The Fund may also invest in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RYDEX FINANCIAL SERVICES FUND. Rydex Financial Services Fund (the "Fund") is
a series of the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
that are involved in the financial services sector, including commercial banks,
savings and loan associations, insurance companies, brokerage companies, and
real estate and leasing companies ("Financial Services Companies"). The Fund
invests substantially all of its assets in a portfolio of equity securities of
Financial Services Companies that are traded in the United States. The Fund may
also invest in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements. Under SEC
regulations, the Fund may not invest more than 5% of its total assets in the
equity securities of any company that derives more than 15% of its revenues from
brokerage or investment management activities.
RYDEX HEALTH CARE FUND. Rydex Health Care Fund (the "Fund") is a series of
the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
that are involved in the health care industry ("Health Care Companies"). The
Fund invests substantially all of its assets in a portfolio of equity securities
of Health Care Companies that are traded in the United States. The Fund may also
invest in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RYDEX INTERNET FUND. Rydex Internet Fund (the "Fund") is a series of the
Rydex Variable Trust.
INVESTMENT OBJECTIVE: The Fund seeks capital appreciation by investing in
companies that provide products or services designed for or related to the
Internet ("Internet Companies"). The Fund invests substantially all of its
assets in equity securities of Internet Companies that are traded in the United
States. Internet Companies are involved in all aspects of research, design
development, manufacturing or distribution of products or services for use with
the Internet or Internet-related businesses. Such companies may provide
information or entertainment services over the Internet; sell or distribute
goods and services over the Internet; provide infrastructure systems or
otherwise provide hardware, software or support which impacts Internet commerce;
or provide Internet access to consumers and businesses. Internet Companies may
also include companies that provide intranet and extranet services. The Fund
will maintain an adequate representation of the various industries in the
Internet sector. The Fund may also engage in futures and options transactions,
purchase ADRs and U.S. Government securities, and enter into repurchase
agreements.
RYDEX LEISURE FUND. Rydex U.S. Leisure Fund (the "Fund") is a series of the
Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
engaged in leisure and entertainment businesses, including hotels and resorts,
casinos, radio and television broadcasting and advertising, motion picture
production, toys and sporting goods manufacture, musical recordings and
instruments, alcohol and tobacco, and publishing ("Leisure Companies"). The Fund
invests substantially all of its assets in a portfolio of equity securities of
Leisure Companies that are traded in the United States. The Fund may also invest
in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RYDEX PRECIOUS METALS FUND. Rydex Precious Metals Fund (the "Fund") is a
series of the Rydex Variable Trust.
INVESTMENT OBJECTIVE: The Fund seeks to provide capital appreciation by
investing in U.S. and foreign companies that are involved in the precious metals
sector, including exploration, mining, production and development, and other
precious metals-related services ("Precious Metals Companies"). The Fund invests
substantially all of its assets in equity securities of Precious Metals
Companies that are traded in the United States and foreign countries. Precious
metals include gold, silver, platinum and other precious metals. Precious Metals
Companies include precious metal manufacturers; distributors of precious metal
products, such as jewelry, metal foil or bullion; mining and geological
exploration companies; and companies which provide services to Precious Metals
Companies. The Fund may also engage in futures and options transactions,
purchase ADRs and U.S. Government securities, and enter into repurchase
agreements.
RYDEX RETAILING FUND. Rydex Retailing Fund (the "Fund") is a series of the
Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
engaged in merchandising finished goods and services, including department
stores, restaurant franchises, mail order operations and other companies
involved in selling products to consumers ("Retailing Companies"). The Fund
invests substantially all of its assets in a portfolio of equity securities of
Retailing Companies that are traded in the United States. The Fund may also
invest in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RYDEX TECHNOLOGY FUND. Rydex Technology Fund (the "Fund") is a series of the
Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
that are involved in the technology sector, including computer software and
service companies, semiconductor manufacturers, networking and
telecommunications equipment manufacturers, PC hardware and peripherals
companies ("Technology Companies"). The Fund invests substantially all of its
assets in a portfolio of equity securities of Technology Companies that are
traded in the United States. The Fund may also invest in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RYDEX TELECOMMUNICATIONS FUND. Rydex Telecommunications Fund (the "Fund") is
a series of the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
engaged in the development, manufacture, or sale of communications services or
communications equipment ("Telecommunications Companies"). The Fund invests
substantially all of its assets in a portfolio of equity securities of
Telecommunications Companies that are traded in the United States. The Fund may
also invest in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements. Although many
established Telecommunications Companies pay an above-average dividend, the
Fund's investment decisions are primarily based on growth potential and not on
income.
