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File No. 33-_____
File No. 811-3957
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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. ______ |_|
Post-Effective Amendment No. ______ |_|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. ______ |_|
(Check appropriate box or boxes)
VARIFLEX SEPARATE ACCOUNT
(EDUCATOR SERIES)
(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: Copies to:
Amy J. Lee, Associate General Counsel Jeffrey S. Puretz, Esq.
Security Benefit Group, Inc. Dechert, Price & Rhoads
700 Harrison Street 1500 K Street, N.W.
Topeka, KS 66636-0001 Washington, DC 20005
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
group flexible premium deferred variable annuity contracts.
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DECLARATION PURSUANT TO RULE 24F-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
declares that an indefinite number or amount of securities has been registered
under the Securities Act of 1933. No fee required.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Cross Reference Sheet
Pursuant to Rule 495(a)
Showing Location in Part A (Prospectus) and Part B
(Statement of Additional Information) of Registration
Statement of Information Required by Form N-4
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PART A
ITEM OF FORM N-4 PROSPECTUS CAPTION
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1. Cover Page.................................. Cover Page
2. Definitions................................. Glossary of Terms
3. Synopsis.................................... Summary of the Contract;
Summary of Expenses
4. Condensed Financial Information
(a) Accumulated Unit Values................ N/A
(b) Performance Data....................... Performance Information
(c) Additional Financial Information....... Financial Statements
5. General Description of Registrant, Depositor,
and Portfolio Companies
(a) Depositor.............................. Security Benefit Life
Insurance Company
(b) Registrant............................. Variflex
(c) Portfolio Company...................... SBL Fund
(d) Fund Prospectus........................ SBL Fund
(e) Voting Rights.......................... Voting Rights
(f) Administrators......................... N/A
6. Deductions and Expenses..................... Charges and Deductions
(a) General................................ Other Charges; Actuarial
Risk Fee; State Premium
Taxes; Charges for Taxes
(b) Sales Load %........................... Contingent Deferred
Sales Charge
(c) Special Purchase Plan.................. Variations in Charges
<PAGE>
PART A (Continued)
------
ITEM OF FORM N-4 PROSPECTUS CAPTION
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(d) Commissions............................ Contingent Deferred
Sales Charge
(e) Fund Expenses.......................... SBL Fund; Summary of
Expenses
(f) Organization Expenses.................. N/A
7. General Description of Contracts
(a) Persons with Rights.................... Variflex Contracts;
Distributions Under
the Contract; Voting
Rights; The General
Account; Types of
Variflex Contracts
(b) (i) Allocation of Purchase Payments.... Allocation of Purchase
Payments
(ii) Transfers.......................... Transfer of Contract
Value
(iii) Exchanges.......................... N/A
(c) Changes................................ Purpose of the
Contracts; Substituted
Securities
(d) Inquiries.............................. Contractowner Inquiries
8. Annuity Period.............................. Annuity Period; Annuity
Provisions; Election of
Annuity Commencement
Date and Form of
Annuity; Allocation of
Benefits
9. Death Benefit............................... Death Benefit During
Accumulation Period;
Optional Annuity Forms
10. Purchases and Contract Value
(a) Purchases.............................. Contract Application and
Purchase Payments;
Crediting of
Accumulation Units
(b) Valuation.............................. Accumulation Period;
Crediting of
Accumulation Units;
Value of Variable
Annuity Payments:
Assumed Investment Rates
(c) Daily Calculation...................... Crediting of
Accumulation Units
(d) Underwriter............................ Distributor of the
Contracts
<PAGE>
ITEM OF FORM N-4 PROSPECTUS CAPTION
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11. Redemptions
(a) - By Owners............................ Full and Partial
Withdrawals; Systematic
Withdrawals; Loans
Available from Certain
Qualified Contracts;
Constraints on
Distributions from
Certain Section 403(b)
Annuity Contracts
- By Annuitant........................ Optional Annuity Forms
(b) Texas ORP............................. Restrictions Under the
Texas Optional
Retirement Program
(c) Check Delay........................... N/A
(d) Lapse................................. Contract Application and
Purchase Payments; Full
and Partial Withdrawals
(e) Free Look............................. Free-Look Right;
Contract Application
and Purchase Payments
12. Taxes....................................... Federal Tax Matters;
Introduction; Tax Status
of Security Benefit and
the Separate Account;
Income Taxation of
Annuities in General -
Qualified Plans
13. Legal Proceedings........................... N/A
14. Table of Contents for the Statement of
Additional Information...................... Statement of Additional
Information
PART B
Statement of Additional
ITEM OF FORM N-4 Information Caption
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15. Cover Page.................................. Cover Page
16. Table of Contents........................... Table of Contents
17. General Information and History............. Other Information; Legal
Matters
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Statement of Additional
ITEM OF FORM N-4 Information Caption
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18. Services
(a) Fees and Expenses of Registrant........ Variations in Charges;
Additional Federal Tax
Matters
(b) Management Contracts................... Records and Reports
(c) Custodian.............................. Safekeeping of Variflex
Account Assets
Independent Public Accountant.......... Experts
(d) Assets of Registrant................... N/A
(e) Affiliated Persons..................... N/A
(f) Principal Underwriter.................. Distribution of the
Contracts
19. Purchase of Securities Being Offered........ Group Contracts;
Distribution of the
Contracts; State
Regulation
20. Underwriters................................ Distribution of the
Contracts
21. Calculation of Performance Data............. Performance Information
22. Annuity Payments............................ The Contract; Valuation
of Accumulation Units;
Computation of Variable
Annuity Payments;
Illustration;
Termination of Contract;
Limits on Stipulated
Payments (Under the
Internal Revenue Code);
Assignment
23. Financial Statements........................ Financial Statements;
Taxation of SBL; Tax
Status of the Contracts
<PAGE>
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VARIFLEX
VARIABLE ANNUITY CONTRACTS
EDUCATOR SERIES
SOLD BY--
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON, TOPEKA, KANSAS 66636-0001
(785) 431-3000
This Prospectus describes the Variflex Variable Annuity Educator Series
Contracts (the "Variflex Contracts" or "Contracts") offered by Security Benefit
Life Insurance Company ("SBL"). The Contracts are issued for use with retirement
plans qualified for favorable tax treatment under the Internal Revenue Code,
such as pension and profit sharing plans, annuity purchase plans of public
school systems and certain tax-exempt organizations and certain deferred
compensation plans of state and local governments. This Prospectus offers
Contracts which may be purchased with single or multiple purchase payments, with
annuity payments commencing at some later date. The Contracts are offered on a
group basis.
Variflex Contracts offer Contractowners and Participants the opportunity to
arrange for a Variable Annuity, with lifetime or other annuity payments based on
the investment performance of one or more Series of Variflex. Variflex, a
separate account of SBL, is registered as a unit investment trust and issues
fourteen separate series--Growth Series, Growth-Income Series (formerly the
"Income-Growth Series"), Money Market Series, Worldwide Equity Series, High
Grade Income Series, Emerging Growth Series, Global Aggressive Bond Series,
Specialized Asset Allocation Series, Managed Asset Allocation Series, Equity
Income Series, High Yield Series, Social Awareness Series, Value Series, and
Small Cap Series. Each Series reflects the investment results of a corresponding
series of SBL Fund (the "Fund"), a registered open-end management investment
company.
Contractowners and Participants may additionally elect to accumulate values
and receive all or a portion of the benefits in the form of Guaranteed Annuity
payments funded by the General Account assets of SBL.
Depending on the state where the Contract is sold, it may contain a
provision which allows the Contract to be canceled within 10 or more days after
receipt of the Contract.
This Prospectus sets forth the information that a prospective investor
should know before investing. A Statement of Additional Information about the
Variflex Contract and Variflex is free and may be obtained by writing SBL at the
address above or by calling (785) 431-3112 or (800) 888-2461, extension 3112.
The Statement of Additional Information, which has the same date as this
Prospectus, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Table of Contents of the Statement of
Additional Information is set forth at the end of this Prospectus.
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ATTACHED TO THIS PROSPECTUS IS A CURRENT PROSPECTUS OF SBL FUND. BOTH
PROSPECTUSES SHOULD BE RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE CONTRACT AND CERTAIN VARIFLEX SERIES ARE NOT AVAILABLE IN ALL STATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THE CONTRACT INVOLVES RISK, INCLUDING LOSS OF PRINCIPAL, AND IS NOT A DEPOSIT OR
OBLIGATION OF, OR GUARANTEED BY, ANY BANK. THE CONTRACT IS NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
PROSPECTUS DATED: ________________, 1997 RETAIN FOR FUTURE REFERENCE
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1
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VARIFLEX CONTENTS
Page
Glossary of Terms.......................................................... 4
Summary of the Contract.................................................... 5
Summary of Expenses........................................................ 6
Financial Statements..................................................... 8
Security Benefit Life Insurance Company and Variflex....................... 8
Security Benefit Life Insurance Company.................................. 8
Variflex................................................................. 8
SBL Fund .................................................................. 8
Voting Rights............................................................ 9
Substituted Securities................................................... 9
Variflex Contracts......................................................... 10
Purpose of the Contracts................................................. 10
Type of Variflex Contract................................................ 10
Contract Application and Purchase Payments............................... 10
Allocation of Purchase Payments.......................................... 10
Crediting of Accumulation Units.......................................... 11
Dollar Cost Averaging Option............................................. 11
Asset Reallocation Option................................................ 11
Transfer of Contract Value............................................... 12
Contract Value........................................................... 12
Determination of Contract Value.......................................... 12
Contractowner Inquiries.................................................. 13
Charges and Deductions..................................................... 13
Contingent Deferred Sales Charge......................................... 13
Other Charges............................................................ 14
(a) State Premium Taxes.................................................. 14
(b) Actuarial Risk Fee................................................... 14
(c) Charges for Taxes.................................................... 14
Sequential Deduction..................................................... 14
Variations in Charges.................................................... 15
Distributions Under the Contract........................................... 15
Accumulation Period...................................................... 15
Full and Partial Withdrawals............................................. 15
Systematic Withdrawals................................................... 15
Free-Look Right.......................................................... 16
Death Benefit During Accumulation Period................................. 16
Loans Available from Certain Qualified Contracts......................... 16
Constraints on Distributions from Certain Section 403(b) Annuity
Contracts ............................................................. 17
Annuity Period........................................................... 18
Annuity Provisions....................................................... 18
Election of Annuity Commencement Date and Form of Annuity................ 18
Allocation of Benefits................................................... 18
Optional Annuity Forms................................................... 18
Value of Variable Annuity Payments:
Assumed Investment Rates............................................... 19
Restrictions Under the Texas Optional Retirement Program................. 19
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2
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VARIFLEX CONTENTS (CONTINUED)
Page
Federal Tax Matters........................................................ 20
Introduction............................................................. 20
Tax Status of SBL and the Separate Account............................... 20
General................................................................ 20
Charge for SBL Taxes................................................... 20
Diversification Standards.............................................. 20
Income Taxation of Annuities in General -- Qualified Plans............... 21
Section 401............................................................ 21
Section 403(b)......................................................... 22
Section 457............................................................ 22
Rollovers.............................................................. 23
Tax Penalties.......................................................... 23
Withholdings........................................................... 23
Distributor of the Contracts............................................... 24
Performance Information.................................................. 24
The General Account........................................................ 24
Statement of Additional Information........................................ 26
THE CONTRACT AND CERTAIN VARIFLEX SERIES ARE NOT AVAILABLE IN ALL STATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT BE LAWFULLY MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, THE FUND'S PROSPECTUS OR THE STATEMENT OF ADDITIONAL INFORMATION OF
THE FUND OR ANY SUPPLEMENT THERETO.
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3
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GLOSSARY OF TERMS
THE FOLLOWING DEFINITIONS MAY BE USEFUL IN READING THIS PROSPECTUS.
CERTAIN ADDITIONAL TERMS ARE DEFINED IN THE TEXT.
ACCUMULATION PERIOD--The period from the date Accumulation Units are first
purchased under the Contract to the Annuity Commencement Date, or, if earlier,
when the Contract is terminated, either through a full withdrawal, payment of
charges or payment of the death benefit.
ACCUMULATION UNIT--Unit of measure used to calculate the value of a
Contractowner's or Participant's interest in Variflex during the Accumulation
Period. The value of an Accumulation Unit fluctuates with the value of shares of
the corresponding series of the underlying Fund.
ANNUITANT--The person designated to receive, or actually receiving, annuity
payments under a Variflex Contract.
ANNUITY COMMENCEMENT DATE--The date when annuity payments are to begin.
AUTOMATIC INVESTMENT PROGRAM--A program pursuant to which purchase payments
are automatically paid from the Owner's bank account on a specified day of each
month or a salary reduction arrangement.
CONTRACTOWNER--The person or entity entitled to exercise all legal rights
of ownership in a Variflex Contract and in whose name the Contract is issued.
CONTRACT--Certificates under Group Allocated Contracts are referred to
herein as the "Contract" or the "Contracts".
CONTRACT DATE--The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually the
date that the initial Purchase Payment is credited to the Contract.
CONTRACT DEBT--The unpaid loan balance including accrued loan interest.
CONTRACT VALUE--The total value of the amounts in a Contract allocated to
the Series of Variflex and the General Account, as well as any amount set aside
in the General Account to secure loans as of any Valuation Date.
CONTRACT YEAR--Each twelve-month period measured from the Contract Date.
GUARANTEED ANNUITY--An annuity under which the amount of each annuity
payment does not vary with the investment experience of the Variflex Separate
Account and which is guaranteed by SBL.
GROUP ALLOCATED CONTRACT--A master agreement between the Contractowner and
SBL under which a Participant's individual account is established for each
person for whom payments are being made under the Plan.
PARTICIPANT--Any person who is covered under the terms of a group Variflex
Contract, and for whom an Annuity is being funded, particularly a person for
whom annuity payments have not commenced.
PARTICIPANT'S INDIVIDUAL ACCOUNT--The Participant's allocated share of the
value of a Group Allocated Variflex Contract. A certificate is issued by SBL to
Participants under a Group Allocated Contract as evidence of his or her benefits
under the Contract.
PLAN--The document or agreement defining the retirement benefits and those
who are eligible to receive them. The Plan is not part of the Variflex Contract
and Security Benefit Life Insurance Company is not a party to the Plan.
PURCHASE PAYMENT--A payment made into a Variflex Contract.
QUALIFIED CONTRACT--A Variflex Contract issued in connection with a
retirement plan that receives favorable tax treatment under Section 401, 403 or
457 of the Internal Revenue Code.
VALUATION DATE--Each date on which Variflex 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.'s Birthday, Presidents' Day, Good Friday,
Memorial Day, July Fourth, Labor Day, Thanksgiving Day, and Christmas Day.
VALUATION PERIOD--A period used in measuring the investment experience of
each Series of Variflex. The Valuation Period begins at the close of one
Valuation Date and ends at the close of the next succeeding Valuation Date.
VARIABLE ANNUITY--An Annuity providing payments which vary in dollar amount
depending on the investment results of Variflex and the Fund.
VARIFLEX CONTRACT--A contract issued pursuant to this Prospectus which sets
forth the obligations and contractual promises which SBL makes to the
Contractowner to provide a Guaranteed or Variable Annuity or combination
Guaranteed and Variable Annuity in return for Purchase Payments made for
allocation in any combination at the discretion of the Contractowner for
investment in one or more Series of Variflex or the General Account during the
Accumulation Period. Depending on the allocations made by the Contractowner,
benefits will be guaranteed (to the extent based on SBL's General Account) or
will reflect the investment results of selected Series of SBL Fund. A group
Variflex Contract is a master agreement between the Contractowner and the
insurance company covering the Participants in a Plan.
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4
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SUMMARY OF THE CONTRACT
PURPOSE OF THE CONTRACTS
The objective of a Variable Annuity is to provide benefits which will tend,
to a greater degree than a Guaranteed Annuity, to reflect the changes in the
cost of living. The Contracts offer Contractowners and Participants the
opportunity to arrange for a Variable Annuity with lifetime or other annuity
payments based on the investment performance of the investments chosen by the
Contractowner or Participant.
There is no assurance that a Contract's objective will be obtained or that
its value will increase. Because a Variable Annuity value is based on investment
performance and is not guaranteed, a Variflex Contract entails more risk than
traditional guaranteed insurance. There are, however, General Account options
whereby Contractowners or Participants can elect to accumulate values, and
receive all or a portion of their benefits in the form of guaranteed payments.
INVESTMENT ALTERNATIVES
You may choose to invest the payments made under the Contracts in one or
more of the fourteen separate Variflex Series: Growth Series, Growth-Income
Series (formerly the "Income-Growth Series"), Money Market Series, Worldwide
Equity Series, High Grade Income Series, Emerging Growth Series, Global
Aggressive Bond Series, Specialized Asset Allocation Series, Managed Asset
Allocation Series, Equity Income Series, High Yield Series, Social Awareness
Series, Value Series and Small Cap Series. Each of the Series invests
exclusively in the shares of a corresponding series of the SBL Fund. Each Series
has a different investment objective. (See "SBL Fund," page 8).
PURCHASING A CONTRACT
Individuals wishing to purchase a Contract must complete an application and
provide an initial Purchase Payment which will be sent to the SBL home office.
The minimum and maximum amount of Purchase Payments vary depending upon the type
of Contract purchased. (See "Contract Application and Purchase Payments," page
10 and "Limits on Purchase Payments Paid Under Tax-Qualified Retirement Plans"
in the Statement of Additional Information.)
ALLOCATION AND TRANSFER AMONG INVESTMENT ALTERNATIVES
Payments will be allocated to each Variflex Series pursuant to instructions
in the application. Changes in the allocation of future Purchase Payments may be
made by writing to the SBL home office. However, no allocation will be allowed
that would result in less than $25 being allocated to any one Variflex Series.
Prior to the Annuity Commencement Date, transfers may be made among the
Variflex Series. At present, there is no charge for such transfers. Transfers
among the Variflex Series, changes in allocation of future Purchase Payments and
changes to an existing Dollar Cost Averaging or Asset Reallocation Option may be
made by telephone instruction, provided that either the Telephone Transfer
section of the application has been completed or a Telephone Transfer
Authorization form is on file with SBL. (See "Transfer of Contract Value" on
page 12.)
THE DEATH BENEFIT
For Group Allocated Contracts, the Contract provides for a death benefit
upon the death of the Participant during the Accumulation Period. The death
benefit will vary depending on the Contract's investment results and the age of
the Participant on the Contract Date. SBL will pay the death benefit proceeds to
the beneficiary upon receipt of due proof of the Participant's death and
instructions regarding payment. (See "Death Benefit During Accumulation Period"
on page 16.)
WITHDRAWALS FROM THE CONTRACT PRIOR TO MATURITY
Prior to the Annuity Commencement Date, all or part of a Contract's value
may be withdrawn upon your written request. In addition to potential losses due
to investment risks, withdrawals may be reduced by any Contract Debt, a
contingent deferred sales charge, a 10 percent penalty tax and income tax.
Contracts may be subject to additional withdrawal restrictions imposed by the
Plan. (See "Full and Partial Withdrawals" on page 15, "Constraints on
Distributions from Certain Section 403(b) Annuity Contracts" on page 17 and
"Federal Tax Matters" on page 20.)
HOW ANNUITY PAYMENTS ARE DETERMINED
There are a number of ways to receive annuity payments. They include
monthly payments for a specified number of years, an annuity for life with
payments guaranteed for 5, 10, 15 or 20 years, or a joint and survivor annuity.
Payments may be received on a fixed basis or on a variable basis. The amount of
a variable annuity payment will increase or decrease according to the investment
experience of the Variflex Series you select.
CHARGES AND DEDUCTIONS
An Actuarial Risk Fee is assessed daily against Variflex net assets at an
annual rate of 1.0 percent. Variflex Contracts also provide for certain
deductions and charges against the contract. These deductions and charges
include any state premium taxes that may be assessed. Additionally, a contingent
deferred sales charge may be assessed against certain withdrawals during the
first fifteen Contract Years. The amount of the charge is based upon the number
of years a Purchase Payment has remained credited under the Contract. The charge
is 5 percent of Purchase Payments withdrawn within the five year period
following investment. No contingent deferred sales charge is imposed after a
Contract has been in force 15 Contract Years or more. (See "Charges and
Deductions" on page 13.)
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5
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FREE-LOOK RIGHT
The laws of certain states require that Contractowners be given an
examination period, generally ten days, within which a Contractowner may return
the Contract to SBL's home office. In such cases, SBL will refund payments made,
adjusted to the extent permitted by state law, to reflect changes in the value
of the applicable Variflex Series during the period the Contract was held. (See
"Free-Look Right" on page 16.)
SUMMARY OF EXPENSES
CONTRACTOWNER TRANSACTION EXPENSES
- ----------------------------------
Sales Load Imposed on Purchase (as a percentage of Purchase Payments)... 0%
Contingent Deferred Sales Load (as a percentage of amounts withdrawn,
attributable to Purchase Payments, that have remained credited under
the Contract for five years or less).................................. 5%
Surrender Fees (as a percentage of amount surrendered, if applicable) 0%
Exchange Fee............................................................ $0
ANNUAL CONTRACT FEE....................................................... $0
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SEPARATE ACCOUNT ANNUAL FEE (as a percentage of average account value)
- ---------------------------
Mortality and Expense Risk Fees......................................... 1.0%
Account Fees and Expenses............................................... 0.0%
Total Separate Account Annual Expenses.................................. 1.0%
SBL FUND ANNUAL EXPENSES (as a percentage of average net assets)
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<TABLE>
<CAPTION>
Other Expenses
Management Fees(1) (after expense Total Annual
(after fee waiver) reimbursement) Expenses
------------------ -------------- ------------
<S> <C> <C> <C>
Growth (Series A)........................ 0.75% 0.08% 0.83%
Growth-Income (Series B)................. 0.75% 0.09% 0.84%
Money Market (Series C).................. 0.50% 0.08% 0.58%
Worldwide Equity (Series D).............. 1.00% 0.30% 1.30%
High Grade Income (Series E)............. 0.75% 0.08% 0.83%
Emerging Growth (Series J)............... 0.75% 0.09% 0.84%
Global Aggressive Bond (Series K)........ 0.00% 0.84% 0.84%
Specialized Asset Allocation (Series M).. 1.00% 0.34% 1.34%
Managed Asset Allocation (Series N)...... 1.00% 0.45% 1.45%
Equity Income (Series O)................. 1.00% 0.15% 1.15%
High Yield (Series P).................... 0.00% 0.28% 0.28%
Social Awareness (Series S).............. 0.75% 0.09% 0.84%
Value (Series V)......................... 0.00% 0.51% 0.51%
Small Cap (Series X)..................... 0.00% 0.55% 0.55%
</TABLE>
(1) During the fiscal year ended December 31, 1996, the Investment Manager
waived the management fees of Series K and P and, during the fiscal year
ending December 31, 1997, the Investment Manager will waive the management
fees of Series K, Series P, Series V and Series X; absent such expense
waiver, the management fee of Series K, Series P and Series V would have
been .75% and that of Series X would have been 1.00%. There can be no
assurance that the Investment Manager will continue to waive the Series'
management fees after December 31, 1997.
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6
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EXAMPLE: VARIFLEX CONTRACTS
- ----------------------------
If you surrender your contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Growth Series...................... $65 $107 $149 $215
Growth-Income Series............... 65 107 150 216
Money Market Series................ 63 100 136 188
Worldwide Equity Series............ 70 121 173 264
High Grade Income Series........... 65 107 149 215
Emerging Growth Series............. 65 107 150 216
Global Aggressive Bond Series...... 65 107 150 216
Specialized Asset Allocation Series 70 122 175 268
Managed Asset Allocation Series.... 71 125 181 279
Equity Income Series............... 68 116 165 248
High Yield Series.................. 60 91 120 155
Social Awareness Series............ 65 107 150 216
Value Series....................... 62 98 132 180
Small Cap Series................... 62 99 134 185
If you do not surrender your contract:
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Growth Series...................... $19 $58 $ 99 $215
Growth-Income Series............... 19 58 100 216
Money Market Series................ 16 50 86 188
Worldwide Equity Series............ 23 72 123 264
High Grade Income Series........... 19 58 99 215
Emerging Growth Series............. 19 58 100 216
Global Aggressive Bond Series...... 19 58 100 216
Specialized Asset Allocation Series 24 73 125 268
Managed Asset Allocation Series.... 25 76 131 279
Equity Income Series............... 22 67 115 248
High Yield Series.................. 13 41 70 155
Social Awareness Series............ 19 58 100 216
Value Series....................... 15 48 82 180
Small Cap Series................... 16 49 84 185
The purpose of the preceding table is to assist Contractowners in
understanding the various costs and expenses that a Contractowner will bear
directly or indirectly and, thus, the table reflects expenses of both the
Variflex separate account and the SBL Fund. The example should not be considered
to be a representation of past or future expenses, and the example does not
include the deduction of state premium taxes, which in a number of states may be
assessed. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The example
assumes a 5 percent annual rate of return pursuant to the requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of the Fund. For a
more complete description of the various costs and expenses of the Fund, see the
prospectus for SBL Fund.
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7
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FINANCIAL STATEMENTS
The full financial statements of SBL and the Variflex Separate Account as
well as the auditor's reports thereon are in the Statement of Additional
Information. Condensed Financial Information for the Educator Series of Variflex
is not yet available as the Series did not begin operations until November ____,
1997.
SECURITY BENEFIT LIFE INSURANCE
COMPANY AND VARIFLEX
SECURITY BENEFIT LIFE INSURANCE COMPANY
Security Benefit Life Insurance Company ("SBL") is a mutual life insurance
company. SBL, which was formed originally as a fraternal benefit society under
the laws of Kansas and commenced business February 22, 1892, became a mutual
life insurance company under its present name on January 2, 1950. Its home
office is 700 Harrison Street, Topeka, Kansas 66636-0001. SBL is licensed in the
District of Columbia and all states except New York.
VARIFLEX
Variflex was established by SBL as a separate account on January 31, 1984,
and is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940 (the "Act"). Variflex
is designed to provide the funding for Variable Annuities. Under Kansas law,
regulation of SBL by the Commissioner of Insurance includes regulation of
Variflex. The insurance laws of Kansas under which Variflex was established
provide that the assets of Variflex shall not be chargeable with liabilities
arising out of any other business which SBL may conduct (except to the extent
that the assets of Variflex exceed the reserves and other liabilities of the
separate account). Accordingly, Variflex Contracts provide that the income,
gains and losses from the assets allocated to Variflex, whether or not realized,
are credited to or charged against Variflex without regard to other income,
gains, or losses of SBL. The assets of Variflex will thus be held exclusively
for the benefit of Contractowners and beneficiaries under the Contracts (and
other contracts which may be offered in the future under which net premiums are
placed in Variflex and which provide benefits varying in accordance with the
investment results of Variflex) to the extent they are entitled to benefits
based on Variflex.
Variflex contains fourteen Series--Growth Series, Growth-Income Series,
Money Market Series, Worldwide Equity Series, High Grade Income Series, Emerging
Growth Series, Global Aggressive Bond Series, Specialized Asset Allocation
Series, Managed Asset Allocation Series, Equity Income Series, High Yield
Series, Social Awareness Series, Value Series, and Small Cap Series. Amounts
allocated by Contractowners or Participants to each of these Series are
invested, respectively, in Series A, B, C, D, E, J, K, M, N, O, P, S, V and X of
SBL Fund (the "Fund"). Additional Series may be added to Variflex at the
discretion of SBL.
SBL FUND
The Fund is a diversified, open-end management investment company. The
assets of the Fund are managed by Security Management Company, LLC (the
"Investment Manager"), the investment adviser to the Fund, under the supervision
of the Fund's board of directors.
The Fund currently issues its shares in fourteen separate series: Series A,
Series B, Series C, Series D, Series E, Series J, Series K, Series M, Series N,
Series O, Series P, Series S, Series V, and Series X ("Series"). The assets of
each Series are held separate from the assets of other Series, and each Series
has different investment objectives and policies. As a result, each Series
operates as a separate investment fund. Each Series of Variflex invests solely
in a corresponding Series of the Fund.
SERIES A--Amounts allocated to the GROWTH SERIES of Variflex are invested
in Series A. The investment objective of Series A is to seek long-term capital
growth by investing in a broadly diversified portfolio of common stocks,
securities convertible into common stocks, preferred stocks, bonds and other
debt securities.
SERIES B--Amounts allocated to the GROWTH-INCOME SERIES of Variflex are
invested in Series B. Series B seeks long-term growth of capital, with secondary
emphasis on income, by investing in various types of securities, including
common stocks, convertible securities, preferred stocks and debt securities.
Series B's investments in debt securities may include securities rated below
investment grade (commonly referred to as "junk bonds").
SERIES C--Amounts allocated to the MONEY MARKET SERIES of Variflex are
invested in Series C. The investment objective of Series C is to provide as high
a level of current income as is consistent with preserving capital. It invests
in high quality money market instruments with maturities of not longer than
thirteen months.
SERIES D--Amounts allocated to the WORLDWIDE EQUITY SERIES of Variflex are
invested in Series D. The investment objective of Series D is to seek long-term
growth of capital primarily through investment in common stocks and equivalents
of companies domiciled in foreign countries and the United States.
SERIES E--Amounts allocated to the HIGH GRADE INCOME SERIES of Variflex are
invested in Series E. The investment objective of Series E is to provide current
income with security of principal. Series E seeks to achieve this investment
objective by investing in a broad range of debt securities, including U.S. and
foreign corporate debt securities and securities issued by the U.S. and foreign
governments.
SERIES J--Amounts allocated to the EMERGING GROWTH SERIES of Variflex are
invested in Series J. The investment objective of Series J is to seek capital
appreciation through investment in a broadly diversified portfolio of securities
which may include common stocks, preferred stocks, debt securities and
securities convertible into common stocks.
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SERIES K--Amounts allocated to the GLOBAL AGGRESSIVE BOND SERIES of
Variflex are invested in Series K. The investment objective of Series K is to
seek high current income and, as a secondary objective, capital appreciation by
investing in a combination of foreign and domestic high-yield, lower rated debt
securities (commonly referred to as "junk bonds").
SERIES M--Amounts allocated to the SPECIALIZED ASSET ALLOCATION SERIES of
Variflex are invested in Series M. The investment objective of Series M is to
seek high total return consisting of capital appreciation and current income.
Series M seeks this objective by following an asset allocation strategy that
contemplates shifts among a wide range of investment categories and market
sectors, including equity and debt securities of domestic and foreign issuers.
SERIES N--Amounts allocated to the MANAGED ASSET ALLOCATION SERIES of
Variflex are invested in Series N. The investment objective of Series N is to
seek a high level of total return by investing primarily in a diversified
portfolio of debt and equity securities.
SERIES O--Amounts allocated to the EQUITY INCOME SERIES of Variflex are
invested in Series O. The investment objective of Series O is to seek to provide
substantial dividend income and also capital appreciation by investing primarily
in dividend-paying common stocks of established companies.
SERIES P--Amounts allocated to the HIGH YIELD SERIES of Variflex are
invested in Series P. The investment objective of Series P is to seek high
current income. Capital appreciation is a secondary objective. Series P seeks
its objectives by investing primarily in higher yielding, higher risk debt
securities (commonly referred to as "junk bonds").
SERIES S--Amounts allocated to the SOCIAL AWARENESS SERIES of Variflex are
invested in Series S. The investment objective of Series S is to seek capital
appreciation by investing in various types of securities which meet certain
social criteria established for the Series. Series S will invest in a
diversified portfolio of common stocks, convertible securities, preferred stocks
and debt securities.
SERIES V--Amounts allocated to the VALUE SERIES of Variflex are invested in
Series V. The investment objective of Series V is to seek long-term growth of
capital by investing in a diversified portfolio consisting primarily of common
stocks. The Series will invest in stocks that the Investment Manager believes
are undervalued relative to assets, earnings, growth potential or cash flow.
SERIES X--Amounts allocated to the SMALL CAP SERIES of Variflex are
invested in Series X. The investment objective of Series X is to seek long-term
growth of capital by investing primarily in domestic and foreign equity
securities of small capitalization companies (defined as companies with a market
capitalization of less than $1 billion at the time of purchase).
The Investment Manager has engaged Lexington Management Corporation, Park
80 West, Plaza Two, Saddle Brook, New Jersey 07663, to provide investment
advisory services to Series D and K of the Fund. Lexington has engaged MFR
Advisors, Inc., One Liberty Plaza, 46th Floor, New York, New York 10006 to
provide certain investment advisory services to Series K. The Investment Manager
has engaged T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore,
Maryland 21202 to provide investment advisory services to Series N and O. The
Investment Manager has engaged Meridian Investment Management Corporation, 12835
East Arapahoe Road, Tower II, 7th Floor, Englewood, Colorado 80112, to provide
investment advisory and analytic research services to Series M. The Investment
Manager has engaged Strong Capital Management Corporation, 900 Heritage Reserve,
Menomonee, Wisconsin to provide investment advisory services to Series X.
THERE IS NO ASSURANCE THAT ANY OF THESE SERIES WILL ATTAIN THEIR RESPECTIVE
STATED OBJECTIVES.
ADDITIONAL INFORMATION CONCERNING THE INVESTMENT OBJECTIVES AND POLICIES OF
THE SERIES AND THE INVESTMENT ADVISORY SERVICES AND CHARGES CAN BE FOUND IN THE
CURRENT PROSPECTUS FOR THE FUND, WHICH IS ATTACHED TO AND SHOULD BE READ IN
CONJUNCTION WITH THIS PROSPECTUS BEFORE ANY DECISION IS MADE CONCERNING THE
ALLOCATION OF PURCHASE PAYMENTS, SINCE THE INVESTMENT PERFORMANCE OF THE SERIES
WILL AFFECT THE VARIABLE ANNUITY VALUES.
VOTING RIGHTS
As the record owner of the Fund shares which represent the assets of
Variflex, including the Variflex assets represented by reserves for Annuitants
currently receiving Annuity payments, SBL will vote at all Fund shareholder
meetings. However, Contractowners will have the right to instruct SBL with
respect to such voting. Each Contractowner will receive all Fund periodic
reports and proxy materials and a form with which to give voting instructions. A
Participant under a group Contract will have no rights with regard to voting or
instructing SBL unless the Participant's views are solicited by the
Contractowner. It should be noted that the number of votes allocable to a
particular Contract will gradually decrease as annuity payments are made during
the annuity period.
In addition, the bylaws of SBL provide that each SBL policyholder, without
regard to the number of contracts owned or the amount of each such contract,
shall have the right to cast one vote, in person or by proxy, for the election
of directors of SBL, and on all other corporate matters brought before its
policyholders.
SUBSTITUTED SECURITIES
If shares of the Fund or any Series should become unavailable for purchase
by Variflex, or if in the judgment of SBL further investment in such shares is
no longer appropriate in view of the purposes of Variflex, SBL reserves the
right, subject to any applicable law, to make certain changes including (i) to
substitute therefor shares of another fund or another Series of the Fund; or
(ii) net payments received after a date specified by SBL may be applied to the
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purchase of shares of such other fund or of another Series of the Fund. In
either event, to the extent required by the Act, prior approval by a vote of a
majority of the votes to be cast by persons having a voting interest in the Fund
shares held in the affected Series within Variflex and the Securities and
Exchange Commission shall be obtained.
VARIFLEX CONTRACTS
PURPOSE OF THE CONTRACTS
The Contracts described in this Prospectus may be issued for use with
retirement plans and trusts qualified under the Internal Revenue Code of 1986,
as amended (the "Code"), for favorable tax treatment ("Qualified Contracts").
Retirement plans qualified for favorable tax treatment include pension and
profit sharing plans qualified under Section 401 or 403(a) of the Internal
Revenue Code, annuity purchase plans of public school systems and certain
tax-exempt organizations which qualify for tax deferred treatment under Section
403(b) or 403(c) of the Code and deferred compensation plans under Section 457
of the Code. See the section entitled "Federal Tax Matters," page 20 for further
details.
The basic objective of the Contracts is to provide a Guaranteed or Variable
Annuity or a combination Guaranteed and Variable Annuity. Variable Annuities
pursuant to the Contracts are funded by Variflex. The objective of a Variable
Annuity is to provide benefits which will tend to a greater degree than a
Guaranteed Annuity to reflect the changes in the cost of living. There can be no
assurance that this objective will be attained. Annuity payments based on any of
the Series of Variflex are not guaranteed and entail more risk to the Annuitant
than traditional guaranteed insurance.
This Prospectus generally describes only the variable aspects of the
Variflex Contracts, except where guaranteed aspects are specifically mentioned.
For a discussion of the guaranteed investment options and guaranteed benefits
available in connection with Variflex Contracts, see "The General Account" on
page 24.
The terms of the Contracts may only be changed by mutual agreement between
SBL and each Contractowner, except as described in "Substituted Securities,"
above, and except for changes required to make the contracts comply with, or
give Contractowners the benefit of, any law or regulation issued by a
governmental agency to which SBL or the Variflex Contracts are subject. In
addition, SBL reserves the right upon written notice to the Owner, to make
changes to Group Allocated Contracts that will apply only to individuals who
become Participants after the effective date of the change.
TYPE OF VARIFLEX CONTRACT
The type of Contract is described below:
GROUP ALLOCATED INSTALLMENT PAYMENT DEFERRED ANNUITY CONTRACT - This type
of contract may be used when Purchase Payments, either single or installment,
under group plans are to be accumulated until the retirement date of each
Participant. Generally, under a Group Allocated Contract, a Participant's
Individual Account is established for each Participant for whom payments are
being made and normally the benefit at retirement will be determined by the
value of the Participant's Individual Account at that time.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
Individuals wishing to purchase a Contract must complete an application and
provide an initial Purchase Payment which will be sent to the SBL home office.
If the application can be accepted in the form received, the initial Purchase
Payment will be credited within two business days after receipt by the SBL home
office. If an incomplete application cannot be completed within five days of its
receipt, the applicant will be notified of the reasons for the delay and any
payments received will be returned immediately unless the applicant specifically
consents to have SBL retain them pending completion of the application.
The Contracts set certain minimum amounts for the initial and subsequent
Purchase Payments. The minimum initial and subsequent payments are $500 ($25
through an Automatic Investment Program). The maximum amount of Purchase
Payments under Variflex Contracts is $1,000,000, without the prior approval of
SBL. These amounts may be changed at the sole discretion of SBL. In addition,
SBL reserves the right to terminate any Contract for certain specified reasons,
including failure of the Contract Value to meet certain specified minimums. (See
"Termination of Contract" in the Statement of Additional Information for a
detailed listing of such circumstances.)
Purchase Payments may be made at such intervals as desired, but are usually
made on an annual, semiannual, quarterly or monthly basis. The frequency of
Purchase Payments may be changed by the Contractowner. If Purchase Payments
cease, they may be resumed at a future date, subject to the Annuity Commencement
Date requirements. The amount of future Purchase Payments may be increased or
decreased on any date a payment is submitted. Submission of a Purchase Payment
different from the previous payment will automatically effect an increase or
decrease. The number of changes permitted and the maximum payments allowed under
the Internal Revenue Code for Qualified Plans vary depending on the type of
plan. For a discussion of those limitations see "Limits on Purchase Payments
Paid Under Tax-Qualified Retirement Plans" in the Statement of Additional
Information. Failure to comply with those limitations may subject the Contract
to adverse tax treatment.
ALLOCATION OF PURCHASE PAYMENTS
The Purchase Payments will be allocated to each Series within Variflex in
accordance with the written instructions contained in the application. The
Contractowner or Participant may by written instruction to the home office
indicate one or more Series to which a specified portion or
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portions of the Purchase Payment should be applied. The amount allocated to a
Series may be a whole dollar or whole percentage amount and in no event less
than $25 per payment may be allocated to any one Series within Variflex. Changes
in allocation of future Purchase Payments (with the same $25 minimum per Series)
may be made at any time by specific written instruction to the home office or by
telephone instruction, provided that a properly completed Telephone Transfer
Authorization form is on file with SBL or the Telephone Transfer section of the
application has been completed. (See "Transfer of Contract Value" on page 12.)
CREDITING OF ACCUMULATION UNITS
During the Accumulation Period, when a Purchase Payment is received in its
home office, SBL currently credits the entire payment to the Variflex Contract.
Amounts allocated to Series of Variflex are credited in the form of Accumulation
Units. The number of Accumulation Units that may be purchased for any Series is
found by dividing the Purchase Payment allocated to that Series by the
Accumulation Unit value for that Series determined at the end of the Valuation
Period in which the Purchase Payment is credited. The Accumulation Unit value
for each Series is determined as of 3:00 p.m. Central time on each Valuation
Date and on any other day in which there is a sufficient degree of trading in
the portfolio securities of a Series of the Fund that the Accumulation Unit
value of an applicable Series of Variflex might be materially affected.
The value of an Accumulation Unit in each Series is expected to increase or
decrease, reflecting the investment experience of the corresponding Series of
the underlying Fund less any deductions for charges or taxes. The Statement of
Additional Information contains a detailed description of how the Accumulation
Units are valued.
DOLLAR COST AVERAGING OPTION
SBL currently offers an option under which Contractowners may dollar cost
average their allocations in the Series under the Contract by authorizing SBL to
make periodic allocations of Contract Value from any one Series to one or more
of the other Series. 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 allocation of Contract
Value to one or more Series, and these amounts will be credited at the
Accumulation Unit value as of the end of the Valuation Dates on which the
transfers are effected. Since the value of Accumulation Units will vary, the
amounts allocated to a Series will result in the crediting of a greater number
of units when the Accumulation Unit value is low and a lesser number of units
when the Accumulation Unit value is high. Similarly, the amounts transferred
from a Series will result in a debiting of a greater number of units when the
Accumulation Unit value is low and a lesser number of units when the
Accumulation Unit value is high. Dollar cost averaging does not guarantee
profits, nor does it assure that a Contractowner will not have losses.
A Dollar Cost Averaging Request form is available upon request. On the
form, the Contractowner must designate whether a specific dollar amount,
percentage of Contract Value or earnings only are to be transferred, the Series
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.
To elect the Dollar Cost Averaging Option, the Contractowner's Contract
Value must be at least $10,000, and a Dollar Cost Averaging Request in proper
form must be received by SBL at its home office. The Dollar Cost Averaging
Request form will not be considered complete until the Contractowner's Contract
Value is at least the required amount.
After SBL has received a Dollar Cost Averaging Request in proper form at
its home office, SBL will transfer Contract Value in amounts designated by the
Contractowner from the Series from which transfers are to be made to the Series
chosen by the Contractowner. The minimum amount that may be transferred to any
one Series is $25. Each transfer will be effected on the monthly or quarterly
anniversary, whichever corresponds to the period selected by the Contractowner,
of the date of receipt at SBL's home office of a Dollar Cost Averaging Request
in proper form, until the total amount elected has been transferred, or until
Contract Value in the Series from which transfers are made has been depleted.
Amounts periodically transferred under this option are not currently subject to
any transfer charges.
A Contractowner may instruct SBL at any time to terminate the option by
written request to SBL's home office. In that event, the Contract Value in the
Series from which transfers were being made that has not been transferred will
remain in that Series unless the Contractowner instructs otherwise. If a
Contractowner wishes 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 Series 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 SBL's home office. SBL may discontinue, modify, or suspend the
Dollar Cost Averaging Option at any time.
Contract Value may also be dollar cost averaged to or from the General
Account Option, provided that such transfers do not violate the restrictions on
transfers as described under "Traditional General Account Option," page 25. The
Dollar Cost Averaging Option is not available while Contract Value is allocated
to the DCA Plus Account.
ASSET REALLOCATION OPTION
SBL currently offers an option under which Contractowners authorize SBL to
automatically transfer their Contract Value each quarter to maintain a
particular percentage allocation among the Series as selected by the
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Contractowner. The Contract Value allocated to each Series will grow or decline
in value at different rates during the quarter, and Asset Reallocation
automatically reallocates the Contract Value in the Series each quarter to the
allocation selected by the Contractowner. Asset Reallocation is intended to
transfer Contract Value from those Series that have increased in value to those
Series that have declined in value. Over time, this method of investing may help
a Contractowner buy low and sell high. This investment method does not guarantee
profits, nor does it assure that a Contractowner will not have losses.
To elect the Asset Reallocation Option, the Contract Value in the Contract
must be at least $10,000, and an Asset Reallocation Request in proper form must
be received by SBL at its home office. An Asset Reallocation Request form is
available upon request. On the form, the Contractowner must indicate the
applicable Series and the percentage of Contract Value which should be allocated
to each of the applicable Series each quarter ("Asset Reallocation Program"). If
the Asset Reallocation Option is elected, all Contract Value invested in the
Series must be included in the Asset Reallocation Program.
This option will result in the transfer of Contract Value to one or more of
the Series on the date of SBL's receipt of the Asset Reallocation Request in
proper form and each quarterly anniversary of that date thereafter. The amounts
transferred will be credited at the Accumulation Unit value as of the end of the
Valuation Dates on which the transfers are effected. Amounts periodically
transferred under this option are not currently subject to any transfer charges.
A Contractowner may instruct SBL at any time to terminate this option by
written request to SBL's home office. In that event, the Contract Value in the
Series that has not been transferred will remain in those Series regardless of
the percentage allocation unless the Contractowner instructs otherwise. If a
Contractowner wishes to continue Asset Reallocation after it has been canceled,
a new Asset Reallocation Request form must be completed and sent to SBL's home
office. SBL may discontinue, modify, or suspend, and reserves the right to
charge a fee for the Asset Reallocation Option at any time.
Contract Value allocated to the General Account Option may be included in
the Asset Reallocation Program, provided that transfers from the General Account
do not violate the restrictions on transfers as described under "Traditional
General Account Option," page 25. The Asset Reallocation Option is not available
while Contract Value is allocated to the DCA Plus Account.
TRANSFER OF CONTRACT VALUE
During the Accumulation Period, the Contractowner or Participant may elect
by written notice to the SBL home office to transfer all or any part of the
Contract Value invested in a particular Variflex Series to any other Variflex
Series. Such transfers (and changes to an existing Dollar Cost Averaging or
Asset Reallocation Option) may be made by telephone if a properly completed
Telephone Transfer Authorization form, which may be obtained from SBL, is on
file with SBL or the Telephone Transfer section of the application has been
completed. The minimum transfer amount is $100, or the amount remaining in a
given Subaccount. The minimum transfer amount does not apply to transfers under
the Dollar Cost Averaging or Asset Reallocation Options. SBL reserves the right
to deny any telephone transfer request. SBL has established procedures to
confirm that instructions communicated by telephone are genuine and may be
liable for any losses due to fraudulent or unauthorized instructions if it fails
to comply with its procedures. SBL`s procedures require that any person
requesting a telephone transfer provide the account and contract number and the
owner`s tax identification number and such instructions must be received on a
recorded line. Neither SBL nor any of its affiliates will be liable for any
claim, loss or expense resulting from any alleged error or mistake in connection
with a telephone transfer which was authorized by the Contractowner, or by
anyone else who purports to give instructions on his or her behalf, provided
that SBL complied with its procedures. The frequency of transfers generally is
not limited, although SBL reserves the right to limit them as to any individual,
or in the future, in general, to not more than 14 in a Contract Year. Such
transfers are currently made without charge. The telephone transfer privilege
may be suspended, modified or discontinued at any time without notice. SBL's
policy concerning telephone transfers may require a Contractowner who authorizes
telephone transfers to bear the risk of loss from a fraudulent or unauthorized
telephone transfer. For a discussion of transfers after the Annuity Commencement
Date, see "Allocation of Benefits" on page 18.
CONTRACT VALUE
The Contract Value is the sum of the amounts under the Contract held in
each Series of Variflex and in the General Account options, including amounts
set aside in the General Account to secure loans.
On each Valuation Date, the portion of the Contract Value allocated to any
particular Series will be adjusted to reflect the investment experience of that
Series. See "Determination of Contract Value," below. No minimum amount of
Contract Value is guaranteed. A Contractowner bears the entire investment risk
relating to the investment performance of Contract Value allocated to the
Variflex Series.
DETERMINATION OF CONTRACT VALUE
The Contract Value will vary to a degree that depends upon several factors,
including investment performance of the Series to which Contract Value has been
allocated, payment of Purchase Payments, the amount of any outstanding Contract
Debt, partial withdrawals, and the charges assessed in connection with the
Contract. The amounts allocated to the Series will be invested in shares of the
corresponding Series of the SBL Fund. The investment performance of the Series
will reflect increases or decreases
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in the net asset value per share of the corresponding Series of SBL Fund and any
dividends or distributions declared by such Series.
Assets in the Series are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's
interest in a Series. When a Contractowner allocates Purchase Payments to a
Series, the Contract is credited with Accumulation Units. The number of
Accumulation Units to be credited is determined by dividing the dollar amount
allocated to the particular Series by the Accumulation Unit value for the
particular Series at the end of the Valuation Period in which the Purchase
Payment is credited. In addition, other transactions including loans, full or
partial withdrawals, transfers, and assessment of certain charges against the
Contract affect the number of Accumulation Units credited to a Contract. The
number of units credited or debited in connection with any such transaction is
determined by dividing the dollar amount of such transaction by the unit value
of the affected Series. The Accumulation Unit value of each Series 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 Series and
charges against the Series.
The Accumulation Unit value of each Series' unit initially was $10. The
unit value of a Series on any Valuation Date is calculated by dividing the value
of each Series' net assets by the number of Accumulation Units credited to the
Series on that date. Determination of the value of the net assets of a Series
takes into account the following: (1) the investment performance of the Series,
which is based upon the investment performance of the corresponding Series of
the SBL Fund, (2) any dividends or distributions paid by the corresponding
Series, (3) the charges, if any, that may be assessed by SBL for taxes
attributable to the operation of the Series, and (4) the Actuarial Risk Fee
under the Contract.
CONTRACTOWNER INQUIRIES
Contractowner inquiries and Purchase Payments should be addressed to
Security Benefit Life Insurance Company at its home office, P.O. Box 750497,
Topeka, Kansas 66675-0497, or made by calling (785) 431-3112 or (800) 888-2461,
extension 3112.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE
No deduction for a sales charge is made from the Purchase Payments for
Variflex Contracts. However, except as set forth below, a contingent deferred
sales charge (which may also be referred to as a withdrawal charge), may be
assessed by SBL on a full or partial withdrawal from the Contracts, to the
extent the amount withdrawn is attributable to Purchase Payments made. The
withdrawal charge will be waived on withdrawals to the extent that total
withdrawals, including systematic withdrawals, that are free of charge in a
Contract Year do not exceed the Free Withdrawal amount defined as follows. The
Free Withdrawal amount is equal in the first Contract Year, to 10 percent of
Purchase Payments made during the year and for any subsequent Contract Year, to
10 percent of Contract Value as of the first day of that Contract Year. The
withdrawal charge applies to the amount of any withdrawal that exceeds the Free
Withdrawal amount to the extent the amount withdrawn is attributable to purchase
payments. All or any part of the Free Withdrawal amount for a Contract Year that
is not used in that Contract Year is forfeited. The Free Withdrawal amount will
not reduce Purchase Payments for purposes of determining withdrawal charges.
For purposes of determining the withdrawal charge, a withdrawal will be
attributed first to Purchase Payments and then will be attributed to earnings,
even if the Contractowner elects to redeem amounts allocated to an Account
(including the General Account) other than an Account to which Purchase Payments
were allocated. The amount of the charge is based upon the number of years a
Purchase Payment has remained credited under the Contract. Withdrawal charges
will not be assessed, however, on a Contract after it has been in force for 15
Contract Years or more.
The applicable withdrawal charge for the Contracts is as follows:
Age of Purchase Withdrawal
Payment in Years Charge
---------------- ----------
1 5%
2 5%
3 5%
4 5%
5 5%
6 and after 0%
For purposes of determining the age of the Purchase Payment, the Purchase
Payment is considered age 1 in the year beginning on the date the Purchase
Payment is received by SBL and increases in age each year thereafter. In no
event will the amount of any withdrawal charge, when added to any such charge
previously assessed against any amount withdrawn from the Contract, exceed 5
percent of the Purchase Payments paid under a Contract. In addition, no charge
will be imposed (1) upon payment of the death benefit under the Contract; (2)
upon annuity payments under Annuity Options 1, 2, 3, 4, 7, or 8 or any similar
life contingent payment option that is mutually agreed upon between the
Contractowner and SBL; (3) upon withdrawals from Contracts that have been in
force for 15 Contract Years or more; (4) upon submitting proof acceptable to SBL
of Owner's total and permanent disability as defined under section 72(m)(7) of
the Internal Revenue Code prior to age 65; (5) upon withdrawals made to satisfy
the minimum
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distribution rules of the Internal Revenue Code and regulations thereunder; (6)
upon attaining age 59 1/2, provided that your Contract has been in force five
Contract Years or more; and (7) upon separation from service with the employer
that maintains the Plan, provided that the Participant had actively participated
in the Plan for at least five years before separating from service. The
contingent deferred sales charge will be deducted, to the extent applicable,
from withdrawals and annuity payments under Annuity Options 5 and 6 and other
non-life contingent payment options, unless annuity payments extend over a
period of at least five years and are made in substantially equal amounts.
The contingent deferred sales charge will be paid to SBL for its services
and expenses relating to the sales of the Contracts, including commissions to
sales personnel, the costs of preparing sales literature and other promotional
activity. SBL anticipates it will pay the selling broker-dealer or any national
banks that sell Variflex a sales commission or fee of not more than 8 percent of
all Purchase Payments. In addition, under certain circumstances, SBL may pay
certain broker-dealers persistency bonuses which will take into account, among
other things, the length of time and the amount of Purchase Payments held under
Variflex Contracts invested in certain Series of Variflex. A persistency bonus
is not anticipated to exceed .25 percent, on an annual basis, of the Contract
Values considered in connection with the bonus. If total contingent deferred
sales charges realized are not sufficient to pay sales expenses for Variflex
Contracts in any one year or in total, SBL will pay the difference from its
general account assets, including amounts derived indirectly from the Actuarial
Risk Fee. SBL anticipates sales expenses will be greater than the contingent
deferred sales charge.
OTHER CHARGES
(A) STATE PREMIUM TAXES
An amount for state premium taxes (which presently range from 0 percent to
3.5 percent) customarily will be deducted when assessed by a given state. In
most cases, if the Contract is to be annuitized, the dollar amount of any such
tax is assessed and deducted from the Contract Value at the time annuity
payments commence. In some states, premium taxes are assessed by the state at
the time Purchase Payments are made rather than at the time annuity payments
commence. In such states, SBL will pay the tax when assessed and will deduct a
pro rata share of the amount of any such tax from any partial withdrawal and any
remaining amount of tax from the Contract Value at the time the contract is
surrendered or annuity payments commence. SBL, however, reserves the right to
deduct the premium tax when assessed.
(B) ACTUARIAL RISK FEE
SBL assumes a number of risks under the Variflex Contracts. While Variable
Annuity payments will vary in accordance with the investment performance of the
selected Series, the amount of such payments will not be decreased because of
adverse mortality experience of Annuitants as a class or because of an increase
in actual expenses of SBL over the expense charges provided for in the
Contracts. SBL assumes the risk that Annuitants as a class may live longer than
expected (necessitating a greater number of annuity payments) and that fees
deducted may not prove sufficient to cover its actual costs. In assuming these
risks, SBL agrees to continue annuity payments under life-contingent annuity
options, determined in accordance with the annuity tables and other provisions
of the Variflex Contracts, to the Annuitant or other payee for as long as he or
she may live. In addition, SBL is at risk for the death benefits payable under
the Variflex Contracts, to the extent that the death benefit in such cases
exceeds the Contract Value.
For SBL's contractual promise to accept these risks, an Actuarial Risk Fee
will be assessed daily against Variflex based on the value of its net assets, at
an annual rate of 1.0 percent. This fee is assessed during the Accumulation
Period and the Annuity Period against life-contingent and non-life-contingent
options, even though certain of the covered risks are not present in the latter
case. SBL may ultimately realize a profit from this fee to the extent it is not
needed to cover mortality and administrative expenses, but SBL may realize a
loss to the extent the fee is not sufficient. SBL may use any profit derived
from this fee for any lawful purpose, including distribution expenses.
(C) CHARGES FOR TAXES
Charges may be made against Variflex only as may be appropriate in the
future to reimburse SBL for the amount of any tax liability (state or federal)
paid or reserved by SBL which results from the maintenance of Variflex. SBL does
not currently expect that there will be any charge for such taxes. (See "Charge
for SBL Taxes," page 20.)
SEQUENTIAL DEDUCTION
When a request for a partial or systematic withdrawal is received that does
not specify the Series from which the withdrawal should be allocated, the
withdrawal will be deducted from the Contractowner's Contract Value in the
Variflex Series in the following order: Money Market Series, High Grade Income
Series, High Yield Series, Global Aggressive Bond Series, Growth-Income Series,
Equity Income Series, Managed Asset Allocation Series, Specialized Asset
Allocation Series, Growth Series, Value Series, Worldwide Equity Series, Social
Awareness Series, Emerging Growth Series, and Small Cap Series and then from
first the DCA Plus Account and then the Traditional General Account. The value
in each Variflex Series will be depleted before the next Series is charged. This
sequence is designed
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to charge first those account assets which are more liquid or tend to experience
less capital fluctuation.
VARIATIONS IN CHARGES
SBL may reduce or waive the amount of the contingent deferred sales charge
and actuarial risk fee 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, the amounts of projected Purchase Payments, or that the Contract is
sold in connection with a group or sponsored arrangement. SBL may also reduce or
waive the contingent deferred sales charge on Contracts sold to directors,
officers and bona fide full-time employees of SBL and its affiliated companies;
the spouses, grandparents, parents, children, grandchildren and siblings of such
directors, officers and employees and their spouses; and salespersons (and their
spouses and minor children) who are licensed with SBL to sell variable
annuities.
SBL will only reduce or waive such charges where expenses associated with
the sale of the Contract or the costs associated with administering and
maintaining the Contract are reduced. Additional information about reductions in
charges is contained in the Statement of Additional Information.
DISTRIBUTIONS UNDER THE CONTRACT
ACCUMULATION PERIOD
FULL AND PARTIAL WITHDRAWALS
To the extent permitted by the Plan under the terms of which the Contract
was purchased, any Contract or Participant's Individual Account may be
withdrawn, in full or partially, during the Accumulation Period, subject to the
limitations discussed herein. A request for a partial withdrawal under a
Contract should specify the allocation of that withdrawal, as applicable, from
the General Account options and each Series of Variflex. In the absence of
specification, SBL will, without further instruction, take the amounts needed to
satisfy the withdrawal from the Series in the manner set forth in "Sequential
Deduction," above.
The proceeds received upon a full withdrawal will be equal to the Contract
Value as of the end of the Valuation Period during which a proper withdrawal
request is received by SBL at its home office, less any applicable contingent
deferred sales charge, premium taxes and outstanding Contract Debt. To the
extent possible, upon a partial withdrawal, any charges will be deducted from
the value remaining in the Contract after the Contractowner has received the
amount requested.
Upon receipt of an application for a partial or full withdrawal of a
Contract or account signed by the Contractowner, the applicable Accumulation
Unit value will be that determined as of the end of the Valuation Period that a
proper written request is received in SBL's home office.
A full or partial withdrawal may subject a Contractowner to adverse tax
consequences, including the 10 percent penalty tax that may be imposed on
withdrawals made prior to the Contractowner attaining age 59 1/2. For a
discussion of the tax consequences of withdrawals, see "Constraints on
Distributions from Certain Section 403(b) Annuity Contracts" on page 17 and
"Federal Tax Matters" on page 20.
Payment of any withdrawal will be made in cash as soon as practicable, but
in no event later than seven days after a request is received in SBL's home
office, subject to postponement (i) for any period during which the New York
Stock Exchange is closed other than customary weekend and holiday closings or
when trading on such exchange is restricted, (ii) for any period during which an
emergency exists as a result of which disposal by Variflex of securities owned
by it is not reasonably practicable or it is not reasonably practicable for
Variflex fairly to determine the value of its net assets, or (iii) for such
other periods as the Securities and Exchange Commission may by order permit for
the protection of Contractowners and Participants. The Securities and Exchange
Commission shall, by rules and regulations, determine the conditions under which
trading shall be deemed to be restricted, and an emergency shall be deemed to
exist.
No partial withdrawal will directly affect future requirements to make
Purchase Payments or the maturity date of the Contract or account. Contracts
have other provisions which encourage the Contractowner to continue the Contract
in times of emergency, including the right to discontinue Purchase Payments for
such periods as may be permitted by the Plan and to resume payments at a later
date without penalty.
SYSTEMATIC WITHDRAWALS
SBL currently offers a feature under which systematic withdrawals may be
elected. Under this feature, a Contractowner may elect, before the Annuity
Commencement Date, to receive systematic withdrawals by sending a properly
completed Systematic Withdrawal Request form to SBL.
A Contractowner may request that systematic withdrawals be made monthly,
quarterly, semiannually, or annually (1) in a fixed amount; (2) in Level
Payments calculated by SBL; (3) for a specified period; (4) of all earnings in
the Contract; (5) of a specified percentage of Contract Value; or (6) calculated
according to age recalculation which is described under "Optional Annuity Forms"
on page 18.
Each systematic withdrawal must be at least $100. Upon payment of a
systematic withdrawal, the Contractowner's Contract Value will be reduced by an
amount equal to the payment proceeds plus any applicable premium taxes and, if
withdrawals exceed the Free Withdrawal amount, any
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applicable contingent deferred sales charges. Any systematic withdrawal that
equals or exceeds the Contract Value will be treated as a full withdrawal. The
Contract will automatically terminate if a systematic withdrawal causes the
Contract Value to equal zero.
Each systematic withdrawal will be effected as of the end of the Valuation
Period during which the withdrawal is scheduled. The deduction caused by the
systematic withdrawal will be allocated to the Contractowner's Contract Value in
the Variflex Series and the Traditional General Account as instructed by the
Contractowner. If no instructions are provided, SBL will make systematic
withdrawals from the Variflex Series and the General Account option in the order
set forth under "Sequential Deduction," on page 14. Systematic withdrawals from
the DCA Plus Account are not permitted.
Systematic withdrawals may be terminated upon proper written request by the
Contractowner received by SBL at least 30 days in advance of the requested date
of termination.
The tax consequences of systematic withdrawals, including the 10 percent
penalty tax that may be imposed on withdrawals made prior to the Owner attaining
age 59 1/2, should be carefully considered. For a discussion of the tax
consequences of withdrawals, see "Constraints on Distributions from Certain
Section 403(b) Annuity Contracts" on page 17 and "Federal Tax Matters" on page
20. SBL may, at any time, discontinue, modify or suspend systematic withdrawals.
FREE-LOOK RIGHT
A Contractowner may return a Contract within the Free-Look Period, which is
generally a ten-day period beginning when the Contractowner receives the
Contract. The returned Contract will then be deemed void and SBL will refund any
Purchase Payments allocated to the General Account plus the Contract Value in
the Variflex Series plus any charges deducted from the Series and premium taxes,
if any. SBL will refund Purchase Payments allocated to the Series rather than
Contract Value in those states that require it to do so.
DEATH BENEFIT DURING ACCUMULATION PERIOD
If the Participant under a Variflex Contract dies during the Accumulation
Period, SBL will pay the death benefit proceeds to the beneficiary upon receipt
of due proof of the Participant's death and instructions regarding payment. The
death benefit proceeds will be the death benefit reduced by any outstanding
Contract Debt and any uncollected premium taxes. If the Participant dies during
the Accumulation Period and the age of the Participant was 75 or younger on the
Contract Date, the amount of the death benefit will be the greatest of: (1) the
sum of all Purchase Payments made reduced by any partial withdrawals; (2) the
Contract Value on the date due proof of death and instructions regarding payment
are received by SBL at its home office; or (3) the stepped-up death benefit. The
stepped-up death benefit is: (a) the largest death benefit on any Contract
anniversary that is both an exact multiple of five and occurs prior to the
Participant reaching age 76, plus (b) any Purchase Payments received since the
applicable Contract anniversary, less (c) any reductions caused by partial
withdrawals since the applicable Contract anniversary.
If the Participant dies during the Accumulation Period and the age of the
Participant was 76 or greater on the Contract Date, or if proof of death and
instructions regarding payment are not received within six months of the date of
the Participant's death, the amount of the death benefit will be the Contract
Value on the date due proof of death and instructions regarding payment are
received by SBL at its home office.
In lieu of payment in one lump sum, the Participant may elect that the
death benefit be applied under any one of the optional annuity forms described
on page 18. If the Participant did not make such an election, the beneficiary
may do so. The person selecting the optional annuity settlement may also
designate contingent beneficiaries to receive any further amounts due, should
the first beneficiary die before completion of the specified payments. The
manner in which annuity payments to the beneficiary are determined and in which
they may vary from month to month are described under "Annuity Period," on page
18.
LOANS AVAILABLE FROM CERTAIN QUALIFIED CONTRACTS
The Contractowner of a Contract issued in connection with a retirement plan
that is qualified under Section 401 or 403(b) of the Internal Revenue Code may
borrow money from SBL using his or her Contract Value as the only security for
the loan by submitting a written request to SBL. A loan may be taken while the
Owner is living and prior to the Annuity Commencement Date.
The minimum loan that may be taken is $1,000. The maximum loan that can be
taken is generally equal to the lesser of: (1) $50,000 reduced by the excess of:
(a) the highest outstanding loan balance within the preceding 12-month period
ending on the day before the date the loan is made; over (b) the outstanding
loan balance on the date the loan is made; or (2) 50 percent of the Contract
Value or $10,000, whichever is greater. However, an amount may not be borrowed
which exceeds the annuity's total value minus the amount needed as security for
the loan as described below. The Internal Revenue Code requires aggregation of
all loans made to an individual employee under a single employer plan. However,
since SBL has no information concerning outstanding loans with other providers,
we will only use information available under annuity contracts issued by us. In
addition, reference should be made to the terms of the particular Qualified Plan
for any additional loan restrictions.
When an eligible Contractowner takes a loan, Contract Value in an amount
equal to the loan amount is transferred
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from the Variflex Series and/or the General Account into an account called the
"Loan Account." In addition, 10 percent of the loaned amount will be held in the
General Account as security for the loan. Amounts allocated to the Loan Account
earn 3.5 percent, the minimum rate of interest guaranteed under the General
Account. Amounts acting as security for the loan in the General Account will
earn the current rate of interest.