RYDEX TRANSPORTATION FUND. Rydex Transportation Fund (the "Fund") is a series
of the Rydex Variable Trust.
INVESTMENT OBJECTIVE: To seek capital appreciation by investing in companies
engaged in providing transportation services or companies engaged in the design,
manufacture, distribution, or sale of transportation equipment ("Transportation
Companies"). The Fund invests substantially all of its assets in a portfolio of
equity securities of Transportation Companies that are traded in the United
States. The Fund may also invest in futures and options transactions, purchase
ADRs and U.S. Government securities, and enter into repurchase agreements.
RYDEX UTILITIES FUND. Rydex Utilities Fund (the "Fund") is a series of the
Rydex Variable Trust.
INVESTMENT OBJECTIVE: The Fund seeks capital appreciation by investing in
companies that operate public utilities ("Utilities Companies"). The Fund
invests substantially all of its assets in equity securities of Utilities
Companies that are traded in the United States. Utilities Companies may include
companies involved in the manufacturing, production, generation, transmission,
distribution or sales of gas or electric energy; water supply, waste and sewage
disposal; and companies that receive a majority of their revenues from their
public utility operations. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
SBL FUND -- SBL Fund, an open-end management investment company of the series
type, is organized as a Kansas corporation. SBL Fund offers its shares only as
investment vehicles for variable annuity and variable life insurance products
issued by Security Benefit.
SERIES D (OPPENHEIMERFUNDS GLOBAL). Series D (OppenheimerFunds Global) (the
"Fund") is a series of SBL Fund. The investment manager for SBL Fund is Security
Management Company, LLC, a wholly owned subsidiary of Security Benefit. Security
Management Company has entered into a sub-advisory agreement with
OppenheimerFunds, Inc., which serves as the sub-adviser to the Fund.
INVESTMENT OBJECTIVE: To seek long-term growth of capital primarily through
investment in common stocks and equivalents of companies of foreign countries
and the United States. The Fund pursues its objective by investing, under normal
circumstances, in a diversified portfolio of securities with at least 65% of its
total assets in at least three countries, one of which may be the United States.
The Fund primarily invests in foreign and domestic common stocks or convertible
stocks of growth-oriented companies considered to have appreciation
possibilities. The Fund may actively trade its investments without regard to the
length of time they have been owned by the Fund. Investments in debt securities
may be made in uncertain market conditions.
To lower the risks of foreign investing, such as currency fluctuations,
OppenheimerFunds diversifies broadly across countries and industries. The Fund
can buy and sell futures contracts (and options on such contracts) to manage its
exposure to changes in securities prices and foreign currencies and to adjust
its exposure to certain markets.
STRONG OPPORTUNITY FUND II -- Strong Opportunity Fund II, Inc. (the "Fund") is a
diversified, open-ended management investment company. Shares of the Fund are
only offered and sold to the separate accounts of insurance companies for the
purpose of funding variable annuity and variable life insurance contracts. The
Fund has entered into an Advisory Agreement with Strong Capital Management, Inc.
INVESTMENT OBJECTIVE: To seek capital growth. The Fund invests primarily in
stocks of medium-capitalization companies that the Fund's manager believes are
under-priced, yet have attractive growth prospects. The manager bases his
analysis on a company's "private market value"--the price an investor would be
willing to pay for the entire company given its management, financial health,
and growth potential. The manager determines a company's private market value
based on a fundamental analysis of a company's cash flows, asset valuations,
competitive situation, and franchise value. To a limited extent, the Fund may
also invest in foreign securities. The manager may sell a stock when its price
no longer compares favorably with the company's private market value. The
manager may invest up to 30% of the Fund's assets in cash or cash-type
securities (high-quality, short-term debt securities issued by corporations,
financial institutions, or the U.S. government) as a temporary defensive
position to avoid losses during adverse market conditions. This could reduce the
benefit to the fund if the market goes up. In this case, the fund may not
achieve its investment goal.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- Franklin Templeton
Variable Insurance Products Trust is an open-end management investment company
organized as a Massachusetts business trust on April 26, 1988. Franklin
Templeton Variable Insurance Products Trust shares are purchased by insurance
companies to fund benefits under variable life insurance and variable annuity
contracts.
TEMPLETON DEVELOPING MARKETS FUND. Templeton Developing Markets Fund (the
"Fund") is a portfolio of the Franklin Templeton Variable Insurance Products
Trust. Templeton Asset Management Ltd. serves as the investment manager for the
Fund.
INVESTMENT OBJECTIVE: To seek long-term capital appreciation. Under normal
market conditions, the fund will invest at least 65% of its total assets in
emerging market equity securities. Emerging market securities generally include
equity securities that trade in emerging markets or are issued by companies that
derive significant revenue from goods, services, or sales produced, or have
their principal activities or significant assets, in emerging market countries.
Emerging market countries generally include those considered to be emerging
by the World Bank, the International Finance Corporation, the United Nations, or
the countries' authorities. These countries are typically located in the
Asia-Pacific region, Eastern Europe, Central and South America, and Africa. The
Fund may from time to time have significant investments in one or more
countries.
In addition to its main investments, the Fund may invest significantly in
securities of issuers in developed market countries.
TEMPLETON INTERNATIONAL FUND. Templeton International Fund (the "Fund") is a
portfolio of the Franklin Templeton Variable Insurance Products Trust. Templeton
Investment Counsel, Inc. serves as the investment manager for the Fund.
INVESTMENT OBJECTIVE: To seek long-term capital growth. Under normal market
conditions, the fund will invest at least 65% of its total assets in equity
securities of companies located outside the U.S., including those in emerging
markets. While there are no set percentage targets, the Fund generally invests
in large to medium cap companies with market capitalization values (share price
multiplied by the number of common stock shares outstanding) greater than $2
billion.
_________ VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: ______, 2001
INDIVIDUAL 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 ______ Variable Annuity dated
______, 2001, 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.
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION AND HISTORY............................................. 3
Safekeeping of Assets.................................................... 3
DISTRIBUTION OF THE CONTRACT................................................ 3
METHOD OF DEDUCTING THE EXCESS CHARGE ...................................... 3
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS....... 4
Section 403(b)........................................................... 4
Section 408.............................................................. 4
PERFORMANCE INFORMATION..................................................... 4
EXPERTS..................................................................... 6
FINANCIAL STATEMENTS........................................................ 6
GENERAL INFORMATION AND HISTORY
For a description of the Flexible Purchase Payment Deferred Variable Annuity
Contract (the "Contract"), Security Benefit Life Insurance Company ("Security
Benefit"), and the SBL Variable Annuity Account XIV (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
Underlying Funds in non-certificated form, are held separate and apart from the
assets of Security Benefit's General Account and its other separate accounts.
DISTRIBUTION OF THE CONTRACT
Security Distributors, Inc. ("SDI"), a wholly-owned subsidiary of Security
Benefit, is Principal Underwriter of the Contract. SDI is registered as a
broker/dealer with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. ("NASD"). The offering of the Contracts is continuous.