Interest will be charged for the loan and will accrue on the loan balance
from the effective date of any loan. The loan interest rate will be 5.00
percent. Because the Contract Value maintained in the Loan Account will always
be equal in amount to the outstanding loan balance, the net cost of a loan is 2
percent.
Loans must be repaid within five years, unless SBL determines that the loan
is to be used to acquire a principal residence of the Owner, in which case the
loan must be repaid within 30 years. Loan payments must be made at least
quarterly and may be prepaid at any time. Upon receipt of a loan payment, SBL
will transfer Contract Value from the Loan Account to the General Account and/or
the Series according to the Contractowner's current instructions with respect to
Purchase Payments in an amount equal to the amount by which the payment reduces
the amount of the loan outstanding. The amount held as security for the loan
will also be reduced by each loan payment so that the security is again equal to
10 percent of the outstanding loan balance immediately after the loan payment is
made. However, amounts which are no longer needed as security for the loan will
not automatically be allocated back among the General Account and/or Series in
accordance with the Contractowner's Purchase Payment instructions.
If any required loan payment is not made, within 30 days of the due date
for loans with a monthly repayment schedule or within 90 days of the due date
for loans with a quarterly repayment schedule, the TOTAL OUTSTANDING LOAN
BALANCE will be deemed to be in default, and the entire loan balance, with any
accrued interest, will be reported as income to the Internal Revenue Series
("IRS"). Once a loan has gone into default, regularly scheduled payments will
not be accepted, and no new loans will be allowed while a loan is in default.
Interest will continue to accrue on a loan in default and if such interest is
not paid by December 31st of each year, it will be added to the outstanding
balance of the loan and will be reported to the IRS. Contract Value equal to the
amount of the accrued interest will be transferred to the Loan Account. If a
loan continues to be in default, the total outstanding balance will be deducted
from Contract Value upon the Contractowner's attained age 59 1/2. The Contract
will be automatically terminated if the outstanding loan balance on a loan in
default equals or exceeds the amount for which the Contract may be surrendered,
plus any withdrawal charge. The proceeds from the Contract will be used to repay
the debt and any applicable withdrawal charge. Because of the adverse tax
consequences associated with defaulting on a loan, a Contractowner should
carefully consider his or her ability to repay the loan and should consult with
a tax advisor before requesting a loan.
The partial withdrawal may be subject to taxation as a distribution.
Contractowners should consult with their tax advisers before requesting a loan.
While the amount to secure the loan is held in the General Account and the
amount of the outstanding loan balance is held in the Loan Account, the Owner
forgoes the investment experience of the Series and the current rate of interest
on the Loan Account. Outstanding Contract Debt will reduce the amount of
proceeds paid upon full withdrawal or upon payment of the death benefit.
A Contractowner should consult with his or her tax adviser on the effect of
a loan.
The foregoing discussion of Contract loans is general and does not address
the tax consequences resulting from all situations in which a person may receive
a Contract loan. For plans that are subject to the Employee Retirement Income
Security Act ("ERISA"), loans may not be available or may be subject to certain
restrictions. A competent tax adviser should be consulted before obtaining a
Contract loan.
CONSTRAINTS ON DISTRIBUTIONS FROM CERTAIN SECTION 403(B) ANNUITY CONTRACTS
The Internal Revenue Code imposes restrictions on certain distributions
from tax-sheltered annuity contracts meeting the requirements of Section 403(b).
Section 403(b) of the Code 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, exclude the amount of purchase payments from gross income
for tax purposes. Section 403(b)(11) requires that distributions from Section
403(b) annuities that are attributable to employee contributions under a salary
reduction agreement not begin before the employee (i) reaches age 59 1/2, (ii)
separates from service, (iii) dies, (iv) becomes disabled or (v) incurs a
hardship. SBL reserves the right to require satisfactory written proof of the
events in items (i) through (v) prior to any distribution from the Contract.
Furthermore, distributions of income attributable to such contributions may not
be made on account of hardship. Hardship, for this purpose, is generally defined
as an immediate and heavy financial need, such as for paying medical expenses,
the purchase of a principal residence, or paying certain tuition expenses. A
Participant in a Variflex Contract purchased as a Section 403(b) annuity
contract will not, therefore, be entitled to exercise the right of withdrawal,
including systematic withdrawals, as described in this Prospectus, in order to
receive amounts attributable to elective contributions credited to such
Participant after December 31, 1988 under the Contract unless one of the
foregoing conditions has been satisfied. A Participant's value in a Contract may
be able to be transferred to certain other investment alternatives meeting the
requirements of Section
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403(b) that are available under an employer's Section 403(b) arrangement.
ANNUITY PERIOD
ANNUITY PROVISIONS
Life-contingent Variable Annuity payments are determined on the basis of
(a) the mortality table (1983 Table a) specified in the contract (except for
single payment immediate contracts which contain no tables, but for which
annuity rates are available upon request) which generally reflects the age and
sex of the Variable Annuitant and the type of annuity payment option selected,
and (b) the investment performance of Variflex.
Pursuant to the U.S. Supreme Court decision in Arizona Governing Committee
for Tax Deferral Annuity and Deferred Compensation Plans v. Norris, which held
that an employer subject to Title VI of the Civil Rights Act of 1964 may not
offer its employees the option of receiving retirement benefits calculated on
the basis of sex, Variflex Contracts for Participants in such Plans will offer
retirement benefits calculated only on a unisex basis. To the extent that future
legislation expands requirements for unisex rates, Variflex Contracts will
conform to such requirements.
ELECTION OF ANNUITY COMMENCEMENT DATE AND FORM OF ANNUITY
The Annuity Commencement Date cannot be less than 37 months after the date
the first contribution is credited to the contract.
Contracts purchased in accordance with Plans qualifying under Section 401
or 403(a) of the Internal Revenue Code provide for annuity payments to begin on
the date and under the annuity options provided for in the Plan.
For contracts qualifying under Section 403(b) of the Code, the date on
which annuity payments are to begin and the form of option are elected in the
application. The option may be any one of Options 1 through 8 as shown below
(provided that distributions under the option comply with the minimum
distribution rules of the Code), and the Annuity Commencement Date must be no
later than that allowed by law. Distributions from 403(b) contracts must
generally begin by the April 1 following the year in which the Annuitant reaches
age 70 1/2.
For Contracts qualifying under Section 403(c) or 457 of the Code, the date
on which annuity payments are to begin and the form of option are provided for
in the Plan agreement. Changes in such election of option may be made at any
time up to 30 days prior to the date on which annuity payments are to begin.
Payments under a Contract qualifying under Section 457 of the Code must comply
with minimum distribution rules generally applicable to qualified retirement
plans.
If no election of an Annuity Commencement Date is made, SBL reserves the
right to automatically begin payments at age 70 (or if age at purchase was over
60, then 10 years after issue) under Option 2, with 120 monthly payments
certain.
ALLOCATION OF BENEFITS
For the Annuity Period, if no election is made to the contrary, the
Accumulation Units of each Series in Variflex (held on the Annuity Commencement
Date) will be changed into Variable Annuity Units and applied to provide a
Variable Annuity based on that Series.
In lieu of this automatic allocation of annuity benefits, the Contractowner
or Participant may elect to convert his or her Accumulation Units to any other
Series in Variflex. After the Annuity Commencement Date, further changes
affecting the account allocation may be made as described under "Transfer of
Contract Value" on page 12 provided, however, that transfers are not allowed
between the Series and the General Account option if payments are made pursuant
to Annuity Options 1 through 4, 7 or 8.
No election may be made for any individual unless such election would
produce a periodic payment of at least $100 to that individual and if a
combination benefit is elected, no election may be made unless the guaranteed
and variable payments would each be at least $50.
OPTIONAL ANNUITY FORMS
The following optional annuity forms are available. Individual factual
situations or Plan provisions may vary, however, and special rules not discussed
herein may control.
OPTION 1 -- LIFE INCOME -- Monthly payments will be made during the
lifetime of the Annuitant with payments ceasing upon death, regardless of the
number of payments received. There is no minimum number of payments guaranteed
under this option and it is possible for an Annuitant to receive only one
annuity payment if the Annuitant's death occurred prior to the due date of the
second annuity payment, or only two if death occurred prior to the due date of
the third annuity payment, etc.
OPTION 2 -- LIFE INCOME WITH GUARANTEED PAYMENTS OF 5, 10, 15, OR 20 YEARS
- -- Monthly payments will be made during the lifetime of the Annuitant with
payments made for a stated period of not less than 5, 10, 15, or 20 years, as
elected. If, at the death of the Annuitant, payments have been made for less
than the stated period, annuity payments will be continued during the remainder
of such period to the beneficiary.
OPTION 3 -- UNIT REFUND LIFE INCOME -- Monthly payments will be made during
the lifetime of the Annuitant. If, at the death of the Annuitant, payments have
been made for less than the number of months determined by dividing the amount
applied under this Option by the first monthly payment, the remainder of such
payments will continue to the beneficiary. The Option guarantees that the
annuity units but not necessarily the dollar value applied under a variable
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payout will be repaid to the Annuitant or his or her beneficiary.
OPTION 4 -- JOINT AND SURVIVOR ANNUITY -- Monthly payments will be made
during the lifetime of the Annuitant and another named Annuitant and thereafter
during the lifetime of the survivor, ceasing upon the death of the survivor.
There is no minimum number of payments guaranteed under this option and it is
possible for only one annuity payment to be made if both Annuitants under the
Option died prior to the due date of the second annuity payment, or only two
payments if both died prior to the third annuity payment due date, etc.
OPTION 5 -- INSTALLMENT PAYMENTS FOR A FIXED PERIOD -- Monthly payments
will be made for a specified number of years. The amount of each payment will be
determined by multiplying (a) the Accumulation Unit Value for the day the
payment is made, times (b) the result of dividing the number of Accumulation
Units applied under this Option by the number of remaining monthly payments. If
at the death of the Annuitant, payments have been made for less than the
specified number of years, the remaining unpaid payments will be paid to the
beneficiary.
OPTION 6 -- INSTALLMENT PAYMENTS FOR A FIXED AMOUNT -- Equal monthly
payments will be made until the amount applied, adjusted daily by the investment
results, is exhausted. The final payment will be the amount remaining with SBL.
OPTION 7 -- PERIOD CERTAIN -- Periodic annuity payments will be made for a
stated period which may be five, ten, fifteen or twenty years, as elected. 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.
In addition, upon request, SBL will make monthly payments based upon the
Annuitant's life expectancy, or the joint life expectancies of the Annuitant and
his or her beneficiary, at the Annuitant's attained age (and the beneficiary's
attained or adjusted age, if applicable) each year as computed by reference to
actuarial tables prescribed by the Treasury Secretary. Such payments will be
made until the amount applied is exhausted.
The contingent deferred sales charge, where applicable, will be deducted
from annuity payments under Annuity Options 5 and 6 and other non-life
contingent payment options mutually agreed to with SBL, except that the
contingent deferred sales charge is waived if annuity payments extend over a
period of at least 5 years and are made in substantially equal amounts.
OTHER ANNUITY FORMS -- Provision may be made for annuity payments in any
reasonable arrangement mutually agreed upon.
If the beneficiary dies while receiving payments certain under Option 2, 3,
5, 6 or 7 above, the present value may be paid in a lump sum to the estate of
the beneficiary.
VALUE OF VARIABLE ANNUITY PAYMENTS: ASSUMED INVESTMENT RATES
The annuity tables in the Contract which are used to calculate the annuity
payments are based on an "assumed investment rate" of 3.5 percent. If the actual
investment performance of the particular Series selected is such that the net
investment return to Variflex is 3.5 percent per annum, payments will remain
constant. If the net investment return exceeds 3.5 percent, the payments will
increase and if the return is less than 3.5 percent, the payments will decline.
Use of a higher investment rate assumption would mean a higher initial payment
but a more slowly rising series of subsequent payments in a rising market (or a
more rapidly falling series of subsequent payments in a declining market). A
lower assumption would have the opposite effect. Generally, one might expect an
equity investment to experience more significant market fluctuations than a debt
investment, and a longer term debt investment to experience more market
fluctuation than a shorter term debt investment. Thus, while there can be no
certainty, more fluctuation might be expected in the value of Growth,
Growth-Income, Worldwide Equity, Emerging Growth, Global Aggressive Bond, Equity
Income, Specialized Asset Allocation, Managed Asset Allocation, High Yield,
Social Awareness, Value and Small Cap Series. The High Grade Income Series
should experience a lesser amount of fluctuation, and the Money Market Series
should experience the least fluctuation.
The payment amount will be greater for shorter guaranteed periods than for
longer guaranteed periods, and greater for life annuities than for joint and
survivor annuities, because the life annuities are expected to be made for a
shorter period.
The method of computing the Variable Annuity payment is described in more
detail in the Statement of Additional Information.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Plans for participants in the Texas Optional Retirement Program contain
restrictions required under the Texas Education Code. In accordance with those
restrictions, a participant in such a Plan will not be permitted to make
withdrawals prior to such participant's retirement, death or termination of
employment in a Texas public institution of higher education.
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FEDERAL TAX MATTERS
INTRODUCTION
The Contract described in this Prospectus is designed for use by
individuals in retirement plans which are 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 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 SBL'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 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. SBL DOES NOT
MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF, OR TAX CONSEQUENCES ARISING
FROM, ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACTS.
TAX STATUS OF SBL AND THE SEPARATE ACCOUNT
GENERAL
SBL 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 SBL, SBL will be responsible for any federal income taxes that become
payable with respect to the income of the Separate Account and its Series.
CHARGE FOR SBL TAXES
A charge may be made for any federal taxes incurred by SBL that are
attributable to the Separate Account, the Series or to the operations of SBL
with respect to the Contracts or attributable to payments, premiums, or
acquisition costs under the Contracts. SBL will review the question of a charge
to the Separate Account, the Series or the Contracts for SBL's federal taxes
periodically. Charges may become necessary if, among other reasons, the tax
treatment of SBL or of income and expenses under the Contracts is ultimately
determined to be other than what SBL 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 SBL's tax status.
DIVERSIFICATION STANDARDS
Each Series of the Mutual Fund will be required to adhere to regulations
adopted by the Treasury Department pursuant to Section 817(h) of the Code
prescribing asset diversification requirements for investment companies whose
shares are sold to insurance company separate accounts funding variable
contracts. Pursuant to these regulations, on the last day of each calendar
quarter (or on any day within 30 days thereafter), no more than 55 percent of
the total assets of a Series may be represented by any one investment, no more
than 70 percent may be represented by any two investments, no more than 80
percent may be represented by any three investments, and no more than 90 percent
may be represented by any four investments. For purposes of Section 817(h),
securities of a single issuer generally are treated as one investment but
obligations of the U.S. Treasury and each U.S. Governmental agency or
instrumentality generally are treated as securities of separate issuers. The
Separate Account, through the Series, intends to comply with the diversification
requirements of Section 817(h).
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contractowner's gross income. The IRS has stated in published rulings that a
variable contractowner will be considered the owner of separate account assets
if the contractowner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the policyowner), rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example,
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the Contractowner has additional flexibility in allocating purchase payments and
Contract Values. These differences could result in a Contractowner being treated
as the owner of a pro rata portion of the assets of the Separate Account. In
addition, SBL 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. SBL therefore reserves the right to modify the Contract, as it deems
appropriate, to attempt to prevent a Contractowner from being considered the
owner of a pro rata share of the assets of the Separate Account. Moreover, in
the event that regulations or rulings are adopted, there can be no assurance
that the Series will be able to operate as currently described in the
Prospectus, or that the Mutual Fund will not have to change any Series'
investment objective or investment policies.
INCOME TAXATION OF ANNUITIES IN GENERAL -- QUALIFIED PLANS
The Contract may be used with Qualified Plans that meet the requirements of
Section 401, 403(b) or 457 of the Code. The tax rules applicable to participants
in such Qualified Plans vary according to the type of plan and the terms and
conditions of the plan itself. No attempt is made herein to provide more than
general information about the use of the Contract with the various types of
Qualified Plans. These Qualified Plans may permit the purchase of the Contracts
to accumulate retirement savings under the plans. Adverse tax or other legal
consequences to the plan, to the participant or to both may result if this
Contract is assigned or transferred to any individual as a means to provide
benefit payments, unless the plan complies with all legal requirements
applicable to such benefits prior to transfer of the Contract. Contractowners,
Annuitants, and Beneficiaries, are cautioned that the rights of any person to
any benefits under such Qualified Plans may be subject to the terms and
conditions of the plans themselves or limited by applicable law, regardless of
the terms and conditions of the Contract issued in connection therewith. For
example, SBL may accept beneficiary designations and payment instructions under
the terms of the Contract without regard to any spousal consents that may be
required under the Employee Retirement Income Security Act of 1974 (ERISA).
Consequently, a Contractowner's Beneficiary designation or elected payment
option may not be enforceable.
The amounts that may be contributed to Qualified Plans are subject to
limitations that vary depending on the type of Plan. In addition, early
distributions from most Qualified Plans may be subject to penalty taxes, or in
the case of distributions of amounts contributed under salary reduction
agreements, could cause the Plan to be disqualified. Furthermore, distributions
from most Qualified Plans are subject to certain minimum distribution rules.
Failure to comply with these rules could result in disqualification of the Plan
or subject the Owner or Annuitant to penalty taxes. As a result, the minimum
distribution rules may limit the availability of certain Annuity Options to
certain Annuitants and their beneficiaries. These requirements may not be
incorporated into SBL'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:
1. Section 401
Code Section 401 permits employers to establish various types of retirement
plans (e.g., pension, profit sharing and 401(k) plans) for their employees. For
this purpose, self-employed individuals (proprietors or partners operating a
trade or business) are treated as employees and therefore eligible to
participate in such plans. Retirement plans established in accordance with
Section 401 may permit the purchase of Contracts to provide benefits thereunder.
In order for a retirement plan to be "qualified" under Code Section 401, it
must: (i) meet certain minimum standards with respect to participation, coverage
and vesting; (ii) not discriminate in favor of "highly compensated" employees;
(iii) provide contributions or benefits that do not exceed certain limitations;
(iv) prohibit the use of plan assets for purposes other than the exclusive
benefit of the employees and their beneficiaries covered by the plan; (v)
provide for distributions that comply with certain minimum distribution
requirements; (vi) provide for certain spousal survivor benefits; and (vii)
comply with numerous other qualification requirements.
A retirement plan qualified under Code Section 401 may be funded by
employer contributions, employee contributions or a combination of both. Plan
participants are not subject to tax on employer contributions until such amounts
are actually distributed from the plan. Depending upon the terms of the
particular plan, employee contributions may be made on a pre-tax or after-tax
basis. In addition, plan participants are not taxed on plan earnings derived
from either employer or employee contributions until such earnings are
distributed.
Each employee's interest in a retirement plan qualified under Code Section
401 must generally be distributed or begin to be distributed not later than
April 1 of the calendar year following the later of the calendar year in which
the employee reaches age 70 1/2 or retires ("required beginning date"). Periodic
distributions must not extend beyond the life of the employee or the lives of
the employee and a designated beneficiary (or over a period extending beyond the
life expectancy of the employee or the joint life expectancy of the employee and
a designated beneficiary).
If an employee dies before reaching his or her required beginning date, the
employee's entire interest in the plan must generally be distributed within five
years of the employee's death. However, the five-year rule will be deemed
satisfied, if distributions begin before the close of the calendar year
following the year of the employee's death
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to a designated beneficiary and are made over the life of the beneficiary (or
over a period not extending beyond the life expectancy of the beneficiary). If
the designated beneficiary is the employee's surviving spouse, distributions may
be delayed until the employee would have reached age 70 1/2.
If an employee dies after reaching his or her required beginning date, the
employee's interest in the plan must generally be distributed at least as
rapidly as under the method of distribution in effect at the time of the
employee's death.
Annuity payments distributed from a retirement plan qualified under Code
Section 401 are taxable under Section 72 of the Code. Section 72 provides that
the portion of each payment attributable to contributions that were taxable to
the employee in the year made, if any, is excluded from gross income as a return
of the employee's investment. The portion so excluded is determined by dividing
the employee's investment in the plan by (1) the number of anticipated payments
determined under a table set forth in Section 72 of the Code or (2) in the case
of a contract calling for installment payments, the number of monthly annuity
payments under such contract. The portion of each payment in excess of the
exclusion amount is taxable as ordinary income. Once the employee's investment
has been recovered, the full annuity payment will be taxable. If the employee
should die prior to recovering his or her entire investment, the unrecovered
investment will be allowed as a deduction on the employee's final return. If the
employee made no contributions that were taxable when made, the full amount of
each annuity payment is taxable as ordinary income.
A "lump-sum" distribution from a retirement plan qualified under Code
Section 401 is eligible for favorable tax treatment. A "lump-sum" distribution
means the distribution within one taxable year of the balance to the credit of
the employee which becomes payable: (i) on account of the employee's death, (ii)
after the employee attains age 59 1/2, (iii) on account of the employee's
termination of employment (in the case of a common law employee only) or (iv)
after the employee has become disabled (in the case of a self-employed person
only).
As a general rule, a lump-sum distribution is fully taxable as ordinary
income except for an amount equal to the employee's investment, if any, which is
recovered tax-free. However, special five-year averaging may be available,
provided the employee has reached age 59 1/2 and has not previously elected to
use income averaging. Special ten-year averaging and capital-gains treatment may
be available to an employee who reached age 50 before 1986.
Distributions from a retirement plan qualified under Code Section 401 may
be eligible for a tax-free rollover to either another qualified retirement plan
or to an individual retirement account or annuity (IRA). See "Rollovers" on page
23.
2. Section 403(b)
Code Section 403(b) permits public school employees and employees of
certain types of charitable, educational and scientific organizations specified
in Section 501(c)(3) of the Code to purchase annuity contracts, and, subject to
certain limitations, to exclude the amount of purchase payments from gross
income for tax purposes. The Contract may be purchased in connection with a
Section 403(b) annuity program.
Section 403(b) annuities must generally be provided under a plan which
meets certain minimum participation, coverage, and nondiscrimination
requirements. Section 403(b) annuities are generally subject to minimum
distribution requirements similar to those applicable to retirement plans
qualified under Section 401 of the Code. See "Section 401" on page 21.
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" on page 23.
3. Section 457
Section 457 of the Code permits employees of state and local governments
and units and agencies of state and local governments as well as tax-exempt
organizations described in Section 501(c)(3) of the Code to defer a portion of
their compensation without paying current taxes if those employees are
participants in an eligible deferred compensation plan. A Section 457 plan may
permit the purchase of Contracts to provide benefits thereunder.
Although a participant under a Section 457 plan may be permitted to direct
or choose methods of investment in the case of a tax-exempt employer sponsor,
all amounts deferred under the plan, and any income thereon, remain solely the
property of the employer and subject to the claims of its general creditors,
until paid to the participant. The
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assets of a Section 457 plan maintained by a state or local government employer
must be held in trust (or custodial account or an annuity contract) for the
exclusive benefit of plan participants, who will be responsible for taxes upon
distribution. A Section 457 plan must not permit the distribution of a
participant's benefits until the participant attains age 70 1/2, terminates
employment or incurs an "unforeseeable emergency."
Section 457 plans are generally subject to minimum distribution
requirements similar to those applicable to retirement plans qualified under
Section 401 of the Code. See "Section 401" on page 21. Since under a Section 457
plan, contributions are generally excludable from the taxable income of the
employee, the full amount received will usually be taxable as ordinary income
when annuity payments commence or other distributions are made. Distributions
from a Section 457 plan are not eligible for tax-free rollovers.
4. Rollovers
A "rollover" is the tax-free transfer of a distribution from one Qualified
Plan to another. Distributions which are rolled over are not included in the
employee's gross income until some future time.
If any portion of the balance to the credit of an employee in a Section 401
plan or Section 403(b) plan is paid to the employee in an "eligible rollover
distribution" and the employee transfers any portion of the amount received to
an "eligible retirement plan," then the amount so transferred is not includable
in income. An "eligible rollover distribution" generally means any distribution
that is not one of a series of periodic payments made for the life of the
distributee or for a specified period of at least ten years. In addition, a
required minimum distribution will not qualify as an eligible rollover
distribution. A rollover must be completed within 60 days after receipt of the
distribution.
In the case of a Section 401 plan, an "eligible retirement plan" will be
another retirement plan qualified under Code Section 401 or an individual
retirement account or annuity under Code Section 408. With respect to a Section
403(b) plan, an "eligible retirement plan" will be another Section 403(b) plan
or an individual retirement account or annuity described in Code Section 408.
A Section 401 plan and a Section 403(b) plan must generally provide a
participant receiving an eligible rollover distribution, the option to have the
distribution transferred directly to another eligible retirement plan.
The owner of an IRA may make a tax-free rollover of any portion of the IRA.
The rollover must be completed within 60 days of the distribution and generally
may only be made to another IRA. However, an individual may receive a
distribution from his or her IRA and within 60 days roll it over into a
retirement plan qualified under Code Section 401(a) if all of the funds in the
IRA are attributable to a rollover from a Section 401(a) plan. Similarly, a
distribution from an IRA may be rolled over to a Section 403(b) plan only if all
of the funds in the IRA are attributable to a rollover from a Section 403(b)
annuity.
5. Tax Penalties
PREMATURE DISTRIBUTION TAX. Distributions from a Qualified Plan before the
participant reaches age 59 1/2 are generally subject to an additional tax equal
to 10 percent of the taxable portion of the distribution. The 10 percent penalty
tax does not apply to distributions: (i) made on or after the death of the
employee; (ii) attributable to the employee's disability; (iii) which are part
of a series of substantially equal periodic payments made (at least annually)
for the life (or life expectancy) of the employee or the joint lives (or joint
life expectancies) of the employee and a designated beneficiary and which begin
after the employee terminates employment; (iv) made to an employee after
termination of employment after reaching age 55; (v) made to pay for certain
medical expenses; (vi) that are exempt withdrawals of an excess contribution;
(vii) that are rolled over or transferred in accordance with Code requirements;
or (viii) that are transferred pursuant to a decree of divorce or separate
maintenance or written instrument incident to such a decree. The 10 percent
penalty tax is generally not applicable to distributions from a Section 457
Plan.
MINIMUM DISTRIBUTION TAX. If the amount distributed from a Qualified Plan
is less than the minimum required distribution for the year, the participant is
subject to a 50 percent tax on the amount that was not properly distributed.
EXCESS DISTRIBUTION ACCUMULATION TAX. If the aggregate distributions from
all Qualified Plans (other than Section 457 plans) with respect to an individual
in a calendar year exceed the greater of (i) $150,000, or (ii) $112,500, as
indexed for inflation ($160,000 for 1997), a penalty tax of 15 percent is
generally imposed (in addition to any ordinary income tax) on the excess portion
of the distribution. In addition, a 15 percent tax is imposed on the "excess
retirement accumulations" of an individual whose aggregate retirement benefits
exceed the value of a hypothetical life annuity determined as of the date of his
or her death. The 15 percent excise tax on excess distributions will not apply
to withdrawals during calendar years 1997, 1998 and 1999.
6. 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 Section 457
plans) are generally subject to mandatory 20 percent income tax withholding.
However, no withholding is imposed if the distribution is transferred directly
to another eligible Qualified Plan.
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The above description of the federal income tax consequences of the
different types of Qualified Plans which may be funded by the Contract offered
by this Prospectus is only a brief summary and is not intended as tax advice.
The rules governing the provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have adverse tax
consequences. A prospective Contractowner considering adoption of a Qualified
Plan and purchase of a Contract in connection therewith should first consult a
qualified and competent tax adviser, with regard to the suitability of the
Contract as an investment vehicle for the Qualified Plan.
DISTRIBUTOR OF THE CONTRACTS
Subject to arrangements with SBL, the Contracts will be sold by independent
broker/dealers who are members of the National Association of Securities
Dealers, Inc. and who become licensed to sell life insurance and variable
annuities for SBL, and by national banks. Variflex Contracts may also be sold by
individuals who in addition to being licensed as agents for SBL, are associated
persons of Security Distributors, Inc., which is registered as a broker/dealer
under the Securities Exchange Act of 1934.
PERFORMANCE INFORMATION
Performance information for the Series of Variflex may appear in
advertisements, sales literature or reports to Contractowners or prospective
purchasers. All Series except the Money Market Series may advertise "average
annual total return" and "total return." The Money Market Series may advertise
"yield" and "effective yield." Each of these figures is based upon historical
results and is not necessarily representative of the future performance of the
Series.
Average annual total return and total return calculations measure both the
net income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the investments underlying the Series for the
designated period. Average annual total return will be quoted for periods of 1,
5 and 10 years (up to the life of the Series) ending with a recent calendar
quarter. Average annual total return figures are annualized and, therefore,
represent the average annual percentage change in the value of an investment in
a Series over the designated period. Total return figures are not annualized and
represent the actual percentage change over the designated period. Yield is a
measure of the net dividend and interest income earned over a specific seven-day
period for the Money Market Series expressed as a percentage of the offering
price of the Series' units. Yield is an annualized figure, which means that it
is assumed that the Series generates the same level of net income over a one
year period. The effective yield for the Money Market Series is calculated
similarly but includes the effect of assumed compounding calculated under rules
prescribed by the Securities and Exchange Commission. The Money Market Series'
effective yield will be slightly higher than its yield due to this compounding
effect.
The Series' units are sold at Accumulation Unit value. The Series'
performance figures and Accumulation Unit values will fluctuate. Units of the
Series are redeemable by an investor at Accumulation Unit value, which may be
more or less than original cost. The performance figures include the deduction
of all expenses and fees. Redemptions within the first fifteen years after
purchase may be subject to a contingent deferred sales charge of 5 percent.
Yield, effective yield and total return figures do not include the effect of any
contingent deferred sales charge that may be imposed upon the redemption of
units, and thus may be higher than if such charges were deducted. Average annual
total return figures include the effect of the applicable sales charge that may
be imposed at the end of the designated period.
Although the Contracts were not available for purchase until _____________,
1997, the underlying investment vehicle of Variflex, the SBL Fund, has been in
existence since May 26, 1977. Performance information for Variflex may also
include quotations of total return for periods beginning prior to the
availability of Variflex Contracts that incorporate the performance of the SBL
Fund.
From time to time, performance information for a Series may be compared to
the Standard & Poor's 500 Stock Index, the Dow Jones Industrial Average or other
unmanaged indices; other variable annuity separate accounts or other investment
products tracked by Lipper Analytical Services, Morningstar and the Variable
Annuity Research and Data Service ("VARDS(R)"), widely used independent research
firms that rank variable annuities and in the case of Lipper and Morningstar,
other investment companies by overall performance, and investment objectives, 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 the Consumer Price Index (measure for inflation). Additional
information concerning the Series' performance appears in the Statement of
Additional Information.
THE GENERAL ACCOUNT
In addition to the fourteen Series of Variflex, Contractowners may allocate
all or a portion of their purchase payments and transfer Contract Value to the
General Account. There are two General Account options. (See the discussion of
the "Traditional General Account Option" and "DCA Plus Account Option," below.)
Amounts allocated to the General Account options become part of SBL's General
Account, which supports SBL's insurance and annuity obligations. The General
Account is subject to regulation and supervision by the Kansas Department of
Insurance as well as the insurance laws and regulations of other jurisdictions
in which the Contract is distributed. In reliance on certain exemptive and
exclusionary provisions, interests in the General Account have not been
registered as
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securities under the Securities Act of 1933 (the "1933 Act") and the General
Account has not been registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, neither the General Account
nor any interests therein are generally subject to the provisions of the 1933
Act or the 1940 Act. SBL has been advised that the staff of the SEC has not
reviewed the disclosure in this Prospectus relating to the General Account. This
disclosure, however, may be subject to certain generally applicable provisions
of the federal securities laws relating to the accuracy and completeness of
statements made in the Prospectus. This Prospectus is generally intended to
serve as a disclosure document only for aspects of a Contract involving the
Separate Account and contains only selected information regarding the General
Account.
Amounts allocated to the General Account options become part of the General
Account of Security Benefit, which consists of all assets owned by SBL other
than those in the Separate Account and other separate accounts of SBL. Subject
to applicable law, SBL has sole discretion over the investment of the assets of
its General Account.
INTEREST
Amounts allocated to the General Account earn interest at a fixed rate or
rates that are paid by SBL. The Contract Value in the General Account earns
interest at an interest rate that is guaranteed to be at least an annual
effective rate of 3.0 percent which will accrue daily ("Guaranteed Rate"). Such
interest will be paid regardless of the actual investment experience of the
General Account. In addition, SBL may in its discretion pay interest at a rate
("Current Rate") that exceeds the Guaranteed Rate. SBL will determine the
Current Rate, if any, from time to time, and reserves the right to change such
rate at any time.
Contract Value that was allocated or transferred to the General Account
during one month may be credited with a different Current Rate than amounts
allocated or transferred to the General Account in another month. SBL may credit
interest at a different Current Rate on the Traditional General Account and DCA
Plus Account options. Therefore, at any given time, various portions of a
Contractowner's Contract Value allocated to the General Account may be earning
interest at different Current Rates, depending upon the month during which such
portions were originally allocated or transferred to the General Account and the
General Account option. SBL bears the investment risk for the Contract Value
allocated to the General Account and for paying interest at the Guaranteed Rate
on amounts allocated to the General Account.
For purposes of determining the interest rates to be credited on Contract
Value in the General Account, withdrawals, loans, or transfers from the General
Account will be deemed to be taken from purchase payments or transfers in the
order in which they were credited to the General Account, and interest
attributable to each such purchase payment or transfer shall be deemed taken
before the amount of each purchase payment or transfer.