Subject to arrangements with Security Benefit, the Contract is sold by
independent broker/dealers who are members of the NASD and who become licensed
to sell variable annuities for Security Benefit, and by certain financial
institutions. SDI acts as principal underwriter on behalf of Security Benefit
for the distribution of the Contract. SDI is not compensated under its
Distribution Agreement with Security Benefit.
The compensation payable by SDI under these arrangements may vary, but is not
expected to exceed in the aggregate 6.5% of purchase payments and 0.25% of
contract value on an annualized basis.
METHOD OF DEDUCTING THE EXCESS CHARGE
The minimum mortality and expense risk charge of 0.85%, and the administration
charge, which ranges from 0.25% to 60%, on an annual basis, of each Subaccount's
average daily net assets, are factored into the accumulation unit value or
"price" of each Subaccount on each Valuation Date. Security Benefit deducts any
mortality and expense risk charge above the minimum charge and the charge for
any optional Riders (the "Excess Charge") on a monthly basis.
Each Subaccount declares a monthly dividend and Security Benefit deducts the
Excess Charge from this monthly dividend upon its reinvestment in the
Subaccount. The Excess Charge is a percentage of your Contract Value allocated
to the Subaccount as of the reinvestment date. The monthly dividend is paid only
for the purpose of collecting the Excess Charge. Assuming that you owe a charge
above the minimum mortality and expense risk charge and the administration
charge, your Contract Value will be reduced in the amount of your Excess Charge
upon reinvestment of the Subaccount's monthly dividend. Security Benefit
reserves the right to compute and deduct the Excess Charge from each Subaccount
on each Valuation Date.
Security Benefit will declare a dividend for each Subaccount on one Valuation
Date of each calendar month ("Record Date"). Security Benefit will pay the
dividend on a subsequent Valuation Date ("Reinvestment Date") within five
Valuation Dates of the Record Date. Such dividend will be declared as a dollar
amount per Accumulation Unit.
For each Subaccount, any Owner as of the Record Date will receive on the
Reinvestment Date a net dividend equal to:
1. the amount of dividend per Accumulation Unit; times
2. the number of Accumulation Units allocated to the Subaccount as of the
Record Date; less
3. the amount of the Excess Charge for that Subaccount; provided that Security
Benefit will not deduct any Excess Charge from the first dividend following
the Contract Date.
The net dividend will be reinvested on the Reinvestment Date at the Accumulation
Unit Value determined as of the close of that date in Accumulation Units of the
Subaccount.
An example of this process is as follows. Assuming Contract Value of $50,000
allocated to the OppenheimerFunds Global Subaccount and no Riders, the Excess
Charge would be computed as follows:
----------------------------------------------------
Mortality and Expense Risk Charge.......... 0.95%
Plus: Optional Rider Charge............... + N/A
Less: Minimum Charge...................... - 0.85%
----
Excess Charge on an Annual Basis........... 0.10%
----------------------------------------------------
Further assuming 5,000 Accumulation Units with an Accumulation Unit Value of $10
per unit on December 30 and a gross dividend of $0.25 per unit declared on
December 31 (Record Date), the net dividend amount would be as follows:
--------------------------------------------------------------------------------
Accumulation Unit Value as of Valuation Date before Record Date.... $10.00
Accumulation Unit Value as of Reinvestment Date.................... $ 9.75
Gross Dividend Per Unit............................................ $ 0.25
Less: Excess Charge Per Unit...................................... - $ 0.00085
--------
Net Dividend Per Unit.............................................. $ 0.24915
Times: Number of Accumulation Units............................... x 5,000
--------
Net Dividend Amount................................................ $1,245.75
--------------------------------------------------------------------------------
The net dividend amount would be reinvested on the Reinvestment Date in
Accumulation Units of the OppenheimerFunds Global Subaccount, as follows:
$0.24915 (net dividend per unit) divided by $9.75 (Accumulation Unit value as of
the Reinvestment Date) times 5,000 Units equals 127.769 Accumulation Units. On
the Reinvestment Date, 127.769 Accumulation Units are added to Contract Value
for a total of 5,127.769 Accumulation Units after the dividend reinvestment.
Contract Value on the Reinvestment Date is equal to 5,127.769 Accumulation Units
times $9.75 (Accumulation Unit Value as of the Reinvestment Date) for a Contract
Value of $49,995.75 after the dividend reinvestment.
After the Annuity Start Date, Security Benefit will deduct a mortality and
expense risk charge of 1.25% under Annuity Options 1 through 4, 7 and 8. This
charge is factored into the annuity unit values on each Valuation Date. Monthly
dividends are payable after the Annuity Start Date only with respect to Annuity
Options 5 and 6.
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS
SECTION 403(B) -- Contributions to 403(b) annuities are excludable from an
employee's gross income if they do not exceed the smallest of the limits
calculated under Sections 402(g), 403(b)(2), and 415 of the Code. The applicable
limit will depend upon whether the annuities are purchased with employer or
employee contributions. Rollover contributions are not subject to these annual
limits.
Section 402(g) generally limits an employee's salary reduction contributions to
a 403(b) annuity to $10,500 a year. The $10,500 limit will be reduced by salary
reduction contributions to other types of retirement plans. An employee with at
least 15 years of service for a "qualified employer" (i.e., an educational
organization, hospital, home health service agency, health and welfare service
agency, church or convention or association of churches) generally may exceed
the $10,500 limit by $3,000 per year, subject to an aggregate limit of $15,000
for all years.
Section 403(b)(2) provides an overall limit on employer and employee salary
reduction contributions that may be made to a 403(b) annuity. Section 403(b)(2)
generally provides that the maximum amount of contributions an employee may
exclude from his or her gross income in any taxable year is equal to the excess,
if any, of:
(i) the amount determined by multiplying 20% of the employee's includable
compensation by the number of his or her years of service with the
employer, over
(ii) the total amount contributed to retirement plans sponsored by the
employer, that were excludable from his or her gross income in prior
years.
Section 415(c) also provides an overall limit on the amount of employer and
employee salary reduction contributions to a Section 403(b) annuity that will be
excludable from an employee's gross income in a given year. The Section 415(c)
limit is the lesser of (i) $30,000, or (ii) 25% of the employee's annual
compensation.
SECTION 408 -- Premiums (other than rollover contributions) paid under a
Contract used in connection with an individual retirement annuity (IRA) that is
described in Section 408 of the Internal Revenue Code are subject to the limits
on contributions to IRA's under Section 219(b) of the Internal Revenue Code.
Under Section 219(b) of the Code, contributions (other than rollover
contributions) to an IRA are limited to the lesser of $2,000 per year or the
Owner's annual compensation. Spousal IRAs allow an owner and his or her spouse
to contribute up to $2,000 to their respective IRAs so long as joint tax return
is filed and joint income is $4,000 or more. The maximum amount the higher
compensated spouse may contribute for the year is the lesser of $2,000 or 100%
of that spouse's compensation. The maximum the lower compensated spouse may
contribute is the lesser of (i) $2,000 or (ii) 100% of that spouse's
compensation plus the amount by which the higher compensated spouse's
compensation exceeds the amount the higher compensated spouse contributes to his
or her IRA. The extent to which an Owner may deduct contributions to an IRA
depends on the gross income of the Owner and his or her spouse for the year and
whether either participate in an employer-sponsored retirement plan.
Premiums under a Contract used in connection with a simplified employee pension
plan described in Section 408 of the Internal Revenue Code are subject to limits
under Section 402(h) of the Internal Revenue Code. Section 402(h) currently
limits employer contributions and salary reduction contributions (if permitted)
under a simplified employee pension plan to the lesser of (a) 15% of the
compensation of the participant in the Plan, or (b) $30,000. Salary reduction
contributions, if any, are subject to additional annual limits.
PERFORMANCE INFORMATION
Performance information for the Subaccounts of the Separate Account, including
the yield and total return of all Subaccounts, may appear in advertisements,
reports, and promotional literature provided to current or prospective Owners.