DEATH BENEFIT
The death benefit under the Contract will be determined in the same fashion
for a Contract that has Contract Value in the General Account as for a Contract
that has Contract Value allocated to the Series. See "Death Benefit During
Accumulation Period," on page 16.
CONTRACT CHARGES
The contingent deferred sales charge and premium taxes will be the same for
Contractowners who allocate purchase payments or transfer Contract Value to the
General Account as for those who allocate purchase payments to the Series. The
actuarial risk fee will not be assessed against the General Account, and any
amounts that SBL pays for income taxes allocable to the Series will not be
charged against the General Account. In addition, the investment advisory fees
and operating expenses paid by the SBL Fund will not be paid directly or
indirectly by Contractowners to the extent the Contract Value is allocated to
the General Account; however, such Contractowners will not participate in the
investment experience of the Series of SBL Fund.
TRADITIONAL GENERAL ACCOUNT OPTION
Purchase Payments may be allocated to this option and Contract Value may
be transferred from the Variflex Series to this option subject to the same $25
minimum allocation applicable to the Variflex Series. Transfers from this option
to the Series are limited as discussed below.
During the Accumulation Period, a Contractowner may transfer from the
Traditional General Account option to the Series in a Contract Year not more
than the greatest of (1) $5,000, (2) one-fifth of the amount invested in the
option at the time of the first transfer in the Contract Year, or (3) 120
percent of the amount transferred from the Traditional General Account option
during the previous Contract Year. SBL reserves the right for a period of time
to allow transfers from the General Account option in amounts that exceed the
limits set forth above ("Waiver Period"). In any Contract Year following such a
Waiver Period, the total dollar amount that may be transferred from the
Traditional General Account option is the greatest of: (1) above; (2) above; or
(3) 120 percent of the lesser of: (i) the dollar amount transferred from the
Traditional General Account option in the previous Contract Year; or (ii) the
maximum dollar amount that would have been allowed in the previous Contract year
under the transfer provisions above absent the Waiver Period.
The Contractowner may also make full and partial withdrawals to the same
extent as a Contractowner who has allocated Contract Value to the Series. See
"Full and Partial Withdrawals," page 15.
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
DCA PLUS ACCOUNT OPTION
This option is available ONLY for amounts allocated to a Contract during
the first two Contract Years pursuant to a direct transfer from another section
403(b) annuity.
Purchase Payments allocated to this option will be transferred monthly to
one or more Series (not to include the Money Market Series) of Variflex over a
period of one year (the "Transfer Year"). The Transfer Year begins on the date a
direct transfer is first allocated to this option and the first monthly transfer
is made on the same date in the following month. A Contractowner that allocates
a Purchase Payment to this option must submit to SBL written instructions
specifying the Series to which such transfers should be made. (Such transfers
may not be made to the Traditional General Account option.) The monthly
transfers from the DCA Plus Account to the Variflex Series will be made in
amounts determined by dividing the Contract Value allocated to the DCA Plus
Account by the number of months remaining in the Transfer Year. If subsequent
direct transfers are allocated to the DCA Plus Account during a Transfer Year,
they will be transferred to the Variflex Series selected by the Contractowner
over the balance of the Transfer Year. As a result, any subsequent direct
transfers may be allocated to the DCA Plus Account for less than a year. A
Contractowner should consider whether allocating a subsequent direct transfer to
the DCA Plus Account is appropriate in light of the amount of time remaining in
the Transfer Year.
A Contractowner may not transfer Contract Value from the Series or the
Traditional General Account option to this option. Full and partial withdrawals
are allowed as discussed under "Full and Partial Withdrawals" on page 15.
PAYMENTS FROM THE GENERAL ACCOUNT
Full and partial withdrawals, loans, and transfers from the General
Account may be delayed for up to six months after a written request in proper
form is received by SBL at its Home Office. During the period of deferral,
interest at the applicable interest rate or rates will continue to be credited
to the amounts allocated to the General Account. However, payment of any amounts
will not be deferred if they are to be used to pay premiums on any policies or
contracts issued by SBL.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this Prospectus. The following is a
Table of Contents for that Statement:
TABLE OF CONTENTS
Page
THE CONTRACT.............................................................. 1
Valuation of Accumulation Units......................................... 1
Computation of Variable Annuity Payments................................ 1
Illustration............................................................ 2
Variations in Charges................................................... 2
Termination of Contract................................................. 3
Group Contracts......................................................... 3
PERFORMANCE INFORMATION................................................... 3
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX QUALIFIED RETIREMENT PLANS..... 5
Section 401............................................................. 5
Section 403(b).......................................................... 6
Section 457............................................................. 6
ASSIGNMENT................................................................ 6
DISTRIBUTION OF THE CONTRACTS............................................. 6
SAFEKEEPING OF VARIFLEX ACCOUNT ASSETS.................................... 7
STATE REGULATION.......................................................... 7
RECORDS AND REPORTS....................................................... 7
LEGAL MATTERS............................................................. 7
EXPERTS................................................................... 7
OTHER INFORMATION......................................................... 7
FINANCIAL STATEMENTS...................................................... 8
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26
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<PAGE>
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<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies
700 SW Harrison, Topeka, Kansas 66636-0001
VARIFLEX
VARIABLE ANNUITY CONTRACTS
EDUCATOR SERIES
STATEMENT OF ADDITIONAL INFORMATION
________________, 1997
RELATING TO THE PROSPECTUS DATED, _______________ 1997,
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME
(785) 431-3112
(800) 888-2461
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies
700 SW Harrison, Topeka, Kansas 66636-0001
VARIFLEX
VARIABLE ANNUITY CONTRACTS
EDUCATOR SERIES
STATEMENT OF
ADDITIONAL INFORMATION
___________, 1997
This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Variflex Variable Annuity Educator Series
Contracts (the "Contract") offered by Security Benefit Life Insurance Company
("SBL"). You may obtain a copy of the Prospectus dated, ______________, 1997, by
calling (785) 431-3112, or writing to Security Benefit Life Insurance Company,
700 SW Harrison, Topeka, Kansas 66636-0001. Terms used in the current Prospectus
for the Contract are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.
TABLE OF CONTENTS
Page
The Contract................................................................ 1
Valuation of Accumulation Units........................................... 1
Computation of Variable Annuity Payments.................................. 1
Illustration.............................................................. 2
Variations in Charges..................................................... 2
Termination of Contract................................................... 3
Group Contracts........................................................... 3
Performance Information..................................................... 3
Limits on Purchase Payments Paid Under Tax-Qualified Retirement Plans....... 5
Section 401............................................................... 5
Section 403(b)............................................................ 6
Section 457............................................................... 6
Assignment.................................................................. 6
Distribution of the Contracts............................................... 6
Safekeeping of Variflex Account Assets...................................... 7
State Regulation............................................................ 7
Records and Reports......................................................... 7
Legal Matters............................................................... 7
Experts..................................................................... 7
Other Information........................................................... 7
Financial Statements........................................................ 8
<PAGE>
THE CONTRACT
The following provides additional information about the Contracts which
supplements the description in the Prospectus and which may be of interest to
some Contractowners.
VALUATION OF ACCUMULATION UNITS
The objective of a Variable Annuity is to provide level payments during
periods when the market is relatively stable and to reflect as increased
payments only the excess investment results following from inflation or an
increase in productivity.
The Accumulation Unit value for a Series on any day is equal to (a) divided
by (b), where (a) is the net asset value of the underlying Fund shares of the
Series less the Actuarial Risk Fee and any deduction for provision for federal
income taxes and (b) is the number of Accumulation Units of that Series at the
beginning of that day.
The value of a contract on any Valuation Date during the Accumulation
Period can be determined by multiplying the total number of Accumulation Units
of each Series within Variflex credited to the Contract by the applicable
Accumulation Unit value of each such Series. During the Accumulation Period, all
cash dividends and other cash distributions made to each Variflex Series will be
reinvested in additional shares of the appropriate Series of SBL Fund.
COMPUTATION OF VARIABLE ANNUITY PAYMENTS
(a) DETERMINATION OF AMOUNT OF FIRST ANNUITY PAYMENT
For Annuities under options 1, 2, 3, and 4, the Contracts contain tables
indicating the dollar amount of the first monthly payment under each optional
form of Annuity for each $1,000 applied. The total first monthly annuity payment
is determined by multiplying the value of the Contract or participant's
Individual Account (expressed in thousands of dollars) by the amount of the
first monthly payment per $1,000 of value, in accordance with the tables set out
in the Contract. The value of the Contract or Participant's Individual Account
for the purpose of establishing the first periodic payment under options 1, 2,
3, 4 or similar life contingent payment options mutually agreed upon is equal to
the number of Accumulation Units applied to the option times the Accumulation
Unit value at the end of the date the first annuity payment is made. For
Annuities under options 5, 6, 7, 8 or other mutually agreed upon non-life
contingent payment option, the value of the Contract or Participant's Individual
Account for the purpose of the first and subsequent periodic payments is based
on the Accumulation Unit value at the end of the day the annuity payment is
made.
(b) AMOUNT OF THE SECOND AND SUBSEQUENT ANNUITY PAYMENTS
For Variable Annuities under options 1, 2, 3 and 4, the amount of the first
monthly annuity payment determined as described above is divided by the
applicable value of an Annuity Unit (see "(c)" below) for the day in which the
payment is due in order to determine the number of Annuity Units represented by
the first payment. This number of Annuity Units remains fixed during the Annuity
period and each subsequent payment period. The dollar amount of the annuity
payment is determined by multiplying the fixed number of Annuity Units by the
Annuity Unit value for the day the payment is due.
(c) ANNUITY UNIT
The value of an Annuity Unit of Series A, B, C and D was set at $1.00 on
April 1, 1984. The value of an Annuity Unit of Series E was set at $1.00 on
April 25, 1985. The value of an annuity unit of Series S was set at $1.00 on
April 23, 1991. The value of an annuity unit of Series J was set at $1.00 on
October 1, 1992. The value of an Annuity Unit of Series K, M, N and O was set at
$1.00 on June 1, 1995. The value of an annuity unit of Series P was set at $1.00
on August 5, 1996. The value of an annuity unit of Series V was set at $1.00 on
April 30, 1997. The value of an annuity unit of Series X was set at $1.00 on
October 15, 1997. The value of an Annuity Unit for any subsequent day is
determined by multiplying the value for the immediately preceding day by the
product of (a) the Net Investment Factor for the day for which the value is
being calculated and (b) .9999057540, the interest neutralization factor (the
factor required to neutralize the assumed investment rate of 3 1/2% built into
the annuity rates contained in the Contract). The Net Investment Factor of any
Series is determined by subtracting 0.00003307502, the Actuarial Risk Fee, from
the ratio of (a) to (b) where (a) is the value of a share of the underlying
Series of SBL Fund at the end of the day plus the value of any dividends or
other distributions
1
<PAGE>
attributable to such share during a day and minus any applicable income tax
liabilities as determined by SBL, and (b) is the value of a share of the
underlying Series of SBL Fund at the end of the previous day.
The formula for daily valuation of annuity units is set forth below:
Number of Dollar Amount of First Monthly Payment
Annuity = --------------------------------------------------------
Units Annuity Unit Value for Day on Which First Payment is Due
Value of Net Investment
Annuity Unit Value = Annuity Unit for x Factor for x 0.9999057540
Preceding Day the Day
Dividends or Other
Value of a Series + Distributions
Net Share* at End of Day During Day Per Share
Investment = ----------------------------------------------- - 0.00003307502
Factor Value of a Series Share* at
End of the Previous Day
Dollar Amount of Annuity Unit Value
Second and Subsequent = Number of Annuity Units x for Day on Which
Annuity Payments Payment is Due
*A share of the underlying Series of SBL Fund.
ILLUSTRATION
The Annuity Unit and the Annuity payment may be illustrated by the
following hypothetical example: Assume an annuitant at the annuity commencement
date has credited to his Contract 4,000 Accumulation Units and that the value of
an Accumulation Unit at the end of the annuity commencement date was $5.13,
producing a total value for the contract of $20,520. Any premium taxes due would
reduce the total value of the Contract that could be applied towards the
Annuity; however, in this illustration it is assumed no premium taxes are
applicable. Assume also the Annuitant elects an option for which the annuity
table in the Contract indicates the first monthly payment is $6.40 per $1,000 of
value applied; the resulting first monthly payment would be 20.520 multiplied by
$6.40 or $131.33.
Assume the Annuity Unit value for the day on which the first payment was
due was $1.0589108749. When this is divided into the first monthly payment the
number of Annuity Units represented by that payment is 124.0236578101. The value
of the same number of Annuity Units will be paid in each subsequent month
Assume further the value of a Series share was $5.15 at the end of the day
preceding the date of the second annuity payment, that it was $5.17 at the end
of the due date of the second Annuity payment and that there was no cash income
during such second day. The Net Investment Factor for that second day was
1.0038504201 ($5.17 divided by $5.15 minus .00003307502). Multiplying this
factor by 0.9999057540 to neutralize the assumed investment rate (the 3 1/2% per
annum built into the number of Annuity Units as determined above) produces a
result of 1.0037558112. The Annuity Unit value for the valuation period is
therefore $1.0639727127 which is 1.0037558112 x $1.0599915854 (the value at the
beginning of the day).
The current monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value or 124.0236578101 times
$1.0639727127 which produces a current monthly payment of $131.96.
VARIATIONS IN CHARGES
The contingent deferred sales charges and actuarial risk fee may be reduced
or waived for sales of Variflex Contracts 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, the amounts of projected Purchase Payments, or that the Contract is
sold in connection with a group or sponsored arrangement. SBL will only reduce
or waive such charges where expenses associated with the sale of the Contract or
the costs associated with administering and maintaining the Contract are
reduced.
Directors, officers and bona fide full-time employees of Security
Management Company, LLC, SBL, Security Benefit Group, Inc., SBL Fund, or
Security Distributors, Inc.; the spouses, grandparents, parents, children,
2
<PAGE>
grandchildren and siblings of such directors, officers and employees and their
spouses; any trust, pension, profit-sharing or other benefit plan established by
any of the foregoing corporations for persons described above; and salespersons
(and their spouses and minor children) who are licensed with SBL to sell
variable annuities are permitted to purchase contracts with substantial
reduction of the contingent deferred sales charges. Contracts so purchased are
for investment purposes only and may not be resold except to SBL. No sales
commission will be paid on such contracts.
TERMINATION OF CONTRACT
SBL reserves the right to terminate a Participant's individual account
under a Group Allocated Contract during the accumulation period if Contract
Value is less than $2,000. Termination of a Variflex Contract may have adverse
tax consequences. (See the Prospectus at "Full and Partial Withdrawals," page
15, "Constraints on Distributions from Certain Section 403(b) Annuity
Contracts," page 17, and "Federal Tax Matters," page 20.)
GROUP CONTRACTS
In the case of Group Allocated Variflex Contracts, a master group contract
is issued to the employer or other organization, or to the trustee, who is the
Contractowner. The master group contract covers all Participants. Where funds
are allocated to a participant's individual account, each participant receives a
certificate which summarizes the provisions of the master group contract and
evidences participation in the Plan established by the organization.
PERFORMANCE INFORMATION
Performance information for the Series of the Variflex Separate Account may
appear in advertisements, sales literature or reports to Contractowners or
prospective purchasers. Performance information in advertisements or sales
literature may be expressed as yield and effective yield of the Money Market
Series, and average annual total return and total return of all Series except
the Money Market Series. Current yield for the Money Market Series will be based
on the change in the value of a hypothetical investment (exclusive of capital
changes) over a particular seven-day period, less a hypothetical charge
reflecting deductions from Contractowner accounts 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 hundredth of 1%. "Effective yield" for the Money Market Series assumes
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 calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = ((Base Period Return + 1) 365/7) - 1
For the seven-day period ended December 31, 1996, the yield of the Money
Market Series was 3.93% and the effective yield of the Series was 4.00%.
Quotations of yield for the Series, other than the Money Market Series,
will be based on all investment income per Accumulation Unit earned during a
particular 30-day period, less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income by
the value of the Accumulation Unit on the last day of the period, according to
the following formula:
YIELD = 2[(a - b + 1)6 - 1]
-----
cd
where a = net investment income earned during the period by the Series
attributable to shares owned by the Subaccount,
b = expenses accrued for the period (net of any reimbursements),
c = the average daily number of Accumulation Units outstanding during
the period that were entitled to receive dividends, and
3
<PAGE>
d = the maximum offering price per Accumulation Unit on the last day
of the period.
Quotations of average annual total return for any Series of the Separate
Account will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Series over certain periods that will
include periods of 1, 5 and 10 years (up to the life of the Series), 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). Such total
return figures reflect the deduction of the applicable contingent deferred sales
charge and other recurring Variflex fees and charges on an annual basis,
including charges for Actuarial Risk Fee of the account, although other
quotations may be simultaneously given that do not assume a surrender and do not
take into account deduction of a contingent deferred sales charge.
For the 1-, 5- and 10-year periods ended December 31, 1996, respectively,
the average annual total return was 16.98%, 14.17% and 13.82% for the Growth
Series; 12.48%, 9.94% and 12.60% for the Growth-Income Series (formerly the
"Income-Growth Series"); 11.76%, 9.66% and 1.95% for the Worldwide Equity Series
(formerly the High Yield Series); and -6.15%, 3.96% and 6.25% for the High Grade
Income Series. For the 1-year period ended December 31, 1996 and the period
between October 1, 1992 (Series date of inception) and December 31, 1996,
respectively, the average annual total return was 12.38% and 14.18% for the
Emerging Growth Series. For the 1-year period ended December 31, 1996, and the
period between June 1, 1995 (Series date of inception) and December 31, 1996,
the average annual total return was 8.04% and 9.79% for Global Aggressive Bond
Series; 8.56% and 9.81% for Specialized Asset Allocation Series; 7.13% and 9.03%
for Managed Asset Allocation Series; and 14.35% and 20.27% for Equity-Income
Series. For the 1- and 5-year periods ended December 31, 1996 and the period
between May 1, 1991 (Series date of inception) and December 31, 1996,
respectively, the average annual total return was 13.07%, 12.00% and 11.64% for
the Social Awareness Series. For the period between August 5, 1996 (Series date
of inception) and December 31, 1996, the average annual total return was 4.20%
for High Yield Series. Performance information is not yet available for the
Value Series or Small Cap Series as they did not begin operations until May 1997
and October 1997, respectively.
Absent deduction of the contingent deferred sales charge, the average
annual total return for the stated periods above would be 21.48%, 14.64% and
13.82% for the Growth Series; 16.98%, 10.51% and 12.60% for the Growth-Income
Series; 16.26%, 10.24% and 1.95% for the Worldwide Equity Series; -1.73%, 4.69%
and 6.25% for the High Grade Income Series. For the 1-year period ended December
31, 1996, and the period between October 1, 1992 (Series date of inception), and
December 31, 1996, respectively, the average annual total return would be 16.88%
and 14.81% for the Emerging Growth Series. For the 1-year period ended December
31, 1996, and the period between June 1, 1995 (Series date of inception), and
December 31, 1996, the average annual total return would be 12.54% and 12.41%
for the Global Aggressive Bond Series; 13.06% and 12.41% for the Specialized
Asset Allocation Series; 11.63% and 11.64% for the Managed Asset Allocation
Series; and 18.85% and 22.67% for Equity-Income Series. For the 1- and 5-year
periods ended December 31, 1996, and the period between May 1, 1991 (Series date
of inception), and December 31, 1996, respectively, the average annual total
return would be 17.57%, 12.52% and 11.64% for the Social Awareness Series. For
the period between August 5, 1996 (Series date of inception) and December 31,
1996, the average annual total return on an annualized basis is 15.80% for the
High Yield Series.
Quotations of total return for any Series 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. The total return figures set forth
below would be lower if the contingent deferred sales charge were deducted.
4
<PAGE>
For the fiscal years ended 1996 through 1986, the total return for each
Series was the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Series 21.48% 35.17% (2.69%) 12.67% 9.99% 34.72% (10.68%) 33.47% 9.07% 5.23% 5.26%
Growth-Income Series 16.98% 28.48% (3.88%) 8.54% 5.09% 36.40% 5.29% 27.09% 18.03% 2.64% 17.62%
Money Market Series 3.95% 4.12% 2.68% 1.57% 2.25% 4.59% 6.69% 8.00% 6.16% 5.34% 5.32%
Worldwide Equity
Series 16.26% 9.58% 1.66% 30.33% (3.55%) 3.29%(1) --- --- --- --- ---
High Grade Income
Series (1.73%) 17.11% (7.84%) 11.43% 6.42% 15.75% 5.68% 10.79% 6.04% 1.45% 8.58%
Emerging Growth
Series 16.88% 18.04% (6.05%) 12.58% 24.38%(2) --- --- --- --- --- ---
Global Aggressive
Bond Series 12.54% 6.90%(3) --- --- --- --- --- --- --- --- ---
Specialized Asset
Allocation Series 13.06% 6.40%(3) --- --- --- --- --- --- --- --- ---
Managed Asset
Allocation Series 11.63% 6.60%(3) --- --- --- --- --- --- --- --- ---
Equity Income Series 18.85% 16.20%(3) --- --- --- --- --- --- --- --- ---
High Yield Series 6.09%(4) --- --- --- --- --- --- --- --- --- ---
Social Awareness
Series 17.57% 26.31% (4.78%) 10.81% 15.12% 4.86%(1) --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
1. From May 1, 1991 to December 31, 1991.
2. From October 1, 1992 to December 31, 1992.
3. From June 1, 1995 to December 31, 1995.
4. From August 5, 1996 to December 31, 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Although Variflex Contracts were not available for purchase until June 8,
1984, the underlying investment vehicle of Variflex, the SBL Fund, has been in
existence since May 26, 1977. Performance information for Variflex may also
include quotations of average annual total return and total return for periods,
beginning prior to the availability of Variflex contracts, that incorporate the
performance of the SBL Fund.
Performance information for a Series 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"), or other unmanaged indices so that
investors may compare a Series' results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of 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 The Variable Annuity Research and Data Service ("VARDS"), an independent
service which monitors and ranks the performance of variable annuity issuers 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 Variable Account. Unmanaged indices may assume the reinvestment of dividends
but generally do not reflect deductions for administrative and management costs
and expenses. Such investment company rating services include the following:
Lipper Analytical Services; VARDS; Morningstar, Inc.; Investment Company Data;
Schabacker Investment Management; Wiesenberger Investment Companies Service;
Computer Directions Advisory (CDA); and Johnson's Charts.
Performance information for any Series reflects only the performance of a
hypothetical investment in the Series during the 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 portfolio of the Series of the Fund in which the Series of the Separate
Account 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.
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS
SECTION 401
The applicable annual limits on purchase payments for a Contract used in
connection with a retirement plan that is qualified under Section 401 of the
Internal Revenue Code depend upon the type of plan. Total purchase payments on
behalf of a participant to all defined contribution plans maintained by an
employer are limited under Section 415(c) of the Internal Revenue Code to the
lesser of (a) $30,000, or (b) 25% of the participant's annual compensation.
Salary reduction contributions to a cash-or-deferred arrangement under a profit
sharing plan are
5
<PAGE>
subject to additional annual limits. Contributions to a defined benefit pension
plan are actuarially determined based upon the amount of benefits the
participants will receive under the plan formula. The maximum annual benefit any
individual may receive under an employer's defined benefit plan is limited under
Section 415(b) of the Internal Revenue Code. The limits determined under Section
415(b) and (c) of the Internal Revenue Code are further reduced for an
individual who participates in a defined contribution plan and a defined benefit
plan maintained by the same employer. Rollover contributions are not subject to
the annual limitations described above.
SECTION 403(B)
Contributions to 403(b) annuities are excludable from an employee's gross
income if they do not exceed the smallest of the limits calculated under
Sections 402(g), 403(b)(2), and 415 of the Code. The applicable limit will
depend upon whether the annuities are purchased with employer or employee
contributions. Rollover contributions are not subject to these annual limits.
Section 402(g) generally limits an employee's salary reduction
contributions to a 403(b) annuity to $9,500 a year. The $9,500 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 $9,500 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 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 457
Contributions on behalf of an employee to a Section 457 plan generally are
limited to the lesser of (i) $7,500 or (ii) 33 1/3% of the employee's includable
compensation. The current $7,500 limit will be indexed for inflation (in $500
increments) for tax years beginning after December 31, 1996. If the employee
participates in more than one Section 457 plan, the $7,500 limit applies to
contributions to all such programs. The $7,500 limit is reduced by the amount of
any salary reduction contribution the employee makes to a 403(b) annuity, an IRA
or a retirement plan qualified under Section 401. The Section 457 limit may be
increased during the last three years ending before the employee reaches his or
her normal retirement age. In each of these last three years, the plan may
permit a "catch-up" amount in addition to the regular amount to be deferred. The
maximum combined amount which may be deferred in each of these three years is
$15,000 reduced by any amount excluded from the employee's income for the
taxable year as a contribution to another plan.
ASSIGNMENT
Variflex Contracts may be assigned by the Contractowner except when issued
to plans or trusts qualified under Section 403(b) or 408 of the Internal Revenue
Code or the plans of self-employed individuals (either under the HR-10 Act or
later acts).
DISTRIBUTION OF THE CONTRACTS
Subject to arrangements with SBL, Variflex contracts are sold by
independent broker-dealers who are members of the National Association of
Security Dealers, Inc., and who become licensed to sell variable annuities for
SBL and by national banks. Security Distributors, Inc., acts as the principal
underwriter on behalf of SBL for the distribution of the Variflex contracts.
6
<PAGE>
The Variflex offering is continuous. During the years ended December 31,
1996, 1995 and 1994, SBL received contingent deferred sales charges from
Variflex as follows: $1,285,409, $1,182,820 and $881,215, respectively.
SAFEKEEPING OF VARIFLEX ACCOUNT ASSETS
All assets of Variflex are held in the custody and safekeeping of SBL.
Additional protection for such assets is offered by SBL's blanket fidelity bond
presently covering all officers and employees for a total of $5,000,000 per
loss.
STATE REGULATION
As a mutual insurance company organized under the laws of Kansas, SBL
(including Variflex) is subject to regulation by the Commissioner of Insurance
of the State of Kansas. An annual statement is filed with the Kansas
Commissioner of Insurance on or before March 1 each year covering the operations
of SBL for the prior year and its financial condition on December 31 of that
year. SBL is subject to a complete examination of its operations, including an
examination of the liabilities and reserves of SBL and Variflex, by the Kansas
Commissioner of Insurance whenever such examination is deemed necessary by the
Commissioner. Such regulation and examination does not, however, involve any
supervision of the investment policies applicable to Variflex.
In addition, SBL is subject to insurance laws and regulations of the other
jurisdictions in which it is or may become licensed to operate. Generally, the
insurance department of any such other jurisdiction applies the laws of the
state of domicile in determining permissible investments.
RECORDS AND REPORTS
Reports concerning each Contract will be sent annually to each
Contractowner. Contractowners will additionally receive annual and semiannual
reports concerning SBL Fund and annual reports concerning Variflex.
Contractowners will also receive confirmations of receipt of payments, changes
in allocation of payments and conversion of variable Accumulation Units and
variable Annuity Units.
LEGAL MATTERS
Matters of Kansas law pertaining to the validity of the Contracts,
including SBL's right to issue the Contracts under Kansas insurance law and its
qualification to do so under applicable regulations issued thereunder, have been
passed upon by Amy J. Lee, Associate General Counsel of SBL.
EXPERTS
The consolidated financial statement of Security Benefit Life Insurance
Company at December 31, 1996 and 1995, and for each of the three years ended
December 31, 1996 and for the Variflex Separate Account for the years ended
December 31, 1996 and 1995, appearing in this Statement of Additional
Information have been audited by Ernst & Young, LLP, independent auditors, as
set forth in their reports thereon appearing on page 9 herein, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
OTHER INFORMATION
There has been filed with the Securities and Exchange Commission ("SEC"),
Washington, DC, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Variflex Contracts and under the Investment Company
Act of 1940, with respect to Variflex. Statements in this Prospectus relating to
Variflex and the Variflex Contracts are summaries only. For further information,
reference is made to the Registration Statements and the exhibits filed as parts
thereof. Copies of the Variflex Contracts also will be on file with the
Insurance Commissioner of each state in which SBL is authorized to issue such
Contracts.
There has also been filed with the SEC a Registration Statement with
respect to SBL Fund. Further information about the Fund may be obtained from
such Registration Statement.
7
<PAGE>
FINANCIAL STATEMENTS
Security Benefit Life Insurance Company's audited consolidated balance
sheets as of December 31, 1996 and 1995, and the related consolidated statements
of income, changes in equity and cash flows for each of the three years ended
December 31, 1996, and the financial statements of the Separate Account for the
years in the period ended December 31, 1996 and 1995, are set forth herein,
starting on page 9.
The consolidated financial statements of Security Benefit Life Insurance
Company, which are included in this Statement of Additional Information, should
be considered only as bearing on the ability of the Company to meet its
obligations under the Contracts. They should not be considered as bearing on the
investment performance of the assets held in the Separate Account.
The following disclosure should be read in conjunction with the financial
statements of Security Benefit Life Insurance Company. On September 4, 1997
Security Benefit Life Insurance Company entered into a 100% coinsurance
agreement with a third party relating to all of Security Benefit Life Insurance
Company's traditional and interest sensitive life insurance business. This life
insurance business comprised approximately 5% of total assets and total
liabilities of the Company as of December 31, 1996.
8
<PAGE>
Variflex
Financial Statements
Years ended December 31, 1996 and 1995
CONTENTS
Report of Independent Auditors........................................ 10
Audited Financial Statements
Balance Sheet......................................................... 11
Statements of Operations and Changes in Net Asset..................... 13
Notes to Financial Statements......................................... 15
9
<PAGE>
Report of Independent Auditors
The Contract Owners of Variflex and
The Board of Directors of Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of Variflex (the Company) as of
December 31, 1996, and the related statements of operations and changes in net
assets for each of the two years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments owned as of December 31, 1996, by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Variflex at December 31, 1996,
and the results of its operations and changes in its net assets for each of the
two years in the period then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
February 7, 1997
10
<PAGE>
Variflex
Balance Sheet
December 31, 1996
(DOLLARS IN THOUSANDS)
ASSETS
Investments:
SBL Fund:
Series A (Growth Series)-24,335,456 shares at net asset value
of $24.31 per share (cost, $491,521)......................... $ 591,595
Series B (Growth-Income Series)-25,054,388 shares at net asset
value of $35.40 per share (cost, $773,880)................... 886,925
Series C (Money Market Series)-7,202,675 shares at net asset
value of $12.56 per share (cost, $90,317).................... 90,466
Series D (Worldwide Equity Series)-36,359,956 shares at net asset
value of $6.14 per share (cost, $200,363)..................... 223,250
Series E (High Grade Income Series)-9,165,850 shares at net asset
value of $12.00 per share (cost, $112,408).................... 109,990
Series J (Emerging Growth Series)-7,055,809 shares at net asset
value of $18.25 per share (cost, $114,558).................... 128,769
Series K (Global Aggressive Bond Series)-543,779 shares at net
asset value of $10.72 per share (cost, $5,880)................ 5,829
Series M (Specialized Asset Allocation Series)-1,803,897 shares
at net asset value of $12.05 per share (cost, $19,971)........ 21,737
Series N (Managed Asset Allocation Series)-994,920 shares at net
asset value of $12.02 per share (cost, $10,791)............... 11,959
Series O (Equity Income Series)-2,684,197 shares at net asset value
of $14.01 per share (cost, $33,684)........................... 37,606
Series S (Social Awareness Series)-2,796,723 shares at net asset
value of $19.08 per share (cost, $43,382)..................... 53,361
----------
Total assets $2,161,487
==========
11
<PAGE>
LIABILITIES AND NET ASSETS
Mortality guarantee payable $ 37
Net assets are represented by (NOTE 3):--------------------------
NUMBER UNIT
OF UNITS VALUE AMOUNT
----------------------------
Growth Series:
Accumulation units.............12,885,505 $45.75 $589,560
Annuity reserves............... 44,385 45.75 2,031 591,591
------------------
Growth-Income Series:
Accumulation units.............18,986,176 46.58 884,317
Annuity reserves............... 56,114 46.58 2,614 886,931
------------------
Money Market Series:
Accumulation units............. 4,933,370 18.26 90,095
Annuity reserves............... 20,313 18.26 371 90,466
------------------
Worldwide Equity Series:
Accumulation units.............15,365,862 14.51 222,983
Annuity reserves............... 18,348 14.51 266 223,249
------------------
High Grade Income Series:
Accumulation units............. 5,051,175 21.68 109,531
Annuity reserves............... 21,148 21.68 459 109,990
------------------
Emerging Growth Series:
Accumulation units............. 7,123,183 18.03 128,442
Annuity reserves............... 18,109 18.03 326 128,768
------------------
Global Aggressive Bond Series:
Accumulation units............. 485,157 12.00 5,823
Annuity reserves............... 480 12.00 6 5,829
------------------
Specialized Asset Allocation Series:
Accumulation units............. 1,806,999 12.00 21,692
Annuity reserves............... 3,738 12.00 45 21,737
------------------
Managed Asset Allocation Series:
Accumulation units............. 1,000,455 11.87 11,880
Annuity reserves............... 6,665 11.87 79 11,959
------------------
Equity Income Series:
Accumulation units............. 2,727,172 13.78 37,586
Annuity reserves............... 1,466 13.78 20 37,606
------------------
Social Awareness Series:
Accumulation units............. 2,829,942 18.74 53,021
Annuity reserves............... 16,185 18.74 303 53,324
------------------
==================
Total liabilities and net assets.... $2,161,487
==================
SEE ACCOMPANYING NOTES.