Quotations of yield for the Rydex Money Market Subaccount will be based on the
change in the value, exclusive of capital changes and income other than
investment income, of a hypothetical investment in a Contract over a particular
seven day period, less a hypothetical charge reflecting deductions from the
Contract during the period (the "base period") and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest one hundredth of one percent. Any
quotations of effective yield for the Rydex Money Market Subaccount assume that
all dividends received during an annual period have been reinvested. Calculation
of "effective yield" begins with the same "base period return" used in the yield
calculation, which is then annualized to reflect weekly compounding pursuant to
the following formula:
Effective Yield = [(Base Period Return + 1)^365/7] - 1
Quotations of yield for the Subaccounts, other than the Rydex Money Market
Subaccount, will be based on all investment income per Accumulation Unit earned
during a particular 30-day period, less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income by
the value of the Accumulation Unit on the last day of the period, according to
the following formula:
YIELD = 2[(a-b + 1)^6 - 1]
---
cd
where a = net investment income earned during the period by the Underlying Fund
attributable to shares owned by the Subaccount,
b = expenses accrued for the period (net of any reimbursements),
c = the average daily number of Accumulation Units outstanding during the
period that were entitled to receive dividends, and
d = the maximum offering price per Accumulation Unit on the last day of
the period.
Quotations of average annual total return for any Subaccount will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and ten years (or, if less,
up to the 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 Underlying Funds, adjusted to reflect the maximum charges imposed
under the Contract.
Average annual total return figures reflect the deduction of the maximum
mortality and expense risk and optional Rider charges of 3.10%, the maximum
administration charge of 0.60%, the account administration charge of $30, and
the contingent deferred sales charge. Total return figures may be quoted that do
not reflect deduction of the contingent deferred sales charge and account
administration charge of $30; provided that such figures do not reflect the
addition of any Credit Enhancement. The contingent deferred sales charge and
account administration charge if reflected would lower the level of return
quoted. Total return figures that do not reflect deduction of all charges will
be accompanied by total return figures that reflect such charges.
Total return figures also may be quoted that assume the Owner has purchased an
Extra Credit Rider and, as such, will reflect any applicable Credit
Enhancements; however, such total return figures will also reflect the deduction
of any contingent deferred sales charge.
Quotations of total return for any Subaccount of the Separate Account will be
based on a hypothetical investment in an Account over a certain period and will
be computed by subtracting the initial value of the investment from the ending
value and dividing the remainder by the initial value of the investment. Such
quotations of total return will reflect the deduction of all applicable charges
to the contract and the separate account (on an annual basis) except the
applicable contingent deferred sales charge.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, the Lehman Brothers Government Corporate Index, the
Morgan Stanley Capital International's EAFE Index or other indices that measure
performance of a pertinent group of securities so that investors may compare a
Subaccount's results with those of a group of securities widely regarded by
investors as representative of the securities markets in general or
representative of a particular type of security; (ii) other variable annuity
separate accounts, insurance products funds, or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment companies by overall performance,
investment objectives, and assets, or tracked by The Variable Annuity Research
and Data Service ("VARDS"), an independent service which monitors and ranks the
performance of variable annuity issues by investment objectives on an
industry-wide basis or tracked by other services, companies, publications or
persons who rank such investment companies on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Contract. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which an Owner's Contract Value is allocated to a
Subaccount during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Underlying Fund in
which the Subaccount invests, and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future.
Reports and promotional literature may also contain other information including
(i) the ranking of any Subaccount derived from rankings of variable annuity
separate accounts, insurance products funds, or other investment products
tracked by Lipper Analytical Services or by other rating services, companies,
publications, or other persons who rank separate accounts or other investment
products on overall performance or other criteria, and (ii) the effect of a
tax-deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
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, 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.
FINANCIAL STATEMENTS
The consolidated balance sheets of Security Benefit Life Insurance Company and
Subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of income, changes in stockholder's equity, and cash flows for each
of the three years in the period ended December 31, 1999, are set forth herein,
starting on page 8.