12
<PAGE>
Variflex
Statement of Operations and Changes in Net Assets
Year ended December 31, 1996
(IN THOUSANDS)
HIGH
GROWTH- MONEY WORLDWIDE GRADE EMERGING
GROWTH INCOME MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES
---------------------------------------------------------
Dividend
distributions......... $ 4,003 $ 17,133 $ 3,780 $ 6,404 $ 6,701 $ 202
Expenses (NOTE 2):
Mortality and
expense risk fee..... (6,014) (9,988) (1,246) (2,420) (1,368) (1,367)
Administrative fee... (369) (1,399) (122) (69) (267) (22)
---------------------------------------------------------
Net investment
income (loss)......... (2,380) 5,746 2,412 3,915 5,066 (1,187)
Capital gains
distributions......... 24,782 82,844 - 6,043 - 4,663
Realized gain
on investments........ 29,813 41,904 785 7,793 459 11,087
Unrealized appreciation
(depreciation) on
investments.......... 40,511 (5,823) 488 10,720 (8,258) 2,657
---------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments........ 95,106 118,925 1,273 24,556 (7,799) 18,407
---------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations....... 92,726 124,671 3,685 28,471 (2,733) 17,220
Net assets at
beginning of year.... 436,043 745,482 78,686 167,450 116,344 87,329
Variable annuity deposits
(NOTES 2 AND 3)...... 205,769 161,528 213,354 73,798 45,516 63,675
Terminations and withdrawal
(NOTES 2 AND 3)...... (142,679) (144,272) (204,943) (46,433) (48,977) (39,303)
Annuity payments
(NOTES 2 AND 3)...... (255) (478) (316) (33) (161) (152)
Net mortality
guarantee transfer... (13) - - (4) 1 (1)
==========================================================
Net assets at
end of year.......... $591,591 $886,931 $90,466 $223,249 $109,990 $128,768
==========================================================
GLOBAL SPECIALIZED MANAGED
AGGRESSIVE ASSET ASSET EQUITY SOCIAL
BOND ALLOCATION ALLOCATION INCOME AWARENESS
SERIES SERIES SERIES SERIES SERIES
---------------------------------------------------------
Dividend
distributions......... $ 385 $ 186 $ 57 $ 66 $ 206
Expenses (NOTE 2):
Mortality and
expense risk fee..... (49) (197) (110) (287) (539)
Administrative fee... (10) (15) (9) (40) (29)
---------------------------------------------------------
Net investment
income (loss)......... 326 (26) (62) (261) (362)
Capital gains
distributions......... 64 86 12 4 1,068
Realized gain
on investments........ 165 381 182 1,234 2,212
Unrealized appreciation
(depreciation) on (60) 1,512 911 3,221 3,689
investments
---------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments........ 169 1,979 1,105 4,459 6,969
---------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations....... 495 1,953 1,043 4,198 6,607
Net assets at
beginning of year.... 2,188 9,689 5,590 9,755 35,596
Variable annuity deposits
(NOTES 2 AND 3)...... 5,122 13,786 6,553 29,396 16,769
Terminations and withdrawal
(NOTES 2 AND 3)...... (1,974) (3,686) (1,220) (5,738) (5,604)
Annuity payments
(NOTES 2 AND 3)...... (2) (2) (5) (3) (7)
Net mortality
guarantee transfer... - (3) (2) (2) (37)
=========================================================
Net assets at
end of year.......... $ 5,829 $21,737 $11,959 $37,606 $53,324
=========================================================
SEE ACCOMPANYING NOTES.
13
<PAGE>
Variflex
Statement of Operations and Changes in Net Assets
Year ended December 31, 1995
(IN THOUSANDS)
HIGH
GROWTH- MONEY WORLDWIDE GRADE EMERGING
GROWTH INCOME MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES
----------------------------------------------------------
Dividend
distributions......... $ 2,960 $ 11,576 $ 3,092 $ 27 $ 7,165 $ -
Expenses (NOTE 2):
Mortality and
expense risk fee... (4,280) (7,839) (921) (1,848) (1,330) (935)
Administrative fee. (340) (1,520) (136) (73) (303) (21)
----------------------------------------------------------
Net investment
income (loss)......... (1,660) 2,217 2,035 (1,894) 5,532 (956)
Capital gains
distributions......... 12,476 - - 1,732 - -
Realized gain (loss)
on investments........ 1,019 16,514 1,623 3,960 (6,221) 2,488
Unrealized appreciation
(depreciation) on 92,456 141,783 (700) 11,265 17,866 10,991
investments
---------------------------------------------------------
Net realized and unrealized
gain on investments.. 105,951 158,297 923 16,957 11,645 13,479
---------------------------------------------------------
Net increase in net assets
resulting from
operations....... 104,291 160,514 2,958 15,063 17,177 12,523
Net assets at
beginning of year.... 260,963 555,314 102,451 139,186 100,185 67,668
Variable annuity deposits
(NOTES 2 AND 3)...... 156,379 132,721 132,678 70,832 50,070 39,149
Terminations and withdrawals
(NOTES 2 AND 3)...... (85,337) (102,434)(159,213) (57,355) (50,939) (31,968)
Annuity payments
(NOTES 2 AND 3)...... (264) (642) (189) (277) (149) (44)
Net mortality
guarantee transfer... 11 9 1 1 - 1
==========================================================
Net assets at
end of year.......... $436,043 $745,482 $78,686 $167,450 $116,344 $87,329
==========================================================
GLOBAL SPECIALIZED MANAGED
AGGRESSIVE ASSET ASSET EQUITY SOCIAL
BOND ALLOCATION ALLOCATION INCOME AWARENESS
SERIES SERIES SERIES SERIES SERIES
---------------------------------------------------------
Dividend
distributions......... $ 100 $ - $ - $ - $ 154
Expenses (NOTE 2):
Mortality and
expense risk fee... (10) (32) (25) (28) (350)
Administrative fee. (3) (6) (2) (11) (27)
---------------------------------------------------------
Net investment
income (loss)......... 87 (38) (27) (39) (223)
Capital gains
distributions......... 9 - - - -
Realized gain (loss)
on investments........ 7 44 11 60 1,049
Unrealized appreciation
(depreciation) on 9 254 257 701 5,855
investments
---------------------------------------------------------
Net realized and unrealized
gain on investments.. 25 298 268 761 6,904
---------------------------------------------------------
Net increase in net assets
resulting from
operations....... 112 260 241 722 6,681
Net assets at
beginning of year.... - - - - 23,889
Variable annuity deposits
(NOTES 2 AND 3)...... 2,207 9,955 5,539 9,395 9,024
Terminations and withdrawals
(NOTES 2 AND 3)...... (130) (526) (182) (362) (3,992)
Annuity payments
(NOTES 2 AND 3)...... (1) - (1) - (6)
Net mortality
guarantee transfer... - - (7) - -
==========================================================
Net assets at
end of year......... $2,188 $9,689 $5,590 $9,755 $35,596
==========================================================
SEE ACCOMPANYING NOTES.
14
<PAGE>
Variflex
Notes to Financial Statements
December 31, 1996 and 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Variflex (the Account) is a separate account of Security Benefit Life Insurance
Company (SBL). The Account is registered as a unit investment trust under the
Investment Company Act of 1940, as amended. Deposits received by the Account are
invested in the SBL Fund, a mutual fund not otherwise available to the public.
As directed by the owners, amounts deposited may be invested in shares of Series
A (Growth Series - emphasis on capital appreciation), Series B (Growth-Income
Series - emphasis on capital appreciation with secondary emphasis on income),
Series C (Money Market Series - emphasis on capital preservation while
generating interest income), Series D (Worldwide Equity Series - emphasis on
long-term capital growth through investment in foreign and domestic common
stocks and equivalents), Series E (High Grade Income Series emphasis on current
income with security of principal), Series J (Emerging Growth Series - emphasis
on capital appreciation), Series K (Global Aggressive Bond Series emphasis on
high current income with secondary emphasis on capital appreciation), Series M
(Specialized Asset Allocation Series - emphasis on high total return consisting
of capital appreciation and current income), Series N (Managed Asset Allocation
Series - emphasis on high level of total return), Series O (Equity Income Series
- - emphasis on substantial dividend income and capital appreciation) and Series S
(Social Awareness Series - emphasis on high total return).
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company, LLC (SMC),
which is owned 50% by SBL and 50% by Security Benefit Group, Inc. (SBG), a
wholly-owned subsidiary of SBL. SMC has engaged Lexington Management Corporation
to provide sub-advisory services for the Worldwide Equity Series and Global
Aggressive Bond Series and has engaged T. Rowe Price Associates, Inc. to provide
sub-advisory services for the Managed Asset Allocation Series and the Equity
Income Series. SMC has also entered into agreements with Templeton Quantitative
Advisors, Inc. and Meridian Investment Management Corporation to provide certain
quantitative research services with respect to the Specialized Asset Allocation
Series.
INVESTMENT VALUATION
Investments in mutual fund shares are carried in the balance sheet at market
value (net asset value of the underlying mutual fund). The first-in, first-out
cost method is used to determine gains and losses. Security transactions are
accounted for on the trade date.
15
<PAGE>
Variflex
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The cost of investments purchased and proceeds from investments sold were as
follows:
1996 1995
----------------------------------------------------------
COST OF PROCEEDS FROM COST OF PROCEEDS FROM
PURCHASES SALES PURCHASES SALES
---------------------------------------------------------
(IN THOUSANDS)
Growth Series......... $247,011 $161,782 $177,876 $ 96,275
Growth-Income Series.. 270,233 164,899 152,642 120,749
Money Market Series... 122,800 112,293 139,143 163,831
Worldwide Equity
Series................ 89,191 51,904 74,933 61,894
High Grade
Income Series......... 55,000 53,555 59,080 54,565
Emerging Growth
Series................ 70,096 42,400 40,723 34,541
Global Aggressive
Bond Series........... 5,717 2,181 3,363 1,191
Specialized Asset
Allocation Series..... 14,523 4,368 11,354 1,963
Managed Asset
Allocation Series..... 6,962 1,693 5,594 265
Equity Income Series.. 30,483 7,088 9,546 551
Social Awareness
Series................. 18,705 6,841 9,710 4,907
SBG's investment in the subaccounts represented the following number of units
and contract value of Variflex contracts owned at December 31, 1996 (DOLLARS IN
THOUSANDS):
NUMBER OF UNITS CONTRACT VALUE
------------------------------------------
Global Aggressive Bond Series........ 99,992 $1,200
Managed Asset Allocation Series...... 230,000 2,730
ANNUITY RESERVES
Annuity reserves relate to contracts that have matured and are in the payout
stage. Such reserves are computed on the basis of published mortality tables
using assumed interest rates that will provide reserves as prescribed by law. In
cases where the payout option selected is life contingent, SBL periodically
recalculates the required annuity reserves, and any resulting adjustment is
either charged or credited to SBL and not to the Account.
16
<PAGE>
Variflex
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINVESTMENT OF DIVIDENDS
Dividend and capital gains distributions paid by the mutual fund to the Account
are reinvested in additional shares of each respective Series. Dividend income
and capital gains distributions are recorded as income on the ex-dividend date.
FEDERAL INCOME TAXES
Under current law, no federal income taxes are payable with respect to the
Account.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. VARIABLE ANNUITY CONTRACT CHARGES
SBL deducts an administrative fee of $30 per year for each contract, except for
certain contracts based on a minimum account value and the period of time the
contract has been in force. Mortality and expense risks assumed by SBL are
compensated for by a fee equivalent to an annual rate of 1.2% of the asset value
of each contract, of which 0.7% is for assuming mortality risks and the
remainder is for assuming expense risks.
When applicable, an amount for state premium taxes is deducted as provided by
pertinent state law, either from the purchase payments or from the amount
applied to effect an annuity at the time annuity payments commence.
A contingent deferred sales charge is assessed by SBL against certain
withdrawals during the first eight years of the contract, declining from 8% in
the first year to 1% in the eighth year. Such surrender charges and other
contract charges totaled $1,285,380 and $1,182,819 during 1996 and 1995,
respectively.
17
<PAGE>
Variflex
Notes to Financial Statements (continued)
3. SUMMARY OF UNIT TRANSACTIONS
UNITS
---------------------------------
1996 1995
---------------------------------
(IN THOUSANDS)
Growth Series:
Variable annuity deposits................... 4,887 4,863
Terminations, withdrawals
and annuity payments...................... 3,508 2,655
Growth-Income Series:
Variable annuity deposits................... 3,756 3,787
Terminations, withdrawals
and annuity payments...................... 3,412 2,989
Money Market Series:
Variable annuity deposits................... 11,926 7,695
Terminations, withdrawals and
annuity payments.......................... 11,446 9,288
Worldwide Equity Series:
Variable annuity deposits................... 5,428 6,154
Terminations, withdrawals and
annuity payments.......................... 3,434 4,955
High Grade Income Series:
Variable annuity deposits................... 2,124 2,466
Terminations, withdrawals and
annuity payments.......................... 2,314 2,514
Emerging Growth Series:
Variable annuity deposits................... 3,810 2,712
Terminations, withdrawals and
annuity payments.......................... 2,316 2,231
Global Aggressive Bond Series:
Variable annuity deposits................... 455 218
Terminations, withdrawals and
annuity payments.......................... 174 13
Specialized Asset Allocation Series:
Variable annuity deposits................... 1,233 962
Terminations, withdrawals and
annuity payments.......................... 333 51
Managed Asset Allocation Series:
Variable annuity deposits................... 594 543
Terminations, withdrawals and
annuity payments.......................... 112 18
Equity Income Series:
Variable annuity deposits................... 2,346 873
Terminations, withdrawals and
annuity payments.......................... 456 34
Social Awareness Series:
Variable annuity deposits................... 939 626
Terminations, withdrawals and
annuity payments.......................... 322 285
18
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONTENTS
Report of Independent Auditors........................................... 20
Audited Consolidated Financial Statements
Consolidated Balance Sheets......................................... 21
Consolidated Statements of Income................................... 23
Consolidated Statements of Changes in Equity........................ 24
Consolidated Statements of Cash Flows............................... 25
Notes to Consolidated Financial Statements.......................... 27
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying consolidated balance sheets of Security Benefit
Life Insurance Company and Subsidiaries (the Company) as of December 31, 1996
and 1995, and the related consolidated statements of income, changes in equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security Benefit
Life Insurance Company and Subsidiaries at December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in NOTE 1 to the consolidated financial statements, in 1996, the
Company adopted certain accounting changes to conform with generally accepted
accounting principles for mutual life insurance enterprises and retroactively
restated the 1994 and 1995 financial statements for the change. Also, as
discussed in NOTE 1 to the consolidated financial statements, the Company
changed its method of accounting for debt securities as of January 1, 1994.
Ernst & Young LLP
February 7, 1997
20
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
1996 1995*
----------------------------
(IN THOUSANDS)
ASSETS
Investments:
Securities available-for-sale, at
fair value (NOTES 2 AND 9):
Fixed maturities.............................. $1,805,066 $1,778,370
Equity securities ............................ 89,188 21,880
Fixed maturities held-to-maturity, at
amortized cost (NOTE 2)......................... 528,045 536,137
Mortgage loans.................................. 66,611 74,342
Real estate..................................... 4,000 5,864
Policy loans.................................... 106,822 100,452
Short-term investments.......................... - 992
Cash and cash equivalents....................... 8,310 16,788
Other invested assets........................... 40,531 37,769
---------------------------
Total investments.................................. 2,648,573 2,572,594
Premiums deferred and uncollected.................. 149 574
Accrued investment income.......................... 32,161 30,623
Accounts receivable................................ 4,256 3,064
Reinsurance recoverable (NOTE 4)................... 92,197 78,877
Notes receivable................................... 110 147
Property and equipment, net........................ 18,592 18,884
Deferred policy acquisition costs (NOTE 1)......... 216,918 186,940
Other assets....................................... 24,680 36,221
Separate account assets (NOTE 10).................. 2,802,927 2,065,306
---------------------------
$5,840,563 $4,993,230
===========================
21
<PAGE>
DECEMBER 31
1996 1995*
-------------------------
(IN THOUSANDS)
LIABILITIES AND EQUITY
Liabilities:
Policy reserves and annuity account values........ $2,497,998 $2,495,113
Policy and contract claims........................ 10,607 10,571
Other policyholder funds.......................... 24,073 21,305
Accounts payable and accrued expenses............. 18,003 13,609
Income taxes payable (NOTE 5):
Current......................................... 6,686 10,371
Deferred........................................ 54,847 53,659
Long-term debt (NOTE 8)........................... 65,000 -
Other liabilities................................. 11,990 11,619
Separate account liabilities...................... 2,793,911 2,051,292
-------------------------
Total liabilities.................................... 5,483,115 4,667,539
Equity:
Retained earnings................................. 357,927 314,084
Unrealized appreciation (depreciation)
of securities
available-for-sale, net......................... (479) 11,607
---------------------------
Total equity......................................... 357,448 325,691
===========================
$5,840,563 $4,993,230
===========================
*As restated
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Insurance premiums and other considerations........... $28,848 $49,608 $55,148
Net investment income................................. 192,636 179,940 166,857
Asset based fees...................................... 55,977 40,652 33,809
Other product charges................................. 10,470 10,412 7,335
Realized gains (losses) on investments................ (244) 3,876 134
Other revenues........................................ 20,033 22,164 27,241
------------------------------------------------------
Total revenues........................................... 307,720 306,652 290,524
Benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances............... 108,705 113,700 103,087
Benefit claims in excess of account balances........ 7,541 6,808 7,145
Traditional life insurance benefits................... 6,474 7,460 6,203
Supplementary contract payments....................... 11,121 11,508 11,286
Increase in traditional life reserves................. 8,580 13,212 12,977
Dividends to policyholders............................ 2,374 2,499 2,669
Other benefits........................................ 20,790 22,379 29,924
------------------------------------------------------
Total benefits........................................... 165,585 177,566 173,291
Commissions and other operating expenses................. 45,539 46,233 39,998
Amortization of deferred policy acquisition costs........ 25,930 26,628 24,674
Other expenses........................................... 1,667 1,099 785
Interest expense......................................... 4,285 7 630
------------------------------------------------------
Total benefits and expenses.............................. 243,006 251,533 239,378
------------------------------------------------------
Income before income taxes............................... 64,714 55,119 51,146
Income taxes (NOTE 5).................................... 20,871 17,927 17,129
------------------------------------------------------
Net income............................................... $43,843 $37,192 $34,017
======================================================
</TABLE>
*As restated
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Retained earnings:
Beginning of year, as previously reported............. $207,669 $150,726 $128,785
Cumulative effect of change in accounting principle... 106,415 126,166 114,090
------------------------------------------------------
Beginning of year, as restated........................ 314,084 276,892 242,875
Net income............................................ 43,843 37,192 34,017
------------------------------------------------------
End of year........................................... 357,927 314,084 276,892
Unrealized appreciation (depreciation)
of securities available-for-sale, net:
Beginning of year................................... 11,607 (48,466) (10,034)
Cumulative effect of change in accounting principle
(NOTE 1).......................................... - - 10,733
Change in unrealized appreciation (depreciation) of
securities available-for-sale, net................ (12,086) 60,073 (49,165)
------------------------------------------------------
End of year......................................... (479) 11,607 (48,466)
------------------------------------------------------
Total equity............................................. $357,448 $325,691 $228,426
======================================================
</TABLE>
*As restated
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $43,843 $37,192 $34,017
Adjustments to reconcile net income to net cash provided
by operating activities:
Annuity and interest sensitive life products:
Interest credited to account balances............. 108,705 113,700 103,087
Charges for mortality and administration.......... (13,115) (16,585) (17,000)
Decrease (increase) in traditional life policy
reserves.......................................... 10,697 2,142 (5,950)
Increase in accrued investment income............... (1,538) (4,573) (567)
Policy acquisition costs deferred................... (36,865) (33,021) (38,737)
Policy acquisition costs amortized.................. 25,930 26,628 24,674
Accrual of discounts on investments................. (3,905) (3,421) (3,588)
Amortization of premiums on investments............. 11,284 9,782 15,726
Provision for depreciation and amortization......... 3,748 3,750 3,201
Other............................................... (3,379) (4,225) 2,511
------------------------------------------------------
Net cash provided by operating activities................ 145,405 131,369 117,374
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities available-for-sale................... 870,240 517,480 318,252
Fixed maturities held-to-maturity..................... 58,874 59,873 147,043
Equity securities available-for-sale.................. 8,857 10,242 3,830
Mortgage loans........................................ 12,545 23,248 21,096
Real estate........................................... 2,935 3,173 2,782
Short-term investments................................ 20,069 229,871 834,082
Other invested assets................................. 6,224 22,839 6,748
------------------------------------------------------
979,744 866,726 1,333,833
Acquisition of investments:
Fixed maturities available-for-sale................... (936,376) (591,121) (552,433)
Fixed maturities held-to-maturity..................... (52,422) (125,276) (56,398)
Equity securities available-for-sale.................. (68,222) (19,500) (4,627)
Mortgage loans........................................ (4,538) (4,179) (34,260)
Real estate........................................... (2,637) (1,511) (554)
Short-term investments................................ (19,070) (180,259) (854,833)
Other invested assets................................. (3,712) (31,861) (18,581)
------------------------------------------------------
(1,086,977) (953,707) (1,521,686)
</TABLE>
25
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Other investing activities:
Purchase of property and equipment.................... $(1,879) $(2,036) $(2,932)
Net increase in policy loans.......................... (6,370) (8,058) (5,569)
Net cash transferred per coinsurance agreement........ - (16,295) -
------------------------------------------------------
Net cash used in investing activities.................... (115,482) (113,370) (196,354)
FINANCING ACTIVITIES
Issuance of long-term debt............................... 65,000 - -
Annuity and interest sensitive life products:
Deposits credited to account balances................. 705,118 509,183 553,542
Withdrawals from account balances..................... (808,519) (526,509) (466,760)
------------------------------------------------------
Net cash provided by (used in) financing activities...... (38,401) (17,326) 86,782
------------------------------------------------------
Increase (decrease) in cash and cash equivalents......... (8,478) 673 7,802
Cash and cash equivalents at beginning of year........... 16,788 16,115 8,313
------------------------------------------------------
Cash and cash equivalents at end of year................. $8,310 $16,788 $16,115
======================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.............................................. $2,966 $120 $157
======================================================
Income taxes.......................................... $16,213 $11,551 $14,634
======================================================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Conversion of mortgage loans to real estate owned........ $844 $- $2,350
======================================================
</TABLE>
*As restated
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Security Benefit Life Insurance Company (SBL or the Company) is a
Kansas-domiciled mutual life insurance company whose insurance operations are
licensed to sell insurance products in 50 states. The Company offers a
diversified portfolio of individual and group annuities, ordinary life and
mutual fund products through multiple distribution channels. In recent years,
the Company's new business activities have increasingly been concentrated in the
individual flexible premium variable annuity markets.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on the
basis of generally accepted accounting principles (GAAP). Prior to 1996, the
Company prepared its financial statements in conformity with accounting
practices prescribed or permitted by the Kansas Insurance Department, which
practices were considered GAAP for mutual life insurance companies and their
stock life insurance subsidiaries. Financial Accounting Standards Board (FASB)
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises," as amended, which is
effective for 1996 annual financial statements and thereafter, no longer permits
statutory-basis financial statements to be described as being prepared in
conformity with GAAP. Accordingly, the Company has adopted GAAP, including
Statement of Financial Accounting Standards (SFAS) No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for
Certain Long-Duration Participating Contracts," and Statement of Position 95-1,
"Accounting for Certain Insurance Activities of Mutual Life Insurance
Enterprises," which address the accounting for long-duration and short-duration
insurance and reinsurance contracts, including all participating business.
Pursuant to the requirements of FASB Interpretation No. 40 and SFAS No. 120, the
effect of the changes in accounting have been applied retroactively, and the
previously issued 1995 and 1994 financial statements have been restated for the
change. The effect of the changes applicable to years prior to January 1, 1994
has been presented as a restatement of retained earnings as of that date. The
adoption had the effect of increasing net income for 1996, 1995 and 1994 by
approximately $5,897,000, $8,436,000 and $6,663,000, respectively.
The consolidated financial statements include the operations and accounts of
Security Benefit Life Insurance Company and the following wholly-owned
subsidiaries: Security Benefit Group, Inc., First Security Benefit Life
Insurance and Annuity Company of New York, Security
27
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Management Company, LLC, Security Distributors, Inc., Security Benefit Academy,
Inc., First Advantage Insurance Agency, Inc. and Creative Impressions, Inc.
Significant intercompany transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ACCOUNTING CHANGE
Prior to January 1, 1994, fixed maturities were reported at cost, adjusted for
amortization of premiums and accrual of discounts. Effective January 1, 1994,
the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." SFAS No. 115 requires that fixed maturities are to be
classified as either held-to-maturity, trading or available-for-sale. Equity
securities are to be classified as either available-for-sale or trading. The
adoption had no effect on net income and resulted in an increase in equity at
January 1, 1994 of $10,733,000, net of the related effect of deferred policy
acquisition costs and deferred income taxes.
INVESTMENTS
Fixed maturities have been classified as either held-to-maturity or
available-for-sale. Fixed maturities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accrual of discounts. Such amortization and accrual
on these securities are included in investment income. Fixed maturities not
classified as held-to-maturity are classified as available-for-sale.
Available-for-sale fixed maturities are stated at fair value with the unrealized
appreciation or depreciation, net of adjustment of deferred policy acquisition
costs and deferred income taxes, reported in a separate component of equity and,
accordingly, have no effect on net income. The DPAC offsets to the unrealized
appreciation or depreciation represent valuation adjustments or restatements of
DPAC that would have been required as a charge or credit to operations had such
unrealized amounts been realized. The amortized cost of fixed maturities
classified as available-for-sale is adjusted for amortization of premiums and
accrual of discounts. Premiums and discounts are recognized over the estimated
lives of the assets adjusted for prepayment activity.
Equity securities consisting of common stocks, mutual funds and nonredeemable
preferred stock are carried at fair value and are reported in accordance with
SFAS No. 115. Mortgage loans and short-term investments are reported at cost,
adjusted for amortization of premiums and accrual of
28
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
discounts. Real estate investments are carried at the lower of depreciated cost
or estimated realizable value. Policy loans are reported at unpaid principal.
Investments accounted for by the equity method include investments in, and
advances to, various joint ventures and partnerships. Realized gains and losses
on sales of investments are recognized in revenues on the specific
identification method.
The carrying amounts of all the Company's investments are reviewed on an ongoing
basis. If this review indicates a decline in value that is other than temporary
for any investment, the amortized cost of the investment is reduced to its fair
value. Such reductions in carrying amount are recognized as realized losses in
the determination of net income.
The Company's principal objective in holding derivatives for purposes other than
trading is asset-liability management. The operations of the Company are subject
to risk of interest rate fluctuations to the extent that there is a difference
between the amount of the Company's interest-earning assets and interest-bearing
liabilities that reprice or mature in specified periods. The principal objective
of the Company's asset-liability management activities is to provide maximum
levels of net interest income while maintaining acceptable levels of interest
rate and liquidity risk and facilitating the funding needs of the Company. To
achieve that objective, the Company uses financial futures instruments and
interest rate exchange agreements. Financial futures contracts are commitments
to either purchase or sell a financial instrument at a specific future date for
a specified price and may be settled in cash or through delivery of the
financial instrument. Interest rate exchange agreements generally involve the
exchange of fixed and floating rate interest payments without an exchange of the
underlying principal.
Interest rate exchange agreements are used to convert the interest rate
characteristics (fixed or variable) of certain investments to match those of the
related insurance liabilities that the investments are supporting. The net
interest effect of such swap transactions is reported as an adjustment of
interest income as incurred.
Gains and losses on those instruments are included in the carrying amount of the
underlying hedged investments, or anticipated investment transactions, and are
amortized over the remaining lives of the hedged investments as adjustments to
investment income. Any unamortized gains or losses are recognized when the
underlying investments are sold.
DEFERRED POLICY ACQUISITION COSTS
To the extent recoverable from future policy revenues and gross profits,
commissions and other policy-issue, underwriting and marketing costs incurred to
acquire or renew traditional life insurance, interest sensitive life and
deferred annuity business that vary with and are primarily related to the
production of new and renewal business have been deferred.
29
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Traditional life insurance deferred policy acquisition costs are being amortized
in proportion to premium revenues over the premium-paying period of the related
policies using assumptions consistent with those used in computing policy
benefit reserves.
For interest sensitive life and deferred annuity business, deferred policy
acquisition costs are amortized in proportion to the present value (discounted
at the crediting rate) of expected gross profits from investment, mortality and
expense margins. That amortization is adjusted retrospectively when estimates of
current or future gross profits to be realized from a group of products are
revised.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers certificates
of deposits with original maturities of 90 days or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment, including real estate, furniture and fixtures, and data
processing hardware and related systems, are recorded at cost, less accumulated
depreciation. The provision for depreciation of property and equipment is
computed using the straight-line method over the estimated lives of the related
assets.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for the benefit of
contractholders who bear the investment risk. The separate account assets and
liabilities are carried at fair value. Revenues and expenses related to separate
account assets and liabilities, to the extent of benefits paid or provided to
the separate account contractholders, are excluded from the amounts reported in
the consolidated statements of income. Investment income and gains or losses
arising from separate accounts accrue directly to the contractholders and are,
therefore, not included in investment earnings in the accompanying statements of
income. Revenues to the Company from separate accounts consist principally of
contract maintenance charges, administrative fees, and mortality and expense
risk charges.
POLICY RESERVES AND ANNUITY ACCOUNT VALUES
The liabilities for future policy benefits for traditional life and reinsurance
products are computed using a net level premium method, including assumptions as
to investment yields, mortality, withdrawals, and other assumptions that
approximate expected experience.
30
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Liabilities for future policy benefits for interest sensitive life and deferred
annuity products represent accumulated contract values without reduction for
potential surrender charges and deferred front-end contract charges that are
amortized over the life of the policy. Interest on accumulated contract values
is credited to contracts as earned. Crediting rates ranged from 3.5% to 7.25%
during 1996, 4.0% to 7.75% during 1995, and 4.5% to 7.75% during 1994.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
SFAS No. 109, "Accounting for Income Taxes." Under that method, deferred tax
assets and liabilities are determined based on differences between the financial
reporting and income tax bases of assets and liabilities and are measured using
the enacted tax rates and laws. Deferred income tax expenses or credits
reflected in the Company's statements of income are based on the changes in
deferred tax assets or liabilities from period to period (excluding the SFAS No.
115 adjustment, which is charged or credited directly to equity).
RECOGNITION OF REVENUES
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these traditional products are
recognized as revenues when due. Revenues from interest sensitive life insurance
products and deferred annuities consist of policy charges for the cost of
insurance, policy administration charges and surrender charges assessed against
contractholder account balances during the period.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash, certificates of deposits and short-term investments: The carrying
amounts reported in the balance sheet for these instruments approximate
their fair values.
Investment securities: Fair values for fixed maturities are based on quoted
market prices, where available. For fixed maturities not actively traded,
fair values are estimated using values obtained from independent pricing
services or estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality and maturity of
the investments. The fair values for equity securities are based on quoted
market prices.
Mortgage loans and policy loans: Fair values for mortgage loans and policy
loans are estimated using discounted cash flow analyses based on interest
rates currently being offered
31
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for similar loans to borrowers with similar credit ratings. Loans with
similar characteristics are aggregated for purposes of the calculations.
Investment-type contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using the assumption
reinsurance method, whereby the amount of statutory profit the assuming
company would realize from the business is calculated. Those amounts are
then discounted at a rate of return commensurate with the rate presently
offered by the Company on similar contracts.
Long-term debt: Fair values for long-term debt are estimated using
discounted cash flow analyses based on current borrowing rates available
for similar types of borrowing arrangements.