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.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
To be filed by amendment.
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) Marketing Organization Agreement(g)
(c) SBL Variable Products Broker/Dealer Sales Agreement(h)
(d) SBL Variable Product Sales Agreement (3-Way
Agreement)(a)
(e) To be filed by Amendment
(4) (a) Individual Contract (Form V6029 11-00)
(b) Individual Contract-Unisex (Form V6029U 11-00)
(c) Tax-Sheltered Annuity Endorsement (Form 6832A R9-96)(c)
(d) Withdrawal Charge Waiver Endorsement (Form V6051
3-96)(c)
(e) Waiver of Withdrawal Charge for Terminal Illness
Endorsement (Form V6051 TI 2-97)(c)
(f) Individual Retirement Annuity Endorsement (Form V6849A
1-97)(d)
(g) Roth IRA Endorsement (Form V6851 10-97)(d)
(h) 403a Endorsement (Form V6057 10-98)(e)
(i) Annual Stepped Up Death Benefit Rider (Form V6063
8-00)(a)
(j) Guaranteed Growth Death Benefit Rider (Form V6063-1
8-00)(a)
(k) Annual Stepped Up and Guaranteed Growth Death Benefit
Rider (Form V6063-2 8-00)(a)
(l) Disability Rider (Form V6064 8-00)(a)
(m) Guaranteed Income Benefit Rider (Form V6065 8-00)(a)
(n) Credit Enhancement Rider (Form V6067 8-00)(a)
(o) Alternate Withdrawal Charge Rider (Form V6069 10-00)
(5) (a) Application (Form V9493 11-00)
(b) Application - Unisex (Form V9493U 11-00)
(6) (a) Composite of Articles of Incorporation of SBL(f)
(b) Bylaws of SBL(f)
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(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., Pat A.
Loconto, Frank C. Sabatini, and Robert C. Wheeler
(a) Incorporated herein by reference to the Exhibits filed with the initial
Registration Statement No. 333-41180 (filed July 11, 2000).
(b) Incorporated herein by reference to the Exhibits filed with the Variflex
Signature 's Post-Effective Amendment No. 1 under the Securities Act of
1933 and Amendment No. 2 under the Investment Company Act of 1940 to
Registration Statement No. 333-23723 (filed October 15, 1997).
(c) Incorporated herein by reference to the Exhibits filed with the Variflex
Signature Initial Registration Statement No. 333-23723 (filed March 16,
1997).
(d) Incorporated herein by reference to the Exhibits filed with Variflex
Signature's Post-Effective Amendment No. 2 under the Securities Act of 1933
and Amendment No. 3 under the Investment Company Act of 1940 to
Registration Statement 333-23723 (filed April 30, 1998).
(e) Incorporated herein by reference to the Exhibits filed with the Variflex
Signature's Post-Effective Amendment No. 4 under the Securities Act of 1933
and Amendment No. 5 under the Investment Company Act of 1940 to the
Registration Statement 333-23723 (filed April 30, 1999).
(f) 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).
(g) Incorporated herein by reference to the Exhibits filed with the Variflex
Signature's Post-Effective Amendment No. 23 under the Securities Act of
1933 and Amendment No. 22 under the Investment Company Act of 1940 to the
Registration Statement 2-89328 (filed May 1, 2000).
(h) Incorporated herein by reference to Exhibits filed with the Variflex
Separate Account Post-Effective Amendment No. 22 under the Securities Act
of 1933 and Amendment No. 21 under the Investment Company Act of 1940 to
Registration Statement No. 2-89328 (filed April 29, 1999).