2. INVESTMENTS
Information as to the amortized cost, gross unrealized gains and losses, and
fair values of the Company's portfolio of fixed maturities and equity securities
at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $173,884 $414 $1,431 $172,867
Obligations of states and political subdivisions. 23,244 361 705 22,900
Special revenue and assessment................... 330 - - 330
Corporate securities............................. 863,124 13,758 18,651 858,231
Mortgage-backed securities....................... 627,875 9,091 9,308 627,658
Asset-backed securities.......................... 122,523 832 275 123,080
=================================================================
Total fixed maturities........................... $1,810,980 $24,456 $30,370 $1,805,066
=================================================================
Equity securities................................ $86,991 $2,422 $225 $89,188
=================================================================
</TABLE>
32
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
HELD-TO-MATURITY
Obligations of states and political subdivisions. $81,791 $463 $1,036 $81,218
Special revenue and assessment................... 420 - - 420
Corporate securities............................. 128,487 2,003 1,830 128,660
Mortgage-backed securities....................... 264,155 2,121 1,347 264,929
Asset-backed securities.......................... 53,192 382 97 53,477
-----------------------------------------------------------------
Total fixed maturities........................... $528,045 $4,969 $4,310 $528,704
=================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $5,746 $522 $- $6,268
Obligations of states and political subdivisions. 23,304 510 139 23,675
Special revenue and assessment................... 330 2 - 332
Corporate securities............................. 857,926 29,671 13,146 874,451
Mortgage-backed securities....................... 857,685 17,838 1,879 873,644
-----------------------------------------------------------------
Total fixed securities........................... $1,744,991 $48,543 $15,164 $1,778,370
=================================================================
Equity securities................................ $21,278 $687 $85 $21,880
=================================================================
HELD-TO-MATURITY
Obligations of states and political subdivisions. $67,160 $1,221 $- $68,381
Special revenue and assessment................... 870 - - 870
Corporate securities............................. 163,032 6,426 43 169,415
Mortgage-backed securities....................... 305,075 5,539 4 310,610
-----------------------------------------------------------------
Totals........................................... $536,137 $13,186 $47 $549,276
=================================================================
</TABLE>
The change in the Company's unrealized appreciation (depreciation) on fixed
maturities was $(51,773,000), $220,048,000 and $(219,496,000) during 1996, 1995
and 1994, respectively; the corresponding amounts for equity securities were
$1,595,000, $1,034,000 and $(1,702,000) during 1996, 1995 and 1994,
respectively.
33
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1996, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
-------------------------------------------------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
-------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less........................ $17,711 $17,764 $320 $320
Due after one year through five years.......... 197,414 197,267 12,184 12,240
Due after five years through 10 years.......... 469,394 471,099 47,804 48,193
Due after 10 years............................. 376,063 368,198 150,390 149,545
Mortgage-backed securities..................... 627,875 627,658 264,155 264,929
Asset-backed securities........................ 122,523 123,080 53,192 53,477
-------------------------------------------------------------------
$1,810,980 $1,805,066 $528,045 $528,704
===================================================================
</TABLE>
Late in 1995, the FASB issued a special report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." This report provided companies with an opportunity for a one-time
reassessment and reclassification of securities as of a single measurement date
without tainting the held-to-maturity debt securities classification. On
December 8, 1995, the Company reclassified securities with an amortized cost of
$202,417,000 from held-to-maturity to available-for-sale. The transfer resulted
in an increase to unrealized gains on securities of approximately $2,162,000 net
of related adjustments for deferred policy acquisition costs and deferred income
taxes.
The Company did not hold any investments that individually exceeded 10% of
equity at December 31, 1996 except for securities guaranteed by the U.S.
government or an agency of the U.S. government.
34
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS (CONTINUED)
Major categories of net investment income are summarized as follows:
1996 1995 1994
--------------------------------
(IN THOUSANDS)
Interest on fixed maturities............. $174,592 $165,684 $154,739
Dividends on equity securities........... 5,817 1,309 712
Interest on mortgage loans............... 6,680 7,876 7,746
Real estate income....................... 781 1,287 1,326
Interest on policy loans................. 6,372 5,927 5,462
Interest on short-term investments....... 1,487 2,625 2,272
Other.................................... 3,418 1,453 525
--------------------------------
Total investment income.................. 199,147 186,161 172,782
Investment expenses...................... 6,511 6,221 5,925
================================
Net investment income.................... $192,636 $179,940 $166,857
================================
Proceeds from sales of fixed maturities and equity securities and related
realized gains and losses, including valuation adjustments, are as follows:
1996 1995 1994
-------------------------------------------
(IN THOUSANDS)
Proceeds from sales............... $393,189 $310,590 $128,533
Gross realized gains.............. 9,407 5,901 5,814
Gross realized losses............. 9,723 3,361 4,889
The composition of the Company's portfolio of fixed maturities by quality rating
at December 31, 1996 is as follows:
QUALITY RATING CARRYING AMOUNT %
- -------------------------- ------------------------- --------------------
(IN THOUSANDS)
AAA...................... $1,199,762 51.4%
AA....................... 158,785 6.8
A........................ 361,008 15.5
BBB...................... 416,589 17.9
Noninvestment grade...... 196,967 8.4
========================= ====================
$2,333,111 100.0%
========================= ====================
The Company has a diversified portfolio of commercial and residential mortgage
loans outstanding in 14 states. The loans are somewhat geographically
concentrated in the midwestern
35
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS (CONTINUED)
and southwestern United States with the largest outstanding balances at December
31, 1996 being in the states of Kansas (34%), Iowa (15%) and Texas (14%).
Net realized gains (losses) consist of the following:
1996 1995 1994
--------------------------------------
(IN THOUSANDS)
Fixed maturities...................... $(1,329) $1,805 $397
Equity securities..................... 1,013 735 528
Other................................. 72 1,336 (791)
======================================
Total realized gains (losses)......... $(244) $3,876 $134
======================================
Deferred losses totaling $2.2 million and $3.9 million at December 31, 1996 and
1995, respectively, resulting from terminated and expired futures contracts are
included in fixed maturities and will be amortized as an adjustment to net
investment income. The notional amount of outstanding agreements to sell
securities was $79 million at December 31, 1995. There were no outstanding
agreements at December 31, 1996.
For interest rate exchange agreements, one agreement was terminated during 1996
resulting in a deferred gain of $1.1 million. The notional amount of the
remaining outstanding agreements was $30 million at December 31, 1996. Also, as
of December 31, 1996, these agreements have maturities ranging from March 1997
to May 2005. Under these agreements, the Company receives variable rates based
on the one- and three-month LIBOR and pays fixed rates ranging from 6.875% to
7.215%.
3. EMPLOYEE BENEFIT PLANS
Substantially all Company employees are covered by a qualified, noncontributory
defined benefit pension plan sponsored by the Company and certain of its
affiliates. Benefits are based on years of service and an employee's highest
average compensation over a period of five consecutive years during the last 10
years of service. The Company's policy has been to contribute funds to the plan
in amounts required to maintain sufficient plan assets to provide for accrued
benefits. In applying this general policy, the Company considers, among other
factors, the recommendations of its independent consulting actuaries, the
requirements of federal pension law and the limitations on deductibility imposed
by federal income tax law. The Company records pension cost in accordance with
the provisions of SFAS No. 87, "Employers' Accounting for Pensions."
36
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
Pension cost for the plan for 1996, 1995 and 1994 is summarized as follows:
1996 1995 1994
----------------------------------
(IN THOUSANDS)
Service cost................................ $670 $528 $679
Interest cost............................... 587 508 535
Actual return on plan assets................ (1,064) (1,568) 310
Net amortization and deferral............... 284 900 (949)
----------------------------------
Net pension cost............................ $477 $368 $575
==================================
The funded status of the plan as of December 31, 1996 and 1995 was as follows:
DECEMBER 31
1996 1995
-------------------------
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefit obligation......................... $(6,059) $(5,243)
Non-vested benefit obligation..................... (202) (165)
-------------------------
Accumulated benefit obligation.................... (6,261) (5,408)
Excess of projected benefit
obligation over accumulated
benefit obligation.............................. (2,961) (2,865)
-------------------------
Projected benefit obligation...................... (9,222) (8,273)
Plan assets, at fair market value.................... 10,085 8,342
-------------------------
Plan assets greater than projected
benefit obligation................................ 863 69
Unrecognized net loss................................ 1,007 1,560
Unrecognized prior service cost...................... 700 758
Unrecognized net asset established
at the date of initial application................. (1,841) (2,025)
-------------------------
Net prepaid pension cost............................. $729 $362
=========================
Assumptions were as follows:
1996 1995 1994
-------------------------
Weighted average discount rate................... 7.75% 7.5% 8.5%
Weighted average rate of increase in
compensation for participants age
45 and older.................................. 4.5 4.5 4.5
Weighted average expected long-term
return on plan assets......................... 9.0 9.0 9.0
37
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
Compensation rates that vary by age for participants under age 45 were used in
determining the actuarial present value of the projected benefit obligation in
1996. Plan assets are invested in a diversified portfolio of affiliated mutual
funds that invest in equity and debt securities.
In addition to the Company's defined benefit pension plan, the Company provides
certain medical and life insurance benefits to full-time employees who have
retired after the age of 55 with five years of service. The plan is
contributory, with retiree contributions adjusted annually and contains other
cost-sharing features such as deductibles and coinsurance. Contributions vary
based on the employee's years of service earned after age 40. The Company's
portion of the costs is frozen after 1996 with all future cost increases passed
on to the retirees. Retirees in the plan prior to July 1, 1993 are covered 100%
by the Company.
Retiree medical care and life insurance cost for the total plan for 1996, 1995
and 1994 is summarized as follows:
1996 1995 1994
--------------------------------
(IN THOUSANDS)
Service cost........................ $157 $151 $116
Interest cost....................... 280 305 275
--------------------------------
$437 $456 $391
================================
The funded status of the plan as of December 31, 1996 and 1995 was as follows:
DECEMBER 31
1996 1995
----------------------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees.......................................... $(2,498) $(2,514)
Active participants:
Retirement eligible............................... (568) (632)
Others............................................ (1,023) (1,035)
----------------------
(4,089) (4,181)
Unrecognized net (gain) loss......................... (348) 67
----------------------
Accrued postretirement benefit cost.................. $(4,437) $(4,114)
======================
The annual assumed rate of increase in the per capita cost of covered benefits
is 10% for 1996 and is assumed to decrease gradually to 5% for 2001 and remain
at that level thereafter. The health care cost trend rate has a significant
effect on the amount reported. For example, increasing the assumed health care
cost trend rates by one percentage point each year would increase the
accumulated postretirement benefit obligation as of December 31, 1996 by
$191,000
38
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1996 by $54,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.75%, 7.5% and 8.5% at December 31, 1996, 1995 and 1994,
respectively.
The Company has a profit-sharing and savings plan for which substantially all
employees are eligible after one year of employment with the Company.
Contributions for profit sharing are based on a formula established by the Board
of Directors with pro rata allocation among employees based on salaries. The
savings plan is a tax-deferred, 401(k) retirement plan. Employees may contribute
up to 10% of their eligible compensation. The Company matches 50% of the first
6% of the employee contributions. Employee contributions are fully vested, and
Company contributions are vested over a five-year period. Company contributions
to the profit-sharing and savings plan charged to operations were $1,783,000,
$1,567,000 and $1,075,000 for 1996, 1995 and 1994, respectively.
4. REINSURANCE
The Company assumes and cedes reinsurance with other companies to provide for
greater diversification of business, allow management to control exposure to
potential losses arising from large risks, and provide additional capacity for
growth. The Company's maximum retention on any one life is $500,000. The Company
does not use financial or surplus relief reinsurance. Life insurance in force
ceded at December 31, 1996 and 1995 was $4.0 and $3.9 billion, respectively.
Principal reinsurance transactions are summarized as follows:
1996 1995 1994
-----------------------------------
(IN THOUSANDS)
Reinsurance ceded:
Premiums paid...................... $25,442 $5,305 $3,980
===================================
Commissions received............... $4,669 $230 $1,443
===================================
Claim recoveries................... $5,235 $3,089 $2,485
===================================
In the accompanying financial statements, premiums, benefits, settlement
expenses and deferred policy acquisition costs are reported net of reinsurance
ceded; policy liabilities and accruals are reported gross of reinsurance ceded.
The Company remains liable to policyholders if the reinsurers are unable to meet
their contractual obligations under the applicable reinsurance agreements. To
minimize its exposure to significant losses from reinsurance insolvencies, the
39
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE (CONTINUED)
Company evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar geographic regions,
activities or economic characteristics of reinsurers. At December 31, 1996 and
1995, the Company had established a receivable totaling $92,197,000 and
$78,877,000 for reserve credits, reinsurance claims and other receivables from
its reinsurers. The amount of reinsurance assumed is not significant.
In 1995, the Company transferred, through a 100% coinsurance agreement, $66.9
million in policy reserves and claim liabilities. The agreement related to a
block of whole life and decreasing term life insurance business.
In prior years, the Company was involved in litigation arising out of its
participation from 1986 to 1990 in a reinsurance pool. The litigation related to
the pool manager and a reinsurance intermediary placing major medical business
in the pool without authorization. During 1993, the Company settled the major
medical portion of the pool's activity with no significantly adverse effect on
the Company. The nonmajor medical business placed in the pool has experienced
significant losses. At December 31, 1996, the Company believes adequate
provision has been made for such losses.
5. INCOME TAXES
The Company files a life/nonlife consolidated federal income tax return. The
provision for income taxes includes current federal income tax expense or
benefit and deferred income tax expense or benefit due to temporary differences
between the financial reporting and income tax bases of assets and liabilities.
Such differences relate principally to liabilities for future policy benefits
and accumulated contract values, deferred compensation, deferred policy
acquisition costs, postretirement benefits, deferred selling commissions,
depreciation expense and unrealized appreciation (depreciation) on securities
available-for-sale.
Income tax expense consists of the following for 1996, 1995 and 1994:
1996 1995 1994
----------------------------------------------
(IN THOUSANDS)
Current......................... $12,528 $15,200 $11,361
Deferred........................ 8,343 2,727 5,768
----------------------------------------------
$20,871 $17,927 $17,129
==============================================
The provision for income taxes differs from the amount computed at the statutory
federal income tax rate due primarily to dividends received deductions and tax
credits.
40
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Income taxes paid by the Company were $16,213,000, $11,551,000, and $14,634,000
during 1996, 1995, and 1994, respectively.
Net deferred tax assets or liabilities consist of the following:
1996 1995
-------------------------
(IN THOUSANDS)
Deferred tax assets:
Future policy benefits.......................... $20,487 $17,780
Net unrealized depreciation on
securities available-for-sale................. 1,409 -
Guaranty fund assessments....................... 1,400 1,260
Employee benefits............................... 4,852 3,836
Other........................................... 4,620 3,662
-------------------------
Total deferred tax assets.......................... 32,768 26,538
Deferred tax liabilities:
Deferred policy acquisition costs............... 69,647 50,580
Net unrealized appreciation on
securities available-for-sale................. - 12,539
Deferred gain on investments.................... 10,446 8,681
Depreciation.................................... 2,061 988
Other........................................... 5,461 7,409
-------------------------
Tax deferred tax liabilities....................... 87,615 80,197
-------------------------
Net deferred tax liabilities....................... $54,847 $53,659
=========================
6. CONDENSED FAIR VALUE INFORMATION
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosures of fair value information about financial instruments, whether
recognized or not recognized in a company's balance sheet, for which it is
practicable to estimate that value. The methods and assumptions used by the
Company to estimate the following fair value disclosures for financial
instruments are set forth in NOTE 1.
SFAS No. 107 excludes certain insurance liabilities and other nonfinancial
instruments from its disclosure requirements. However, the liabilities under all
insurance contracts are taken into consideration in the Company's overall
management of interest rate risk that minimizes exposure to changing interest
rates through the matching of investment maturities with amounts due under
insurance contracts. The fair value amounts presented herein do not include an
amount for the value associated with customer or agent relationships, the
expected interest margin (interest earnings in excess of interest credited) to
be earned in the future on investment-type products or other intangible items.
Accordingly, the aggregate fair value amounts presented herein do not
necessarily represent the underlying value of the Company; likewise, care should
be exercised in deriving conclusions about the Company's business or financial
condition based on the fair value information presented herein.
41
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CONDENSED FAIR VALUE INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------- ---------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------------------------------- -------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Investments:
Fixed maturities (NOTE 2)................. $2,333,111 $2,333,770 $2,314,507 $2,327,646
Equity securities (NOTE 2)................ 89,188 89,188 21,880 21,880
Mortgage loans............................ 66,611 69,004 74,342 80,175
Policy loans.............................. 106,822 108,685 100,452 104,077
Short-term investments.................... - - 992 992
Cash and cash equivalents................. 8,310 8,310 16,788 16,788
Accrued investment income................. 32,161 32,161 30,623 30,623
Futures contracts......................... - - - (737)
Interest rate exchange agreements ........ - (282) - (2,291)
Liabilities:
Supplementary contracts without life
contingencies........................... 33,225 33,803 34,363 35,387
Individual and group annuities............ 1,942,697 1,767,692 1,922,901 1,774,642
Long-term debt............................ 65,000 67,683 - -
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases various equipment under several operating lease agreements.
Total expense for all operating leases amounted to $1,904,000, $1,302,000 and
$1,450,000 for 1996, 1995 and 1994, respectively. The Company has aggregate
future lease commitments at December 31, 1996 of $4,337,000 for noncancelable
operating leases consisting of $992,000 in 1997, $941,000 in 1998, $829,000 in
1999, $818,000 in 2000 and $757,000 in 2001 and thereafter.
In addition, in 2001, under the terms of an operating lease for an airplane, the
Company has the option to renew the lease for another five years, purchase the
airplane for approximately $4.7 million, or return the airplane to the lessor
and pay a termination charge of approximately $3.7 million. If the option to
renew the lease for five years is selected, at the end of the five-year period
(2006), the Company has the option to purchase the airplane for approximately
$3.4 million or return the airplane to the lessor and pay a termination charge
of approximately $2.7 million.
42
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The economy and other factors have caused an increase in the number of insurance
companies that have required regulatory supervision. Guaranty fund assessments
are levied on the Company by life and health guaranty associations in most
states in which it is licensed to cover losses of policyholders of insolvent or
rehabilitated insurers. In some states, these assessments can be partially
recovered through a reduction in future premium taxes. The Company cannot
predict whether and to what extent legislative initiatives may affect the right
to offset. Based on information from the National Organization of Life and
Health Guaranty Association and information from the various state guaranty
associations, the Company believes that it is probable that these insolvencies
will result in future assessments. The Company regularly evaluates its reserve
for these insolvencies and updates its reserve based on the Company's
interpretation of information recently received. The associated costs for a
particular insurance company can vary significantly based on its premium volume
by line of business in a particular state and its potential for premium tax
offset. The Company accrued and charged to expense $1,574,000, $2,302,000 and
$237,000 for 1996, 1995 and 1994, respectively. At December 31, 1996, the
Company has reserved $4,000,000 to cover current and estimated future
assessments net of related premium tax credits.
8. LONG-TERM DEBT
The Company has a $75.5 million line of credit facility from the Federal Home
Loan Bank of Topeka. Any borrowings in connection with this facility bear
interest at .1% over the Federal Funds rate. No amounts were outstanding at
December 31, 1996.
In February 1996, the Company negotiated three separate $5,000,000 advances with
the Federal Home Loan Bank of Topeka. The advances are due February 27, 1998,
February 26, 1999 and February 28, 2001 and carry interest rates of 5.59%, 5.76%
and 6.04%, respectively.
In May 1996, the Company issued $50 million of 8.75% surplus notes maturing on
May 15, 2016. The surplus notes were issued pursuant to Rule 144A under the
Securities Act of 1933. The surplus notes have repayment conditions and
restrictions whereby each payment of interest on or principal of the surplus
notes may be made only with the prior approval of the Kansas Insurance
Commissioner and only out of surplus funds that the Kansas Insurance
Commissioner determines to be available for such payment under the Kansas
Insurance Code.
9. RELATED-PARTY TRANSACTIONS
The Company owns shares of mutual funds managed by Security Management Company,
LLC with a net asset value totaling $60,559,000 and $5,364,000 at December 31,
1996 and 1995, respectively.
43
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets were as follows:
1996 1995
--------------------------
(IN THOUSANDS)
Premium and annuity considerations
for the variable annuity products and
variable universal life product for
which the contractholder, rather than
the Company, bears the
investment risk................................ $2,793,911 $2,051,292
Assets of the separate accounts owned by
the Company, at fair value..................... 9,016 14,014
--------------------------
$2,802,927 $2,065,306
==========================
11. STATUTORY INFORMATION
The Company and its insurance subsidiary prepare statutory-basis financial
statements in accordance with accounting practices prescribed or permitted by
the Kansas and New York Insurance regulatory authorities, respectively.
Accounting practices used to prepare statutory-basis financial statements for
regulatory filings of life insurance companies differ in certain instances from
GAAP. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners (NAIC), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed; such practices may differ from state to state, may differ from
company to company within a state and may change in the future. Statutory
capital and surplus of the insurance operations are $286,689,000 and
$207,669,000 at December 31, 1996 and 1995, respectively.
44
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
- ------- ---------------------------------
a. Financial Statements
All required financial statements are included in Part B of
this Registration Statement.
b. Exhibits
(1) 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) Variable Annuity Sales Agreement
(4) (a) Group Allocated Contract
(b) Group Certificate
(c) Loan Provision Certificate (Form GV6821 L-4 1/97)
(d) Tax-Sheltered Annuity Endorsement (Form 6832A 9/96)
(5) Form of Application (Form V7566 9/97)
(6) (a) Composite of Articles of Incorporation of SBL
(b) Bylaws of SBL
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) Not Applicable
(12) Not Applicable
(13) Schedules of Computation of Performance
(14) Powers of Attorney of Howard R. Fricke, Thomas R. Clevenger,
Sister Loretto Marie Colwell, John C. Dicus, William W.
Hanna, Laird G. Noller, Robert C. Wheeler, and Frank C.
Sabatini
(15) Financial Data Schedules
(a) Incorporated herein by reference to the exhibits filed with Variflex
Separate Account's Post-Effective Amendment No. 13 under the Securities Act
of 1933 and Amendment No. 12 under the Investment Company Act of 1940 to
Registration Statement No. 2-89328 (April 28, 1995).
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
- -------- ---------------------------------------
Name and Principal
Business Address Positions and Offices with Depositor
- ------------------ ------------------------------------
Howard R. Fricke* Chairman of the Board, President, Chief
Executive Officer and Director
Thomas R. Clevenger Director
P.O. Box 8514
Wichita, Kansas 67208
Sister Loretto Marie Colwell Director
1700 SW 7th Street
Topeka, Kansas 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
818 Kansas Avenue
Topeka, Kansas 66612
Laird G. Noller Director
2245 Topeka Avenue
Topeka, Kansas 66611
Frank C. Sabatini Director
120 SW 6th Street
Topeka, Kansas 66603
Robert C. Wheeler Director
P.O. Box 148
Topeka, Kansas 66601
<PAGE>
Name and Principal
Business Address Positions and Offices with Depositor
- ------------------ ------------------------------------
Kris A. Robbins* Executive Vice President
Donald J. Schepker* Senior Vice President, Chief Financial
Officer and Treasurer
Jeffrey P. Pantages* Senior Vice President and Chief Investment
Officer
Roger K. Viola* Senior Vice President, General Counsel and
Secretary
T. Gerald Lee* Senior Vice President-Administration
Malcolm E. Robinson* Senior Vice President and Assistant to the
President
Donald E. Caum* Senior Vice President and Chief Marketing
Officer
Richard K Ryan* Senior Vice President
James R. Schmank* Vice President
Kathleen R. Blum* Vice President-Administration
Amy J. Lee* Associate General Counsel, Vice President
and Assistant Secretary
*Located at 700 Harrison Street, Topeka, Kansas 66636.
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
ITEM 26. REGISTRANT
- -------- ---------------------------------------------------------------------
The Depositor, Security Benefit Life Insurance Company ("SBL") is
owned by its policyowners. No one person holds more than
approximately 0.0004% of the voting power of SBL. The Registrant is a
segregated asset account of SBL.
<PAGE>
The following chart indicates the persons controlled by or under
common control with Variflex Separate Account or SBL:
Percent of
Jurisdiction of Voting Securities
Name Incorporation Owned by SBL
---- --------------- -----------------
Security Benefit Life Insurance Company Kansas ---
(Mutual Life Insurance Company)
Security Benefit Group, Inc. Kansas 100%
(Holding Company)
Security Management Company, LLC Kansas 100%
(Mutual Funds Management Company)
Security Distributors, Inc. (Broker/Dealer, Kansas 100%
Principal Underwriter of Mutual Funds)
First Advantage Insurance Agency, Inc. Kansas 100%
(Insurance Agency)
Security Benefit Academy, Inc. Kansas 100%
(Daycare Company)
Creative Impressions, Inc. Kansas 100%
(Advertising Agency)
Security Benefit Clinic and Hospital Kansas 100%
(Nonprofit provider of hospital benevolences
for fraternal certificate holders)
First Security Benefit Life Insurance New York 100%
and Annuity Company of New York
SBL is also the depositor of the following separate accounts: SBL
Variable Annuity Accounts I, III, and IV, SBL Variable Life Insurance
Account Varilife, Security Varilife Separate Account, Variflex LS,
Variflex Signature, T. Rowe Price Variable Annuity Account and
Parkstone Variable Annuity Account.
Through the above-referenced separate accounts, SBL might be deemed to
control the open-end management investment companies listed below. The
approximate percentage of ownership by the separate accounts for each
company is as follows:
Security Equity Fund 15.9% Security Income Fund - 7.6%
Corporate Bond Series
Security Growth and Income Fund 40.1% SBL Fund 100%
<PAGE>
ITEM 27. NUMBER OF CONTRACTOWNERS
- -------- ------------------------
As of September 15, 1997, there were 0 owners of Variflex Educator
Series Qualified Contracts.
ITEM 28. INDEMNIFICATION
- -------- ---------------
The bylaws of Security Benefit Life Insurance Company provide that
the Company shall, to the extent authorized by the laws of the State
of Kansas, indemnify officers and directors for certain liabilities
threatened or incurred in connection with such person's capacity as
director or officer.
The Articles of Incorporation include the following provision:
A Director shall not be personally liable to the Corporation or
to its policyholders for monetary damages for breach of fiduciary
duty as a director, provided that this sentence shall not
eliminate nor limit the liability of a director
A. for any breach of his or her duty of loyalty to the
Corporation or its policyholders;
B. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
C. under the provisions of K.S.A. 17-6424 and amendments
thereto; or
D. for any transaction from which the director derived an
improper personal benefit.
This Article Eighth shall not eliminate or limit the liability of
a director for any act or omission occurring prior to the date
this Article Eighth becomes effective.
Insofar as indemnification for a liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Depositor has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment 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.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
- -------- ---------------------
(a) Security Distributors, Inc. ("SDI"), a subsidiary of SBL, acts
as distributor of the Variflex Separate Account contracts. SDI
receives no compensation for its distribution function in excess
of the commissions it pays to selling broker/dealers. SDI
performs similar functions for SBL Variable Annuity Accounts I,
III and IV, SBL Variable Life Insurance Account Varilife,
Security Varilife Separate Account, Variflex LS, Variflex
Signature, and Parkstone Variable Annuity 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 Tax-Exempt Fund and Security Ultra Fund.
(b)
Name and Principal Position and Offices
Business Address* with Underwriter
------------------ ------------------
Richard K Ryan President and Director
John D. Cleland Vice President and Director
James R. Schmank Vice President and Director
Mark E. Young Vice President
Amy J. Lee Secretary
Brenda M. Harwood Treasurer
Daniel J. McNichol Vice President
Jennifer A. Zaat Regional Vice President
Kent N. Spillman Regional Vice President
Carla D. Griffin Regional Vice President
Anthony Hammock Regional Vice President
William G. Mancuso Regional Vice President
Clark A. Anderson Regional Vice President
Paul A. Richardson Regional Vice President
Marek E. Lakotko Regional Vice President
Susan L. Tully Regional Vice President
Eric M. Aanes Regional Vice President
700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
- -------- --------------------------------
All accounts and records required to be maintained by Section 31(a)
of the 1940 Act and the rules under it are maintained by SBL at its
administrative offices--700 Harrison, 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
Variflex Separate Account 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) 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 rights assumed by the Depositor.
(e) Registrant represents that it is relying upon the no-action
letter issued to the American Council of Life Insurance,
publicly available November 28, 1988 and further represents that
it has complied with provisions 1-4 set forth in that letter.
<PAGE>
SIGNATURES
As required by the Investment Company Act of 1940, the Registrant has caused
this Registration Statement to be signed on its behalf in the City of Topeka,
and State of Kansas on this 15th day of September, 1997.
SIGNATURES AND TITLES
- ---------------------
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of the Board, (The Depositor)
President and Chief Executive
Officer
By: ROGER K. VIOLA
--------------------------------------
Thomas R. Clevenger Roger K. Viola, Senior Vice President,
Director General Counsel and Secretary as
Attorney-In-Fact for the Officers and
Directors Whose Names Appear Opposite
Sister Loretto Marie Colwell
Director
VARIFLEX SEPARATE ACCOUNT (Variflex
Educator Series) (The Registrant)
Steven J. Douglass
Director By: SECURITY BENEFIT LIFE INSURANCE
COMPANY
(The Depositor)
William W. Hanna
Director
John C. Dicus
Director
Laird G. Noller By: HOWARD R. FRICKE
Director --------------------------------------
Howard R. Fricke, Chairman of the
Board, President and Chief Executive
Officer
Frank C. Sabatini
Director By: DONALD J. SCHEPKER
--------------------------------------
Donald J. Schepker, Senior Vice
Robert C. Wheeler President, Chief Financial Officer and
Director Treasurer
(ATTEST): ROGER K. VIOLA
--------------------------------
Roger K. Viola, Senior Vice
President, General Counsel
and Secretary
Date: September 15, 1997
<PAGE>
EXHIBIT INDEX
(1) Resolution
(2) None
(3) (a) Service Facilities Agreement
(b) Variable Annuity Sales Agreement
(4) (a) Group Allocated Contract
(b) Group Certificate
(c) Loan Provision Certificate
(d) Tax-Sheltered Annuity Endorsement
(5) Form of Application
(6) (a) Articles of Incorporation
(b) Bylaws
(7) None
(8) None
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) None
(12) None
(13) Schedules of Computation of Performance
(14) Powers of Attorney
(15) Financial Data Schedules
<PAGE>
SERVICE FACILITIES AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of April, 1987, by and
between Security Distributors, Inc., and Security Benefit Life Insurance
Company, both Kansas corporations.
WITNESSETH:
WHEREAS, Security Distributors, Inc. is a wholly-owned subsidiary of Security
Management Company, which is a wholly-owned subsidiary of Security Benefit
Group, Inc., which in turn is a wholly-owned subsidiary of Security Benefit Life
Insurance Company; and
WHEREAS, one of the purposes of Security Distributors, Inc., is to act as a
broker/dealer and principal underwriter pursuant to the requirements of the
Securities Act of 1934 for the offering and selling of Variable Annuity
Contracts and Variable Life Insurance Policies to be issued by Security Benefit
Life Insurance Company for investment in the various SBL Variable Annuity and
Variable Life Separate Accounts; and
WHEREAS, because Security Benefit Life Insurance Company has facilities for the
handling of the recordkeeping and other related administrative duties of
Security Distributors, Inc. pertaining to the sale of Variable Annuity Contracts
and Variable Life Insurance Policies;
NOW, THEREFORE, IT IS MUTUALLY AGREED between Security Distributors, Inc. and
Security Benefit Life Insurance Company, both Kansas corporations, that for and
in consideration of the principal underwriting and broker/dealer services
rendered and to be rendered by Security Distributors, Inc. relating to Security
Benefit Life Insurance Company's Variable Annuity and Variable Life operations,
Security Benefit Life Insurance Company convenants and agrees that it will
furnish services and facilities to Security Distributors, Inc. as hereinafter
set forth:
1. Administrative and clerical personnel as may be needed from time to time to
properly carry out the functions and duties of Security Distributors, Inc.
relating to the Variable Annuity and Variable Life operations.
2. Maintain all books and records of Security Distributors, Inc. in connection
with persons offering and selling Variable Annuity Contracts and Variable
Life Insurance Policies funded by various separate accounts of Security
Benefit Life Insurance Company who are licensed as insurance agents of
Security Benefit Life Insurance Company and are also Registered
Representatives of independent broker/dealers which have Selling Agreements
with Security Distributors, Inc. Such books and records to be maintained
and preserved in conformity with the requirements of Rule 17(a)-3 and
17(a)-4 of the Securities Act of 1934 to the extent that such requirements
are applicable to Variable Annuity Contracts and Variable Life Insurance
Policies.
3. All such books and records are to be maintained and held by Security
Benefit Life Insurance Company on behalf of and as agent for Security
Distributors, Inc. and such books and records shall remain the sole
property of Security Distributors, Inc.
1
<PAGE>
4. Such books and records shall at all times be subject to inspection by the
Securities and Exchange Commission in accordance with Section 17(a) of the
Securities Act of 1934 and the National Association of Securities Dealers,
Inc.
5. It is further understood and agreed that the making of any payments by
Security Benefit Life Insurance Company to registered representatives of
independent broker/dealers which have Selling Agreements with Security
Distributors, Inc. are performed as purely as administerial service and
that the records in respect thereof are properly reflected on the books and
records maintained by or for Security Distributors, Inc.
6. Since the crediting of a payment made by a participant (applicant of owner)
of a Variable Annuity Contract or by an owner of a Variable Life Insurance
Policy on the books and records maintained by or for Security Distributors,
Inc. constitutes the sale of a security, and, therefore, a "transaction" as
that term is used in Rule 15(c) 1-4 under the Securities Act of 1934, a
confirmation for each such transaction will be sent to the participant at
or before the completion of the transaction, and such confirmation shall
reflect the facts of the transaction, and the form thereof will show that
it is being sent on behalf of Security Distributors, Inc. and acting in the
capacity of agent for Security Benefit Life Insurance Company.