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 66606
John C. Dicus Director
700 Kansas Avenue
Topeka, Kansas 66603
Steven J. Douglass Director
3231 East 6th Street
Topeka, Kansas 66607
William W. Hanna Director
P.O. Box 2256
Wichita, Kansas 67201
John E. Hayes, Jr. Director
200 Gulf Blvd.
Belleair, Florida 33786
Frank C. Sabatini Director
120 SW 6th Street
Topeka, Kansas 66603
Robert C. Wheeler Director
P.O. Box 148
Topeka, Kansas 66601
Pat A. Loconto Director
1633 Broadway, 35th Fl.
New York, NY 10019-6754
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
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 SBL Variable Annuity Account XIV or SBL:
PERCENT OF
VOTING
SECURITIES
OWNED BY
SBMHC
JURISDICTION OF (DIRECTLY OR
NAME INCORPORATION INDIRECTLY)
---- --------------- ------------
Security Benefit Mutual Kansas ---
Holding 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)
Security Financial Resources Delaware 100%
Collective Investments, LLC
(Private Fund)
First Security Benefit Life New York 100%
Insurance and Annuity
Company of New York
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), SBL Variable Annuity Account VIII
(Extra Credit), Variable Annuity Account XI, 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 14, 2000 the approximate percentage of ownership by the
separate accounts for each company is as follows:
Security Growth and Income Fund..... 23.0%
SBL Fund............................ 100.0%
Security Ultra Fund................. 50.0%
ITEM 27. NUMBER OF CONTRACTOWNERS
As of November 30, 2000, there were no owners of the contract issued
under SBL Variable Annuity Account XIV.
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 SBL Variable Annuity
Account XIV. 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, Variflex Signature,
and Extra Credit), Variable Annuity Account XI, 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 and Director
John D. Cleland Vice President and 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 thereunder 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.
(f) SBL, sponsor of the unit investment trust, SBL Variable Annuity
Account XIV, hereby represents that it is relying upon American
Council of Life Insurance, SEC No-Action Letter, [1988-1989
Transfer Binder] Fed. Sec. L. Rep. (CCH)P. 78,904 (Nov. 28,
1988), and that it has complied with the provisions of paragraphs
(1)-(4) of such no-action letter which are incorporated herein by
reference.
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 15th day of December,
2000.
SIGNATURES AND TITLES
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of (The Depositor)
the Board, and Chief
Executive Officer
By: HOWARD R. FRICKE
Kris A. Robbins --------------------------------------------
Director, President and Howard R. Fricke, Chairman of the Board and
Chief Operating Officer Chief Executive Officer as Attorney-In-Fact
for the Officers and directors whose Names
Sister Loretto Marie Colwell Appear Opposite
Director
John C. Dicus VARIABLE ANNUITY ACCOUNT XIV
Director (The Registrant)
William W. Hanna By: SECURITY BENEFIT LIFE INSURANCE COMPANY
Director (The Depositor)
John E. Hayes, Jr.
Director By: HOWARD R. FRICKE
------------------------------------------
Pat A. Loconto Howard R. Fricke, Chairman of the Board
Director and Chief Executive Officer
Frank C. Sabatini
Director By: DONALD J. SCHEPKER
------------------------------------------
Robert C. Wheeler Donald J. Schepker, Senior Vice President
Director Chief Financial Officer and Treasurer
Steven J. Douglass
Director (ATTEST): ROGER K. VIOLA
--------------------------------------
Roger K. Viola, Senior Vice President
General Counsel and Secretary
Date: December 15, 2000
EXHIBIT INDEX
(1) None
(2) None
(3) (a) None
(b) None
(c) None
(d) None
(e) None
(4) (a) Individual Contract (Form V6029 11-00)
(b) Individual Contract - Unisex (Form V6029U 11-00)
(c) None
(d) None
(e) None
(f) None
(g) None
(h) None
(i) None
(j) None
(k) None
(l) None
(m) None
(n) None
(o) Alternate Withdrawal Charge Rider (Form V6069 10-00)
(5) (a) Application (Form V9493 11-00)
(b) Application - Unisex (Form V9493U 11-00)
(6) (a) None
(b) None
(7) None
(8) None
(9) Opinion of Counsel
(10) None
(11) None
(12) None
(13) None
(14) Powers of Attorney