7. Security Distributors, Inc. has and does assume full responsibility for the
securities activities of all persons associated with it who are engaged
directly or indirectly in the Variable Annuity and/or Variable Life
operation of Security Benefit Life Insurance Company, each such person
being a "person associate" of Security Distributors, Inc. as defined in
Section 3(a)-18 of the Securities Act of 1934, and, therefore, a person for
whom Security Distributors, Inc. has full responsibility in connection with
training, supervision and control as contemplated by Section 15(b)(5)(E) of
the Securities Act of 1934, provided, however, Security Distributors, Inc.
shall not be responsible for persons not associated with it that are
registered broker/dealers or who are offering or selling Variable Annuity
Contracts or Variable Life Policies and are affiliated and registered with
a broker/dealer for such purposes.
ANY CHANGES in this Agreement shall be mutually agreed to by both parties and
shall be in writing.
THIS AGREEMENT shall be in effect as of April 1, 1987, and shall remain in
effect until otherwise terminated by either party upon thirty (30) days written
notice to the other party at that party's last known address as reflected on the
records of the terminating party.
2
<PAGE>
IN WITNESS WHEREOF, the parties by their duly authorized officers have executed
this Agreement on this 1st day of April, 1987.
SECURITY BENEFIT LIFE INSURANCE COMPANY
By: ARCHIE R. DYKES
---------------------------------------------
Archie R. Dykes, President
ATTEST:
ROGER K. VIOLA
- -------------------------------------------------
Roger K. Viola, General Counsel and Secretary
SECURITY DISTRIBUTORS, INC.
By: WINSLOW H. ADAMS
---------------------------------------------
Winslow H. Adams, President
ATTEST:
BARBARA W. RANKIN
- -------------------------------------------------
Barbara W. Rankin, Secretary
3
<PAGE>
[SBL Logo]
SECURITY BENEFIT LIFE
INSURANCE COMPANY
- --------------------------------------------------------------------------------
A MEMBER OF THE SECURITY 700 SW HARRISON ST.
BENEFIT GROUP OF COMPANIES TOPEKA, KANSAS 66636-0001
(785) 431-3000
SBL VARIABLE PRODUCTS
BROKER/DEALER
SALES AGREEMENT
BROKER/DEALER:
EFFECTIVE DATE:
1. Security Benefit Life Insurance Company, of Topeka, Kansas, and its
affiliated company, Security Distributors, Inc., hereinafter jointly
called "SBL", hereby authorize the above-designated Broker/Dealer to
solicit and service (1) variable annuities issued under Security Benefit
Life Insurance Company's several Variable Annuity Accounts and (2)
variable life insurance policies issued under Security Benefit Life
Insurance Company's variable life accounts, each of which has been
registered as securities under the Securities Act of 1933 with Security
Distributors, Inc. (a member of the National Association of Securities
Dealers, Inc.) having been designated Principal Underwriter thereof. Said
variable annuity contracts and variable life insurance policies are
referred to herein as "Variable products."
2. Broker/Dealer hereby accepts such authorization to solicit and service
such SBL variable products and confirms that it is properly licensed to
solicit and service such variable products for SBL and is a member in
good standing of the National Association of Securities Dealers, Inc.,
hereinafter called "NASD", and further agrees to notify SBL if it ceases
to be a member of NASD.
3. Broker/Dealer shall have the authority to recruit, train and supervise
registered representatives for the sale of variable products of SBL.
Appointment of any registered representative shall be subject to prior
approval of SBL. SBL reserves the right to require termination of any
registered representative's right to sell SBL variable products.
Broker/Dealer shall be responsible for any registered representative
appointed hereunder complying with the terms, conditions and limitations
as set forth in this Agreement. All registered representatives recruited
by Broker/Dealer to sell SBL's variable products shall be duly licensed
as annuity producers and/or insurance producers pursuant to applicable
state laws and regulations. Broker/Dealer shall be responsible for any
registered representative becoming so licensed.
4. Commissions on stipulated payments or premiums accepted by SBL on behalf
of an annuitant, participant, or policyholder of a variable product
covered by this Agreement will be in accordance with the Schedule of
Commissions made part of this Agreement, and are in full consideration of
all services rendered and expenses incurred hereunder by the
Broker/Dealer or its representatives. First year commissions are payable
when an individual variable annuity contract, group variable annuity
certificate or variable life insurance policy is issued and paid for upon
an application submitted through Broker/Dealer and accepted by the
applicant thereof. Broker/Dealer is not authorized to deduct commissions
prior to forwarding any remittance received to SBL. All checks or drafts
received by the Broker/Dealer in regards to any variable product shall be
made payable to Security Benefit Life Insurance Company. All compensation
payable hereunder shall be subject to a first lien and may be reduced or
set off as to any indebtedness owed by the Broker/Dealer to SBL. Any
commissions paid to a third party at the request of the Broker/Dealer
shall be deducted from the commissions payable hereunder.
5. Broker/Dealer agrees to be bound by the terms, conditions and limitations
set forth in this Agreement and the rules and practices of SBL that are
now and hereafter in force. Broker/Dealer agrees not to solicit or submit
applications for variable products to SBL unless it and its registered
representatives are properly licensed, and further agrees that it will
conform to all applicable state, federal and local laws and regulations
in conducting business under this Agreement. Both parties hereby agree to
abide by the applicable Rules of Fair Practice of the NASD which Rules
are incorporated herein as set forth in full. The signing of this
Agreement and the purchase of variable products pursuant thereto is a
representation of SBL that Broker/Dealer is a properly registered
Broker/Dealer under the Securities and Exchange Act of 1934.
6. Neither the Broker/Dealer nor its representatives are authorized to make
any representations concerning the variable products, its sponsor (SBL),
the principal underwriter (Security Distributors, Inc.) or the underlying
mutual funds except those contained in the applicable current
prospectuses and in the printed information furnished by SBL.
Broker/Dealer agrees not to use any other advertising or sales material
relating to the variable products unless specifically approved in writing
by SBL.
<PAGE>
7. Broker/Dealer is not authorized and has no authority (a) to make, alter
or discharge any contract for or on behalf of SBL, (b) endorse any check
or draft payable to SBL, (c) to accept any variable product consideration
after the initial remittance, (d) to waive or modify any prospectus,
contract, policy or application provision, condition or obligation, and
(e) to extend the time for payment of any variable product consideration
or accept payment of any past due variable product consideration.
8. This Agreement shall not create or be construed as creating an
Employer-Employee or Master-Servant relationship between Broker/Dealer
and SBL.
9. Broker/Dealer agrees to keep accurate records on all business written and
moneys received under this Agreement. Such records may be examined by SBL
or its representatives at any reasonable time. All moneys and documents
belonging to SBL in possession of Broker/Dealer shall be held in trust
and shall not be used or commingled with funds or property belonging to
Broker/Dealer and shall be promptly remitted to SBL. Broker/Dealer agrees
to be responsible for any county or municipal occupational or privilege
fee, tax or license which may be required of Broker/Dealer or its
representatives as a result of business submitted under this Agreement.
10. Neither this Agreement nor the compensation payable hereunder shall be
assigned or pledged without the written consent of SBL. SBL reserves the
right to reject any assignment or pledge.
11. No consent or change in this agreement shall be binding upon SBL unless
in writing and signed by the president, vice president, secretary or an
assistant secretary of SBL. Any failure of SBL to insist upon strict
compliance with the provisions of this Agreement shall not constitute or
be construed as a waiver thereof.
12. SBL shall have the right to decline or modify any application or to
refund any variable product consideration or any portion thereof, and
Broker/Dealer shall refund immediately upon request any commissions
received in connection therewith. All applications for variable products
are subject to acceptance by SBL and become effective only upon
confirmation by SBL. Broker/Dealer agrees to return to SBL without delay
any commissions received on a variable product, contract or policy if
such contract or policy is tendered for redemption within seven (7)
business days after acceptance of the application by SBL.
13. Variable products, contracts and policies will be offered to the public
at the price as outlined in the applicable variable product's current
prospectus. All cash surrenders require the written request and consent
of the contract or policy owner and such surrenders will conform to the
provisions set forth in the applicable contract or policy.
14. SBL has been and is designated Administrative Agent of Security
Distributors, Inc. to perform duties, including recordkeeping and payment
of commissions, necessary under this Agreement in connection with the
solicitation, sales and servicing of variable annuity contracts sold and
solicited hereunder.
15. SBL reserves the right to amend or terminate this Agreement at any time.
In the event Broker/Dealer ceases to be a member in good standing of the
NASD, this Agreement shall terminate automatically without notice. After
termination Broker/Dealer upon request, shall without delay pay in full
any indebtedness owed to SBL and return all SBL property to their home
office. In the event Broker/Dealer ceases doing business in such manner
that servicing would be impossible, SBL reserves the right to reassign
the business and service fees to another Broker/Dealer. Should
Broker/Dealer fail to comply with any of the terms of this Agreement, SBL
reserves the right to terminate this Agreement and terminate vesting as
to all commissions payable thereunder.
16. This Agreement is effective as of the Effective Date set forth above and
replaces any previous agreement between the parties relating to variable
products of SBL except as to any commissions payable thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date set forth above.
SECURITY DISTRIBUTORS, INC. BROKER/DEALER
By ________________________________ ____________________________________
Title: (Signature of Principal)
____________________________________
(Name of Principal)
SECURITY BENEFIT LIFE INSURANCE COMPANY
By ________________________________ ____________________________________
Title: Title:
|_| Individual |_| Corporation |_| Partnership
Tax Identification No. _______________________
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
GROUP FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
THE COMPANY'S PROMISE
In consideration of the Purchase Payments and the attached application,
Security Benefit Life Insurance Company (the "Company") will pay the
benefits of the Contract according to its provisions.
LEGAL CONTRACT
PLEASE READ YOUR CONTRACT CAREFULLY. It describes the terms of a legal
Contract between the Owner and the Company. The Contract's table of
contents is on page 2.
RIGHT TO CANCEL
IF FOR ANY REASON THE OWNER IS NOT SATISFIED WITH THIS CONTRACT, THE OWNER
MAY RETURN IT TO THE COMPANY WITHIN 10 DAYS FROM THE DATE OF RECEIPT. IF
RETURNED, THIS CONTRACT SHALL BE DEEMED VOID FROM THE CONTRACT DATE. THE
COMPANY WILL REFUND ANY PURCHASE PAYMENTS MADE AND ALLOCATED TO THE
GENERAL ACCOUNT AND WILL REFUND SEPARATE ACCOUNT CONTRACT VALUE AS OF THE
DATE THE RETURNED CONTRACT IS RECEIVED BY THE COMPANY.
Signed for Security Benefit Life Insurance Company on the Contract Date.
ROGER K. VIOLA HOWARD R. FRICKE
Secretary President
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a GROUP FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT.
* In return for Purchase Payments, the Company will pay the annuity
and other benefits as provided in this Contract.
* Individual allocations are maintained for Participants.
* This Contract is participating.
ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE
IN ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE
ARE NO GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND
EXPENSE PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies
700 SW Harrison Street, Topeka, KS 66636-0001
1-800-888-2461
GV6322 (9-97) BP
<PAGE>
TABLE OF CONTENTS
Page
CONTRACT SPECIFICATIONS............................. 3
DEFINITIONS......................................... 4-7
GENERAL PROVISIONS.................................. 7-10
The Contract................................... 7
Certificates................................... 7
Plan Provisions................................ 7
Change of Contract............................. 7
Future Participants............................ 8
Misstatement of Age or Sex..................... 8
Evidence of Survival........................... 8
Incontestability............................... 8
Assignment..................................... 8
Transfers...................................... 8, 9
Claims of Creditors............................ 9
Nonforfeiture Values........................... 9
Participation.................................. 10
Statements..................................... 10
BENEFICIARY PROVISIONS.............................. 10
Primary and Secondary Beneficiaries............ 10
Beneficiary Changes............................ 10
PURCHASE PAYMENT PROVISIONS......................... 10-11
Flexible Purchase Payments..................... 10
Purchase Payment Limitations................... 11
Purchase Payment Allocation.................... 11
Place of Payment............................... 11
CONTRACT VALUE AND EXPENSE PROVISIONS 11-14
Contract Value................................. 11
General Account Contract Value................. 11, 12
General Account Interest Crediting............. 12
Traditional General Account.................... 12
DCA Plus Account............................... 12
Separate Account Contract Value................ 12
Accumulation Unit Value........................ 13
Net Investment Factor.......................... 13
Determining Accumulation Units................. 13, 14
Mortality and Expense Risk Charge.............. 14
Premium Tax Expense............................ 14
Administrative Charge.......................... 14
Mutual Fund Expenses........................... 14
WITHDRAWAL PROVISIONS............................... 14-17
Withdrawals.................................... 14, 15
Withdrawal Value............................... 15
Withdrawal Charges............................. 15, 16
Free Withdrawals............................... 16
Systematic Withdrawals......................... 16
Free Systematic Withdrawals.................... 17
Date of Request................................ 17
Payment of Withdrawal Benefits................. 17
DEATH BENEFIT PROVISIONS............................ 17-18
Death Benefit.................................. 17, 18
Proof of Death................................. 18
ANNUITY PAYMENT PROVISIONS.......................... 19-23
Annuity Commencement Date...................... 19
Change of Annuity Commencement Date............ 19
Annuity Start Amount........................... 19
Withdrawal Charges............................. 19
Annuity Tables................................. 19, 20
Annuity Payments............................... 20
Change of Annuity Option....................... 20
Fixed Annuity Payments......................... 20
Variable Annuity Payments...................... 20
Annuity Units.................................. 21
Net Investment Factor.......................... 21
Alternate Annuity Option Rates................. 22
Annuity Options................................ 22
Life Option.................................... 22
Life with Fixed Period Option.................. 22
Life with Installment or Unit Refund Option.... 22
Joint and Last Survivor Option................. 22
Fixed Period Option............................ 22
Fixed Payment Option........................... 22
Period Certain Option.......................... 23
Joint and Contingent Survivor Option........... 23
ANNUITY TABLES...................................... 24, 25
AMENDMENTS OR ENDORSEMENTS, if any
2
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY CONTRACT SPECIFICATIONS
- --------------------------------------------------------------------------------
OWNER: ABC Employer
CONTRACT NUMBER: Specimen
CONTRACT DATE: 6-30-1996
PLAN: Qualified
ASSIGNMENT: This Contract may not be assigned.
See Assignment Provision of this Contract.
- --------------------------------------------------------------------------------
INITIAL PURCHASE PAYMENT.................... $500 ($25 pursuant to an Automatic
Investment Program)
MINIMUM SUBSEQUENT PURCHASE PAYMENTS........ $500 ($25 pursuant to an Automatic
Investment Program)
MINIMUM SYSTEMATIC WITHDRAWAL............... $100
MAXIMUM PARTICIPANT AGE..................... 80
MORTALITY AND EXPENSE RISK CHARGE........... 1.00% Annually
ANNUAL ADMINISTRATIVE FEE................... None
WITHDRAWAL CHARGES
Purchase Payment Year..................... 1 2 3 4 5 6 +
Withdrawal Charge......................... 5% 5% 5% 5% 5% 0%
FREE WITHDRAWAL PERCENTAGE....................... 10%
MINIMUM GUARANTEED RATE.......................... 3%
SEPARATE ACCOUNT................................. Variflex
SEPARATE ACCOUNT SERIES:
1 Money Market Series
2 High Grade Income Series
3 High Yield Series
4 Global Aggressive Bond Series
5 Growth-income Series
6 Equity Income Series
7 Managed Asset Allocation Series
8 Specialized Asset Allocation Series
9 Growth Series
10 Value Series
11 Worldwide Equity Series
12 Social Awareness Series
13 Emerging Growth Series
14 Small Cap Series
METHOD FOR DEDUCTIONS:
Deductions for Premium Taxes and any unallocated partial Withdrawals,
including Systematic Withdrawals, will be made sequentially from the Contract
Value in the order of the Series listed above and then from the DCA Plus
Account. The General Account is the last Account charged. The value of each
Account will be depleted before the next is charged.
* The Participant may select the Annuity Commencement Date and the Annuity
Option. If no Annuity Commencement Date or Annuity Option is selected by the
Participant, they will be assigned automatically.
3
GV6322A (9-97)
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
ACCOUNT
An Account is one of the Series or General Account options.
ACCUMULATION UNIT
The Accumulation Unit is a unit of measure. It is used to compute the
Separate Account Contract Value prior to the Annuity Commencement Date. It is
also used to compute the Variable Annuity Payments for Annuity Options 5 and
6.
ANNUITY OPTION
An Annuity Option is a set of provisions that form the basis for making
Annuity Payments. The Annuity Option is set prior to the Annuity Commencement
Date. Please see "Annuity Options" on page 22.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is the date on which Annuity Payments are
scheduled to begin. This date may be changed by the Participant. Please see
"Annuity Commencement Date" on page 19.
ANNUITY UNIT
The Annuity Unit is a unit of measure used to compute Variable Annuity
Payments for Annuity Options 1 through 4, 7 and 8.
AUTOMATIC TRANSFERS
Automatic Transfers are Transfers among the Series and the General Account
options. Such transfers are made automatically on a periodic basis by the
Company at the written request of the Participant. The Company reserves the
right to discontinue, modify or suspend Automatic Transfers.
COMPANY
The Company is Security Benefit Life Insurance Company, 700 SW Harrison
Street, Topeka, Kansas 66636-0001.
CONTRACT ANNIVERSARY
A Contract Anniversary is a 12-month anniversary of the Contract Date.
CONTRACT DATE
The Contract Date is the date the Participant's initial Purchase Payment is
applied and the date the Company uses to determine the date the Contract
becomes incontestable with respect to that Participant. Please see
"Incontestability" on page 8.
CONTRACT YEAR
Contract Years are measured from the Contract Date.
CURRENT INTEREST
The Company may in its discretion pay Current Interest on the General Account
options at a rate that exceeds the Minimum Guaranteed Rate shown on page 3.
The Company will declare the rate of Current Interest, if any, from time to
time.
DESIGNATED BENEFICIARY
Upon the death of the Participant, the Designated Beneficiary will be the
first person on the following list who is alive on the date of death:
1. Primary Beneficiary;
2. Secondary Beneficiary; and
3. the Participant's estate if no one listed above is alive.
4
GV6322B (9-97)
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS (CONTINUED)
- --------------------------------------------------------------------------------
DESIGNATED BENEFICIARY (CONTINUED)
The Designated Beneficiary receives a death benefit upon the death of the
Participant prior to the Annuity Commencement Date. Please see "Beneficiary
Provisions" on page 10 and "Death Benefit Provisions" on pages 17 and 18.
GENERAL ACCOUNT
The General Account is all of the Company's assets other than those allocated
to the Separate Account or to any other separate account of the Company. The
Company manages the General Account and guarantees that it will credit
interest on General Account Contract Value at an annual rate at least equal
to the Minimum Guaranteed Rate. This Rate is shown on page 3.
GENERAL ACCOUNT OPTIONS
There are two General Account options available under the Contract: (1) the
Traditional General Account; and (2) the DCA Plus Account.
HOME OFFICE
The address of the Company's Home Office is Security Benefit Life Insurance
Company, 700 SW Harrison Street, Topeka, Kansas 66636-0001.
NONNATURAL PERSON
Any group or entity that is not a living person, such as a trust or
corporation.
OWNER
The employer or other entity that makes application for the Contract.
PLAN
The employer-sponsored retirement plan, annuity purchase arrangement, or
deferred compensation program for which the Contract is issued.
PARTICIPANT
A person for whom or with respect to whom Purchase Payments are made under
the Contract.
PARTICIPANT ACCOUNT
An individual account which is established for a Participant to record the
Contract Value for the Participant.
PREMIUM TAX
Any Premium Taxes levied by a state or other governmental entity will be
charged against this Contract. When Premium Tax is assessed after the
Purchase Payment is applied, it will be deducted as described on page 3.
PURCHASE PAYMENT
A Purchase Payment is money Received by the Company for allocation to a
Participant Account.
PURCHASE PAYMENT YEAR
The first Purchase Payment Year begins on the date the Purchase Payment is
applied and increases by one on each successive Purchase Payment Anniversary.
RECEIVED BY THE COMPANY
The phrase "Received by the Company" means receipt by the Company in good
order at its Home Office, 700 SW Harrison Street, Topeka, Kansas 66636-0001.
5
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DEFINITIONS (CONTINUED)
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SEPARATE ACCOUNT
The Separate Account, shown on page 3 is a separate account established and
maintained by the Company under Kansas law. The Separate Account is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940 as a Unit Investment Trust. It was established by the
Company to support variable annuity contracts. The Company owns the assets of
the Separate Account and maintains them apart from the assets of its general
account and its other separate accounts. The assets held in the Separate
Account equal to the reserves and other Contract liabilities with respect to
the Separate Account may not be charged with liabilities arising from any
other business the Company may conduct.
Income and realized and unrealized gains and losses from assets in the
Separate Account are credited to, or charged against, the Separate Account
without regard to the income, gains or losses from the Company's general
account or its other separate accounts. The Separate Account is divided into
Series shown on page 3. Income and realized and unrealized gains and losses
from assets in each Series are credited to, or charged against, the Series
without regard to income, gains or losses in the other Series. The Company
has the right to transfer to its general account any assets of the Separate
Account that are in excess of the reserves and other Contract liabilities
with respect to the Separate Account. The value of the assets in the Separate
Account on each Valuation Date is determined as of the end of each Valuation
Date.
SERIES
The Separate Account is divided into Series which invest in shares of mutual
funds. Each Series may invest its assets in a separate class or series of a
designated mutual fund or funds. The Series are shown on page 3. Subject to
the regulatory requirements then in force, the Company reserves the right to:
1. change or add designated mutual funds or other investment vehicles;
2. add, remove or combine Series;
3. add, delete or make substitutions for securities that are held or
purchased by the Separate Account or any Series;
4. operate the Separate Account as a management investment company;
5. combine the assets of the Separate Account with other Separate Accounts
of the Company or an affiliate thereof;
6. restrict or eliminate any voting rights of the Owner with respect to the
Separate Account or other persons who have voting rights as to the
Separate Account; and
7. terminate and liquidate any Series.
If any of these changes result in a material change to the Separate Account
or a Series, the Company will notify the Owner of the change. The Company
will not change the investment policy of any Series in any material respect
without complying with the filing and other procedures of the insurance
regulators of the state of issue.
6
GV6322C (9-97)
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DEFINITIONS (CONTINUED)
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SERIES NET ASSET VALUE
The Series Net Asset Value is equal to: (1) the net asset value of all shares
of the underlying mutual fund held by the Series; plus (2) any cash or other
assets; less (3) all liabilities of the Series.
VALUATION DATE
A Valuation Date is each day the New York Stock Exchange and the Company's
Home Office are open for business.
VALUATION PERIOD
A Valuation Period is the interval of time from one Valuation Date to the
next Valuation Date.
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GENERAL PROVISIONS
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THE CONTRACT
The entire Contract between the Owner and the Company consists of the
Contract, the attached Application, and any Amendments, Endorsements or
Riders to the Contract. All statements made in the Application will, in the
absence of fraud, as ruled by a court of competent jurisdiction, be deemed
representations and not warranties. The Company will use no statement made by
or on behalf of the Owner or the Participant to void this Contract unless it
is in the written Application. Any change in the Contract can be made only
with the written consent of the President, a Vice President, or the Secretary
of the Company.
The Purchase Payment(s) and the Application must be acceptable to the Company
under its rules and practices. If they are not, the Company's liability shall
be limited to a return of the Purchase Payment(s).
CERTIFICATES
The Company will issue certificates to Participants. Each certificate will
set forth the benefits to which the Participant is entitled under the
Contract. Certificates are for information only and are not part of the
Contract.
PLAN PROVISIONS
The Contract is subject to the provisions of the Plan. To the extent provided
by the Plan, any rights that may be exercised by a Participant under the
Contract may instead be exercised by the Owner or a Plan representative.
CHANGE OF CONTRACT
The Company reserves the right to make any change to the provisions of the
Contract to comply with or give the Participant the benefit of any federal or
state statute, rule or regulation. This includes, but is not limited to,
requirements for annuity contracts under the Internal Revenue Code or the
laws of any state. The Company will provide the Owner with a copy of any such
change and will also file such a change with the insurance regulatory
officials of the state in which the Contract is delivered. In addition, upon
at least 30 days written notice to the Owner, the Company may make other
changes to this Contract that will apply only to individuals who become
Participants after the effective date of such change. All such changes will
be subject to any applicable regulatory requirements.
7
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GENERAL PROVISIONS (CONTINUED)
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FUTURE PARTICIPANTS
The Company may in its discretion curtail or prohibit new Participants under
the Contract upon written notice to the Owner.
MISSTATEMENT OF AGE AND SEX
If the age or sex of the Participant has been misstated, payments shall be
adjusted, when allowed by law, to the amount which would have been provided
for the correct age or sex. Proof of the age of Participant may be required
at any time, in a form suitable to the Company. If payments have already
commenced and the misstatement has caused an underpayment, the full amount
due will be paid with the next scheduled payment. If the misstatement has
caused an overpayment, the amount due will be deducted from one or more
future payments.
EVIDENCE OF SURVIVAL
When any payments under the Contract depend on the payee being alive on a
given date, proof that the payee is living may be required by the Company.
Such proof must be in a form accepted by the Company. The Company will have
the right to make reduced payments or withhold payments entirely until such
proof is received.
INCONTESTABILITY
The Contract will not be contested after it has been in force for two years
from the Contract Date during the life of the Participant.
ASSIGNMENT
The Contract cannot be sold, assigned, discounted, or pledged as collateral
for a loan or as security for the performance of an obligation. The benefits,
values, and rights under the Contract are not subject to any creditor claims
to the fullest extent permitted by law. The Contract and its rights cannot be
transferred to anyone other than the Company, except as provided under the
Plan or under a domestic relations order properly issued by a court of
competent jurisdiction and that complies with ERISA, if applicable. To the
extent permitted by the Code and applicable law, the Company will make a Full
or Partial Withdrawal payable to a third party upon the Participant's
request.
TRANSFERS
The Participant may Transfer Contract Value among the General Account options
and Series subject to the following.
The Participant may make only 14 Transfers per Contract Year. Transfers are
not allowed within 30 days of the Annuity Commencement Date. Automatic
Transfers are not included in the 14 Transfers allowed per Contract Year.
After the Annuity Commencement Date, for Annuity Options 1 through 4, 7 and
8, the Owner may Transfer Contract Value only among Series.
With respect to the DCA Plus Account, Transfers are allowed from that Account
only to the Series (excluding the Money Market Series) and Transfers are not
allowed from any Series or the Traditional General Account to the DCA Plus
Account.
GV6322D (9-97) 8
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GENERAL PROVISIONS (CONTINUED)
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TRANSFERS (CONTINUED)
The Company reserves the right to: (1) limit the amount that may be subject
to Transfer; (2) waive or limit the number of Transfers allowed each Contract
Year; and (3) suspend Transfers. Transfers must be at least $100.00 or, if
less, the remaining balance in the Account.
The total dollar amount that may be Transferred from the Traditional General
Account in a Contract Year is limited to the greatest of:
1. $5,000;
2. 1/5 of Contract Value allocated to the Traditional General Account on
the date the Transfer request is Received by the Company; or
3. 120% of the dollar amount Transferred from the Traditional General
Account in the prior Contract Year.
The Company reserves the right for a period of time to allow Transfers from
the Traditional General Account in amounts that exceed the limits set forth
above. In any Contract Year following a Contract Year during which such
limits were waived, the total dollar amount that may be Transferred is the
greatest of 1 above; 2 above; or
3. 120% of the lesser of:
a. the dollar amount Transferred from the Traditional General Account in
the prior Contract Year; or
b. the maximum total dollar amount that would have been allowed in the
prior Contract Year under the Transfer provisions above absent the
waiver.
The Company will effect a Transfer to or from a Series on the basis of
Accumulation Unit Value (or Annuity Unit Value) determined as of the end of
the Valuation Period in which the Transfer is effected. The Company will
effect a Transfer from the General Account on the basis of General Account
Contract Value as of the end of the Valuation Period in which the Transfer is
effected.
The Company reserves the right to delay Transfers from the General Account
for up to 6 months as required by most states. The Company will notify you if
there will be a delay.
CLAIMS OF CREDITORS
The Contract Value and other benefits under the Contract are exempt from the
claims of creditors of the Participant to the extent allowed by law.
NONFORFEITURE VALUES
The Death Benefits, Withdrawal Values and Annuity Payout Values will at least
equal the minimum required by law.
9
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GENERAL PROVISIONS (CONTINUED)
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PARTICIPATION
The Company pays dividends on some of its contracts. However, the Company
does not expect dividends to become payable on this Contract. At the end of
each Contract Year the Company will determine the Contract's dividend, if
any. The Participant may choose to have it (1) added to the Contract Value;
or (2) paid in cash. If no choice is made, any dividend will be added to
Contract Value.
STATEMENTS
At least once each Contract Year, the Participant shall be sent a statement
including the current Contract Value and any other information required by
law. The Participant may send a written request for a statement at other
intervals. The Company may charge a reasonable fee for such statements.
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BENEFICIARY PROVISIONS
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PRIMARY AND SECONDARY BENEFICIARIES
The Primary Beneficiary is named by the Participant. The Participant may
change any Beneficiary as described in "Beneficiary Changes" below. If the
Primary Beneficiary dies prior to the Participant, the Secondary Beneficiary
becomes the Primary Beneficiary. Unless the Participant directs otherwise,
when there are two or more Primary Beneficiaries, they will receive equal
shares.
BENEFICIARY CHANGES
Subject to the terms of any existing Assignment, the Participant may name a
new Primary Beneficiary or a new Secondary Beneficiary. Any new choice of
Primary Beneficiary or Secondary Beneficiary will revoke any prior choice.
Any change must be made in writing and recorded at the Home Office. The
change will become effective as of the date the written request is signed,
whether or not the Participant is living at the time the change is recorded.
A new choice of Primary Beneficiary or Secondary Beneficiary will not apply
to any payment made or action taken by the Company prior to the time it was
recorded. The Company may require the Contract be returned so these changes
may be made.
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PURCHASE PAYMENT PROVISIONS
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FLEXIBLE PURCHASE PAYMENTS
The Contract becomes in force when the initial Purchase Payment is applied.
The Participant is not required to continue Purchase Payments in the amount
or frequency originally planned. The Participant may: (1) increase or
decrease the amount of Purchase Payments, subject to any Contract limits; or
(2) change the frequency of Purchase Payments. A change in frequency or
amount of Purchase Payments does not require a written request. If no
Purchase Payment is received during the 180-day period beginning on the
Contract Date, the Participant Account will automatically terminate.
10
GV6322E (9-97)
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PURCHASE PAYMENT PROVISIONS (CONTINUED)
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PURCHASE PAYMENT LIMITATIONS
Purchase Payments exceeding $1,000,000 will not be accepted without prior
approval by the Company. The Minimum Subsequent Purchase Payment amount is
shown on page 3.
PURCHASE PAYMENT ALLOCATION
Purchase Payments may be allocated among the General Account options and the
Series. The allocations may be a whole dollar amount or whole percentage.
However, no less than $25 per Purchase Payment may be allocated to any
Account. The Participant may change the allocations by written notice to the
Company, unless the Owner has retained that right under the Plan.
PLACE OF PAYMENT
All Purchase Payments under the Contract are to be paid to the Company at its
Home Office. Purchase Payments after the initial Purchase Payment are applied
as of the end of the Valuation Period during which they are Received by the
Company.
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CONTRACT VALUE AND EXPENSE PROVISIONS
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CONTRACT VALUE
On any Valuation Date, the Contract Value is the sum of the following amounts
allocated to a Participant Account: (1) the Separate Account Contract Value;
and (2) the General Account Contract Value. At any time after the first
Contract Year and before the Annuity Commencement Date, the Company reserves
the right to pay to the Participant the Contract Value as a lump sum if it is
below $2,000.
GENERAL ACCOUNT CONTRACT VALUE
On any Valuation Date, the General Account Contract Value is equal to the
first Purchase Payment allocated under the Participant Account to the General
Account options:
PLUS:
1. any other Purchase Payments allocated under the Participant Account to
the General Account options;
2. any Transfers from the Separate Account Contract Value to the General
Account options; and
3. any interest credited.
LESS:
1. any Withdrawals and applicable Withdrawal Charges deducted from the
General Account options;
2. any Transfers from the General Account options to the Separate Account
Contract Value;
3. any applicable Premium Taxes deducted from the General Account options;
4. any Annual Administrative Fee deducted from the General Account options;
5. any General Account Contract Value which is applied to any of Annuity
Options 1 through 4, 7 and 8; and
11
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CONTRACT VALUE AND EXPENSE PROVISIONS (CONTINUED)
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GENERAL ACCOUNT CONTRACT VALUE (CONTINUED)
6. any Annuity Payments made from General Account Contract Value under
Annuity Options 5 and 6.
GENERAL ACCOUNT INTEREST CREDITING
The Company shall credit interest on General Account Contract Value at an
annual rate at least equal to the Minimum Guaranteed Rate shown on page 3.
Also, the Company may in its sole judgment credit Current Interest at a rate
in excess of the Minimum Guaranteed Rate.
The Company may credit Current Interest on Contract Value that was allocated
or Transferred to a General Account option during one period at a different
rate than amounts allocated or Transferred to a General Account option in
another period. The Company may credit different rates of Current Interest on
the DCA Plus Account and the Traditional General Account options. Therefore,
at any time, portions of General Account Contract Value may be earning
Current Interest at different rates based upon the period during which such
portions were allocated or Transferred to the General Account and the General
Account option selected.
TRADITIONAL GENERAL ACCOUNT
Purchase Payments may be allocated to the Traditional General Account and
Contract Value may be transferred to this Account. Transfers from the
Traditional General Account are limited. Please see the "Transfers"
provisions on page 8.
DCA PLUS ACCOUNT
A Purchase Payment may be allocated to the DCA Plus Account only if both of the
following conditions are met. The Purchase Payment is: (1) received during the
first two Contract Years; and (2) made pursuant to a direct transfer from
another Section 403(b) annuity contract. Contract Value allocated to the DCA
Plus Account will be Transferred monthly to one or more of the Series (not to
include the Money Market Series) as selected by the Participant over a 12-month
period (the "Transfer Year"). The Transfer Year begins on the date a direct
transfer is first allocated to the DCA Plus Account, and the first monthly
Transfer is made on the same date in the following month. A Participant who
allocates a Purchase Payment to the DCA Plus Account must submit to the Company
written instructions specifying: (1) the Series (not to include the Money Market
Series) to which the monthly Transfers are to be made; and (2) the percentage to
be allocated to each such Series. The amount of each monthly Transfer shall be
determined by dividing the amount of Contract Value allocated to the DCA Plus
Account on the date the Transfer is scheduled to be made by the number of months
remaining in the Transfer Year. If a subsequent direct transfer is allocated to
the DCA Plus Account during a Transfer Year, such amount will be transferred to
the Series over the balance of the Transfer Year on the same basis as set forth
above.
SEPARATE ACCOUNT CONTRACT VALUE
On any Valuation Date, the Separate Account Contract Value is the sum of the
then current value of the Accumulation Units allocated to each Series for the
Participant Account.
12
GV6322F (9-97)
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CONTRACT VALUE AND EXPENSE PROVISIONS (CONTINUED)
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ACCUMULATION UNIT VALUE
The initial Accumulation Unit Value for each Series was set at $10. The
Accumulation Unit Value for any subsequent Valuation Date is equal to (1)
times (2) where:
1. is the Accumulation Unit Value determined on the immediately preceding
Valuation Date; and
2. is the Net Investment Factor on the Valuation Date with respect to which
the Accumulation Unit Value is being determined.
NET INVESTMENT FACTOR
The Net Investment Factor for any Series as of the end of any Valuation
Period is determined by dividing (1) by (2) and subtracting (3) from the
result, where:
1. is equal to:
a. the net asset value per share of the mutual fund held in the Series
found as of the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions paid
by the Series' underlying mutual fund that is not included in the net
asset value per share; plus or minus
c. a per share charge or credit for any taxes reserved for, which the
Company deems to have resulted from the operation of the Separate
Account or the Subaccounts; operations of the Company with respect to
the Contract; or the payment of premiums or acquisition costs under the
Contract.
2. is the net asset value per share of the Series' underlying mutual fund
as of the end of the prior Valuation Period.
3. is the daily factor representing the Mortality and Expense Risk Charge
which is deducted from the Separate Account
Underlying mutual funds may declare dividends on a daily basis and pay such
dividends once a month. The Net Investment Factor allows for the monthly
reinvestment of these daily dividends. As described above, the gains and
losses from each Series are credited to or charged against the Series without
regard to the gains or losses in the Company or other Series.
DETERMINING ACCUMULATION UNITS
The number of Accumulation Units allocated to a Series under the Participant
Account is found by dividing: (1) the amount allocated to the Series; by (2)
the Accumulation Unit Value for the Series as of the end of the Valuation
Period during which the amount is applied under the Participant Account. The
number of Accumulation Units allocated to a Series under the Participant
Account will not change as a result of investment experience. Events that
change the number of Accumulation Units are:
13
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CONTRACT VALUE AND EXPENSE PROVISIONS (CONTINUED)
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DETERMINING ACCUMULATION UNITS (CONTINUED)
1. Purchase Payments that are applied to the Series;
2. Contract Value that is Transferred into or out of the Series;
3. Withdrawals and any applicable Withdrawal Charges that are deducted from
the Series;
4. Premium Taxes that are deducted from the Series; and
5. Annual Administrative Fees, if any, that are deducted from the Series.
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct the Mortality and Expense Risk Charge shown on page
3. This charge will be computed and deducted from each Series on each
Valuation Date. This charge is factored into the Accumulation Unit and
Annuity Unit Values on each Valuation Date.
PREMIUM TAX EXPENSE
The Company reserves the right to deduct Premium Tax when due or any time
thereafter. Any applicable Premium Taxes will be allocated as described on
page 3.
ADMINISTRATIVE CHARGE
The Company will deduct from Contract Value the Annual Administrative Fee in
the amount and manner shown on page 3. No Annual Administrative Fee is
deducted on or after the Annuity Commencement Date if one of Annuity Options
1 through 4 or 8 is chosen.
MUTUAL FUND EXPENSES
Each Series invests in shares of a mutual fund. The net asset value per share
of each underlying fund reflects the deduction of any investment advisory and
administration fees and other expenses of the fund. These fees and expenses
are not deducted from the assets of a Series, but are paid by the underlying
funds. The Participant indirectly bears a pro rata share of such fees and
expenses. An underlying fund's fees and expenses are not specified or fixed
under the terms of the Contract.
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WITHDRAWAL PROVISIONS
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WITHDRAWALS
A full or partial Withdrawal of Contract Value is allowed at any time while
the Participant is living. This provision is subject to any federal or state
Withdrawal restrictions.
Upon the Participant's request for a full Withdrawal, the Company will pay
the Withdrawal Value in a lump sum, and the Participant Account will
terminate.
All Withdrawals must meet the following conditions.
1. The request for Withdrawal must be Received by the Company in writing or
under other methods allowed by the Company.
2. The Participant must apply: (a) while this Contract is in force; and (b)
prior to the Annuity Commencement Date.
3. The amount Withdrawn must be at least $100, except upon a full
Withdrawal.
14
GV6322G (9-97)
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WITHDRAWAL PROVISIONS (CONTINUED)
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WITHDRAWALS (CONTINUED)
A partial Withdrawal request must state the allocations for deducting the
Withdrawal from each Account. If no allocation is specified, the partial
Withdrawal will be deducted from the Accounts in the order described on page
3, "Method for Deductions."
WITHDRAWAL VALUE
The Withdrawal Value at any time will be the Contract Value less: (1) any
Premium Taxes due or paid by the Company; (2) any Annual Administrative Fee;
and (3) any Withdrawal Charges.
WITHDRAWAL CHARGES
If part or all of the Contract Value is withdrawn, Withdrawal Charges may be
applied at the time of Withdrawal. The Withdrawal Charge is applied to the
lesser of: (1) the amount withdrawn; or (2) the amount of Purchase Payments.
The amount of the charge is based upon the number of Purchase Payment Years
the Purchase Payment has remained in the Participant Account. See the
Withdrawal Charge shown on page 3. For the purpose of determining the
Withdrawal Charges, Purchase Payments are withdrawn before earnings on a
first in first out basis. The Withdrawal Charge will not be assessed under
the following conditions:
1. payments under Annuity Options 1 through 4, 7 and 8;
2. payments under Annuity Options 5 and 6 provided that Annuity Payments
are made for at least 5 years.
3. the death of the Participant;
4. payment after the Participant has become totally and permanently
disabled prior to age 65. This means that the Participant is unable,
because of physical or mental impairment, to perform the material and
substantial duties of any occupation for which the Participant is suited
by means of education, training or experience. The impairment must have
been in existence for more than 180 days to qualify for this benefit.
Such impairment must be expected to result in death or be long-standing
and indefinite. The Company requires proof of disability and will accept
a certified Social Security finding of disability or a doctor's
verification;
5. the Participant is separated from service with the employer that
maintains the Plan and had actively participated in the Plan for five
years before separating from service. Active participation means regular
contributions through a salary reduction arrangement with no
interruptions in Purchase Payments;
6. no Purchase Payments were made to the Participant Account in the five
years preceding the date of the Withdrawal;
7. the Participant is at least 59 1/2 years old and the Participant Account
was established at least five years before the date of the Withdrawal;
8. the Participant Account was established at least fifteen years before
the date of the Withdrawal; or
9. payments made to satisfy the minimum distribution requirements of the
Internal Revenue Code.
15
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WITHDRAWAL PROVISIONS (CONTINUED)
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WITHDRAWAL CHARGES (CONTINUED)
The Withdrawal Charge will be assessed against Contract Value allocated to
the Series and the General Account options in the same proportion as the
Withdrawal is allocated.
The Withdrawal Charge may be waived or reduced uniformly on all Participant
Accounts for contracts issued under certain plans or arrangements which are
expected to result in administrative cost savings.
FREE WITHDRAWALS
A Free Withdrawal is a Withdrawal amount which is not subject to Withdrawal
Charges. The amount of Free Withdrawal available in a Contract Year is
determined as follows. In the first Contract Year, it is equal to: (1)
cumulative Purchase Payments made under the Contract; times (2) the Free
Withdrawal Percentage set forth on page 3; less (3) any Free Withdrawals,
including any Free Systematic Withdrawals, made during the Contract Year. The
amount of Free Withdrawal available in subsequent Contract Years is equal to
(1) Contract Value as of the first day of the current Contract Year; times
(2) the Free Withdrawal Percentage; less (3) any Free Withdrawals, including
any Free Systematic Withdrawals, made during the Contract Year. Unused Free
Withdrawal amounts are not carried from one Contract Year to the next. Free
Withdrawals do not reduce Purchase Payments for purposes of calculating the
Withdrawal Charge on future Withdrawals.
SYSTEMATIC WITHDRAWALS
Systematic Withdrawals are automatic periodic Withdrawals from the Contract
in substantially equal amounts prior to the Annuity Commencement Date.
In order to start Systematic Withdrawals, the Participant must make the
request in writing. The Minimum Systematic Withdrawal is shown on page 3. The
Participant must choose the type of payment and its frequency. The Systematic
Withdrawal request must state the allocations for deducting the Withdrawals
from each Account. If no allocation is specified, the Withdrawals will be
deducted from the Accounts in the order described on page 3, "Method for
Deductions." The payment type may be: (1) in a fixed amount; (2) in Level
Payments calculated by the Company; (3) for a specified period; (4) all
earnings in the Contract; or (5) based upon the life expectancy of the
Participant or the Participant and a Beneficiary. The payment frequency may
be: (1) monthly; (2) quarterly; (3) semiannually; or (4) annually. Systematic
Withdrawals may be stopped or changed by the Participant upon proper written
request Received by the Company at least 30 days in advance of the requested
date of termination or change. The Company reserves the right to stop, modify
or suspend Systematic Withdrawals at any time.
16
GV6322H (9-97)
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WITHDRAWAL PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
FREE SYSTEMATIC WITHDRAWALS
Free Systematic Withdrawals are not subject to a Withdrawal Charge. The
amount of Free Systematic Withdrawals available in a Contract Year is
determined as follows: the amount of Systematic Withdrawals that when
combined with any Free Withdrawals in the current Contract Year, does not
exceed the Free Withdrawal amount available in that Contract Year.
DATE OF REQUEST
The Company will effect a Withdrawal of Separate Account Contract Value on
the basis of Accumulation Unit Value determined as of the end of the
Valuation Period in which all the required information is Received by the
Company. The Company will effect a Systematic Withdrawal of Separate Account
Contract Value on the basis of the Accumulation Unit Value determined as of
the end of the Valuation Period during which such Withdrawal is scheduled.
PAYMENT OF WITHDRAWAL BENEFITS
The Company reserves the right to suspend a Transfer or delay payment of a
Withdrawal from the Separate Account for any period:
1. when the New York Stock Exchange is closed; or
2. when trading on the New York Stock Exchange is restricted; or
3. when an emergency exists as a result of which: (a) disposal of
securities held in the Separate Account is not reasonably practicable;
or (b) it is not reasonably practicable to fairly value the net assets
of the Separate Account; or
4. during any other period when the Securities and Exchange Commission, by
order, so permits to protect owners of securities.
Rules and regulations of the Securities and Exchange Commission will govern
as to whether the conditions set forth above exist.
The Company further reserves the right to delay payment of a Withdrawal from
the General Account for up to six months as required by most states. The
Company will notify you if there will be a delay.
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DEATH BENEFIT PROVISIONS
- --------------------------------------------------------------------------------
DEATH BENEFIT
If any Participant dies prior to the Annuity Commencement Date, a Death
Benefit will be paid to the Designated Beneficiary when due Proof of Death
and instructions regarding payment are Received by the Company.
17
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DEATH BENEFIT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
DEATH BENEFIT (CONTINUED)
If the age of the Participant was 75 or younger on the Contract Date, the
Death Benefit will be the greatest of: (1) the sum of all Purchase Payments,
less any Premium Taxes due or paid by the Company and less the sum of all
partial Withdrawals; (2) the Contract Value on the date due Proof of Death
and instructions regarding payment are Received by the Company, less any
Premium Taxes due or paid by the Company; or (3) the Stepped-Up Death Benefit
described below.
The Stepped-Up Death Benefit is:
1. the largest Death Benefit on any Contract Anniversary that is both an
exact multiple of five and occurs prior to the Participant reaching age
76; plus
2. any Purchase Payments received since the applicable fifth Contract
Anniversary; less
3. any reductions caused by Withdrawals since the applicable fifth Contract
Anniversary; less
4. any Premium Taxes due or paid by the Company.
If the age of the Participant on the Contract Date was 76 or older, or if due
proof of death and instructions regarding payment are not received within 6
months of the date of the Participant's death, the Death Benefit will be the
Contract Value on the date due Proof of Death and instructions regarding
payment are Received by the Company, less any Premium Taxes due or paid by
the Company.
If a lump sum payment is requested, the payment will be made in accordance
with any laws and regulations that govern the payment of Death Benefits.
PROOF OF DEATH
Any of the following will serve as Proof of Death:
1. certified copy of the death certificate;
2. certified decree of a court of competent jurisdiction as to the finding
of death;
3. written statement by a medical doctor who attended the deceased
Participant; or
4. any proof accepted by the Company.
18
GV6322I (9-97)
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS
- --------------------------------------------------------------------------------
ANNUITY COMMENCEMENT DATE
The Participant may choose the Annuity Commencement Date at the time of
application. The Annuity commencement Date may not be prior to the third
Contract Anniversary. If no Annuity Commencement Date is chosen, the Company
will use the later of: (1) the Participant's seventieth birthday; or (2) the
tenth Contract Anniversary, but in no event later than the Participant's 85th
birthday. The Annuity Commencement Date must be prior to the Participant's
85th birthday.
The Annuity Commencement Date is the date the first payment will be made to
the Participant under any of the Annuity Options.
CHANGE OF ANNUITY COMMENCEMENT DATE
The Participant may change the Annuity Commencement Date. A request for the
change must be made in writing. The written request must be Received by the
Company at least 30 days prior to the new Annuity Commencement Date as well
as 30 days prior to the previous Annuity Commencement Date.
ANNUITY START AMOUNT
The Annuity Start Amount is applied to one of the Annuity Options listed on
pages 22-23. The Annuity Start Amount is: (1) the Contract Value on the
Annuity Commencement Date; less (2) any Premium Taxes due or paid by the
Company; and less (3) if one of Annuity Options 1 through 4 or 8 is chosen, a
pro rata Administrative Fee. Unless otherwise directed by the Participant,
Annuity Start Amount derived from General Account Contract Value will be
applied to purchase a Fixed Annuity Option; that derived from Separate
Account Contract Value will be applied to purchase a Variable Annuity Option.
WITHDRAWAL CHARGES
Withdrawal Charges are not applied to: (1) Annuity payments made under
Annuity Options 1 through 4, 7 and 8; or (2) those made under annuity Options
5 and 6 that provide for payments over a period of at least 5 years.
Withdrawal Charges are applied to annuity payments under Annuity Options 5
and 6 that provide for payments over a period of less than 5 years. See
"Withdrawal Provisions" on pages 14-17.
ANNUITY TABLES
Annuity Tables A through C show the guaranteed minimum amount of monthly
Annuity Payment per $1,000 of Annuity Start Amount for Annuity Options 1
through 4, 7 and 8 that applies to the first Variable Annuity Payment and to
each payment for Fixed Annuity Payments. The amount of each Annuity Payment
for Annuity Options 1 through 4 and 8 will depend on the Participant's sex
and age on the Annuity Commencement Date.
19
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
ANNUITY TABLES (CONTINUED)
Tables A and B assume 1900 as the year of birth of the Participant. To use
Tables A and B for a Participant born after 1900, the actual age is reduced
by 0.1 (one-tenth) of a year for each year the year of birth exceeds 1900.
For a Participant with a birth year prior to 1900, the actual age is
increased in a like manner. The actual age (in completed months) reduced or
increased becomes the "adjusted age of the Participant" The guaranteed payout
rate is then found by interpolating the Participant's adjusted age between
the ages shown in Tables A and B. Tables A and B are based on the 1983 Table
"A" mortality table and an interest rate of 3.5% per year. On request the
Company will furnish the amount of monthly Annuity Payment per $1,000 applied
for any ages not shown.
For Annuity Options 5 through 7, annuity rates based on age and sex are not
used to calculate Annuity Payments. Annuity Payments for these options are
computed without reference to the Annuity Tables.
ANNUITY PAYMENTS
The Annuity Option is shown on page 3. The Participant may choose any form of
Annuity Option that is allowed by the Company. The Participant may choose an
Annuity Option by written request. This request must be Received by the
Company at least 30 days prior to the Annuity Commencement Date. Several
Annuity Options are listed on pages 22-23. No Annuity Option can be selected
that requires the Company to make periodic payments of less than $100. If no
Annuity Option is chosen prior to the Annuity Commencement Date, the Company
will use Life with 10-Year Fixed Period Option. Each Annuity Option allows
for making Annuity Payments annually, semiannually, quarterly or monthly.
CHANGE OF ANNUITY OPTION
Prior to the Annuity Commencement Date, the Participant may change the
Annuity Option chosen. The Participant must request the change in writing.
This request must be Received by the Company at least 30 days prior to the
Annuity Commencement Date.
FIXED ANNUITY PAYMENTS
With respect to Fixed Annuity Payments, the amounts shown on the Tables are
the guaranteed minimum for each Annuity Payment for Annuity Options 1 through
4, 7 and 8.
VARIABLE ANNUITY PAYMENTS
With respect to Variable Annuity Payments, the amount shown on the Tables is
the guaranteed minimum first Annuity Payment, based on the assumed interest
rate of 3.5% for Annuity Options 1 through 4, 7 and 8. The amount of each
Annuity Payment after the first for these options is computed by means of
Annuity Units.
20
GV6322J (9-97)
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
ANNUITY UNITS
The number of Annuity Units is found by dividing the first Annuity Payment by
the Annuity Unit Value for the selected Series on the Annuity Commencement
Date. The number of Annuity Units for the Series then remains constant,
unless a Transfer of Annuity Units is made. After the first Annuity Payment,
the dollar amount of each subsequent Annuity Payment is equal to the number
of Annuity Units times the Annuity Unit Value for the Series on the due date
of the Annuity Payment.
The Annuity Unit Value for each Series was first set at $1.00. The Annuity
Unit Value for any subsequent Valuation Date is equal to (a) times (b) times
(c), where:
(a) is the Annuity Unit Value on the immediately preceding Valuation Date;
(b) is the Net Investment Factor for the day;
(c) is a factor used to adjust for an assumed interest rate of 3.5% per
year used to determine the Annuity Payment amounts. The assumed
interest rate is reflected in the Annuity Tables.
NET INVESTMENT FACTOR
The Net Investment Factor for any Series as of the end of any Valuation
Period is determined by dividing (1) by (2) and subtracting (3) from the
result, where:
1. is equal to:
a. the net asset value per share of the mutual fund held in the Series,
found as of the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
paid by the Series' underlying mutual fund that is not included in
the net asset value per share; plus or minus
c. a per share charge or credit for any taxes reserved for, which the
Company deems to have resulted from the operation of the Separate
Account or Series; the operations of the Company with respect to the
Contract; or the payment of premium or acquisition costs under the
Contract.
2. is the net asset value per share of the Series' underlying mutual fund
as found as of the end of the prior Valuation Period.
3. is a factor representing the Mortality and Expense Risk Charge which is
deducted from the Separate Account.
Underlying mutual funds may declare dividends on a daily basis and pay such
dividends once a month. The Net Investment Factor allows for the monthly
reinvestment of these daily dividends. As described above, the gains and
losses from each Series are credited or charged against the Series without
regard to the gains or losses in the Company or other Series.
21
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
ALTERNATE ANNUITY OPTION RATES
The Company may, at the time of election of an Annuity Option, offer more
favorable rates in lieu of the guaranteed rates shown in the Annuity Tables.
ANNUITY OPTIONS
OPTION 1
LIFE OPTION: This option provides payments for the life of the Participant.
Table A shows some of the guaranteed rates for this option.
OPTION 2
LIFE WITH FIXED PERIOD OPTION: This option provides payments for the life of
the Participant. A fixed period of 5, 10, 15
or 20 years may be chosen. Payments will be made to the end of this period
even if the Participant dies prior to the end of the period. If the
Participant dies before receiving all the payments during the fixed period,
the remaining payments will be made to the Designated Beneficiary. Table A
shows some of the guaranteed rates for this option.
OPTION 3
LIFE WITH INSTALLMENT OR UNIT REFUND OPTION: This option provides payments
for the life of the Participant, with a period certain determined by dividing
the Annuity Start Amount by the amount of the first payment. A fixed number
of payments will be made even if the Participant dies. If the Participant
dies before receiving the fixed number of payments, any remaining payments
will be made to the Designated Beneficiary.
OPTION 4
JOINT AND LAST SURVIVOR OPTION: This option provides payments for the life of
the Participant and a second person. Payments will be made as long as either
is living. Table B shows some of the guaranteed rates for this option.
OPTION 5
FIXED PERIOD OPTION: This option provides payments for a fixed number of
years between 5 and 20. If the Contract Value is held in the General Account,
then the amount of the payments will vary as a result of the interest rate
(as adjusted periodically) credited on the General Account. This rate is
guaranteed to be no less than the Guaranteed Rate shown on page 3. If the
Contract Value is held in the Separate Account, then the amount of the
payments will vary as a result of the investment performance of the Series
chosen. If the Participant dies before receiving the fixed number of
payments, any remaining payments will be made to the Designated Beneficiary.
OPTION 6
FIXED PAYMENT OPTION: This option provides a fixed payment amount. This
amount is paid until the amount applied, including daily interest
adjustments, is paid. If the Contract Value is held in the General Account,
then the number of payments will vary as a result of the interest rate (as
adjusted periodically) credited on the General Account. This rate is
guaranteed to be no less than the Guaranteed Rate shown on page 3. If the
Contract Value is held in the Separate Account, then the number of payments
will vary as a result of the investment performance of the Series chosen. If
the Participant dies before receiving all the payments, any remaining
payments will be made to the Designated Beneficiary.
22
GV6322K (9-97)
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
OPTION 7
PERIOD CERTAIN OPTION: This option provides payments for a fixed period of 5,
10, 15 or 20 years. Payments will be made until the end of this period. If
the Participant dies prior to the end of the period, the remaining payments
will be made to the Designated Beneficiary. Table C shows some of the
guaranteed rates for this option.
OPTION 8
JOINT AND CONTINGENT SURVIVOR OPTION: This option provides payments for the
life of the Participant. Payments will be made to the Participant as long as
he or she is living. Upon the death of the Participant, payments will be made
to a second person named by the Participant as long as he or she is living.
If such person is not living upon the death of the Participant, no further
payments will be made. Table B shows some of the guaranteed rates for this
option.
23
<PAGE>
ANNUITY TABLES
- --------------------------------------------------------------------------------
Table A
Settlement Options One, Two, and Three
Minimum Initial Monthly Installments per $1,000 of Amount Applied
<TABLE>
<CAPTION>
Adjusted Option One Option Two Option Three
Age Life Life with Fixed Period Unit
of Participant Only 5 Years 10 Years 15 Years 20 Years Refund
- ---------------------------- ------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
MALE
55 4.99 4.97 4.91 4.80 4.66 4.73
56 5.09 5.07 5.00 4.88 4.72 4.81
57 5.20 5.17 5.10 4.97 4.78 4.90
58 5.32 5.29 5.20 5.05 4.85 4.99
59 5.44 5.41 5.31 5.14 4.91 5.08
60 5.57 5.53 5.42 5.23 4.97 5.18
61 5.71 5.67 5.54 5.33 5.04 5.29
62 5.86 5.81 5.67 5.42 5.10 5.40
63 6.02 5.97 5.80 5.52 5.16 5.51
64 6.20 6.13 5.94 5.62 5.22 5.63
65 6.36 6.31 6.08 5.72 5.28 5.76
66 6.58 6.49 6.23 5.82 5.33 5.90
67 6.79 6.69 6.38 5.92 5.38 6.04
68 7.02 6.90 6.54 6.02 5.43 6.19
69 7.26 7.12 6.71 6.12 5.48 6.35
70 7.52 7.35 6.87 6.21 5.52 6.52
71 7.80 7.60 7.05 6.30 5.55 6.69
72 8.09 7.86 7.22 6.39 5.59 6.88
73 8.41 5.13 7.40 6.47 5.62 7.07
74 8.75 8.42 7.57 6.55 5.64 7.27
75 9.12 8.72 7.75 6.62 5.66 7.49
FEMALE
55 4.54 4.53 4.51 4.46 4.38 4.40
56 4.62 4.61 4.58 4.53 4.44 4.47
57 4.71 4.70 4.66 4.60 4.51 4.54
58 4.80 4.79 4.75 4.68 4.57 4.62
59 4.90 4.88 4.84 4.76 4.64 4.70
60 5.00 4.99 4.93 4.84 4.70 4.78
61 5.11 5.09 5.03 4.93 4.77 4.87
62 5.23 5.21 5.14 5.02 4.84 4.96
63 5.36 5.33 5.25 5.12 4.91 5.06
64 5.49 5.46 5.37 5.21 4.98 5.17
65 5.64 5.60 5.50 5.31 5.05 5.28
66 5.79 5.75 5.63 5.42 5.12 5.39
67 5.95 5.91 5.77 5.53 5.19 5.52
68 6.13 6.08 5.91 5.63 5.25 5.65
69 6.32 6.26 6.07 5.74 5.32 5.79
70 6.53 6.46 6.23 5.86 5.37 5.94
71 6.75 6.67 6.40 5.97 5.43 6.09
72 6.99 6.89 6.58 6.08 5.48 6.26
73 7.26 7.13 6.76 6.18 5.52 6.44
74 7.54 7.39 6.95 6.29 5.57 6.63
75 7.85 7.67 7.14 6.39 5.60 6.83
</TABLE>
Values not shown will be provided upon request. Annual, semiannual, or
quarterly installments can be determined by multiplying the monthly
installments by 11.812853, 5.9572227, and 2.9914196 respectively.
24
GV6322L (9-97)
<PAGE>
ANNUITY TABLES
- --------------------------------------------------------------------------------
Table B
Settlement Options Four and Eight
Minimum Initial Monthly Installments per $1,000 of Amount Applied
Adjusted Age of
Female Participant Adjusted Age of Male Participant
55 60 62 65 70 75
- --------------------------------------------------------------------------------
55 4.16 4.27 4.30 4.35 4.42 4.47
60 4.34 4.51 4.57 4.66 4.78 4.86
62 4.41 4.61 4.68 4.79 4.94 5.04
65 4.51 4.76 4.85 4.99 5.20 5.35
70 4.66 4.99 5.13 5.34 5.67 5.95
75 4.78 5.19 5.37 5.66 6.16 6.63
Values not shown will be provided upon request. Annual, semiannual, or
quarterly installments can be determined by multiplying the monthly
installments by 11.812853, 5.9572227, and 2.9914196 respectively.
- --------------------------------------------------------------------------------
TABLE C
SETTLEMENT OPTION SEVEN
MINIMUM INITIAL MONTHLY INSTALLMENT PER $1,000 OF AMOUNT APPLIED
PERIOD CERTAIN
5 Years 10 Years 15 Years 20 Years
- --------------------------------------------------------------------------------
18.11 9.83 7.1 5.75
Values not shown will be provided upon request. Annual, semiannual, or quarterly
installments can be determined by multiplying the monthly installments by
11.812853, 5.9572227, and 2.9914196 respectively.
25
<PAGE>
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a GROUP FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT.
* In return for Purchase Payments, the Company will pay the annuity
and other benefits as provided in this Contract.
* Individual allocations are maintained for Participants.
* The Contract is participating.
ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGO]
Security Benefit Life Insurance Company
A Member of The Security Benefit Group of Companies
700 SW Harrison Street, Topeka, KS 66636-0001
1-800-888-2461
26
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
GROUP FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CERTIFICATE
THE COMPANY'S PROMISE
In consideration of the Purchase Payments and the attached application,
Security Benefit Life Insurance Company (the "Company") will pay the
benefits of the Contract according to its provisions.
LEGAL CONTRACT
PLEASE READ YOUR CERTIFICATE CAREFULLY. It describes the terms of a legal
Contract between the Owner and the Company. The Certificate's table of
contents is on page 2.
RIGHT TO CANCEL
IF FOR ANY REASON THE PARTICIPANT IS NOT SATISFIED WITH THIS CERTIFICATE,
THE PARTICIPANT MAY END PARTICIPATION UNDER THE CONTRACT AND CANCEL THIS
CERTIFICATE BY MAILING IT TO THE COMPANY WITHIN 10 DAYS FROM THE DATE OF
RECEIPT. IF RETURNED, THIS CERTIFICATE SHALL BE DEEMED VOID FROM THE
CONTRACT DATE. THE COMPANY WILL REFUND ANY PURCHASE PAYMENTS MADE AND
ALLOCATED TO THE GENERAL ACCOUNT AND WILL REFUND SEPARATE ACCOUNT CONTRACT
VALUE AS OF THE DATE THE RETURNED CERTIFICATE IS RECEIVED BY THE COMPANY.
Signed for Security Benefit Life Insurance Company on the Contract Date.
ROGER K. VIOLA HOWARD R. FRICKE
Secretary President
This is a Certificate under a GROUP FLEXIBLE PREMIUM DEFERRED VARIABLE
ANNUITY CONTRACT.
* Purchase Payments may be made until the earlier of the Annuity
Commencement Date or termination of participation under the
Contract.
* A Death Benefit may be paid prior to the Annuity Commencement Date
according to the Contract provisions.
* Annuity Payments begin on the Annuity Commencement Date using the
method specified in this Certificate.
ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE
IN ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE
ARE NO GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND
EXPENSE PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies
700 SW Harrison Street, Topeka, KS 66636-0001
1-800-888-2461
GVC6322 (9-97) BP
<PAGE>
TABLE OF CONTENTS
Page
CONTRACT SPECIFICATIONS............................. 3
DEFINITIONS......................................... 4-7
GENERAL PROVISIONS.................................. 7-10
The Contract................................... 7
Certificates................................... 7
Plan Provisions................................ 7
Change of Contract............................. 7
Future Participants............................ 8
Misstatement of Age or Sex..................... 8
Evidence of Survival........................... 8
Incontestability............................... 8
Assignment..................................... 8
Transfers...................................... 8, 9
Claims of Creditors............................ 9
Nonforfeiture Values........................... 9
Participation.................................. 10
Statements..................................... 10
BENEFICIARY PROVISIONS.............................. 10
Primary and Secondary Beneficiaries............ 10
Beneficiary Changes............................ 10
PURCHASE PAYMENT PROVISIONS......................... 10-11
Flexible Purchase Payments..................... 10
Purchase Payment Limitations................... 11
Purchase Payment Allocation.................... 11
Place of Payment............................... 11
CONTRACT VALUE AND EXPENSE PROVISIONS 11-14
Contract Value................................. 11
General Account Contract Value................. 11, 12
General Account Interest Crediting............. 12
Traditional General Account.................... 12
DCA Plus Account............................... 12
Separate Account Contract Value................ 12
Accumulation Unit Value........................ 13
Net Investment Factor.......................... 13
Determining Accumulation Units................. 13, 14
Mortality and Expense Risk Charge.............. 14
Premium Tax Expense............................ 14
Administrative Charge.......................... 14
Mutual Fund Expenses........................... 14
WITHDRAWAL PROVISIONS............................... 14-17
Withdrawals.................................... 14, 15
Withdrawal Value............................... 15
Withdrawal Charges............................. 15, 16
Free Withdrawals............................... 16
Systematic Withdrawals......................... 16
Free Systematic Withdrawals.................... 17
Date of Request................................ 17
Payment of Withdrawal Benefits................. 17
DEATH BENEFIT PROVISIONS............................ 17-18
Death Benefit.................................. 17, 18
Proof of Death................................. 18
ANNUITY PAYMENT PROVISIONS.......................... 19-23
Annuity Commencement Date...................... 19
Change of Annuity Commencement Date............ 19
Annuity Start Amount........................... 19
Withdrawal Charges............................. 19
Annuity Tables................................. 19, 20
Annuity Payments............................... 20
Change of Annuity Option....................... 20
Fixed Annuity Payments......................... 20
Variable Annuity Payments...................... 20
Annuity Units.................................. 21
Net Investment Factor.......................... 21
Alternate Annuity Option Rates................. 22
Annuity Options................................ 22
Life Option.................................... 22
Life with Fixed Period Option.................. 22
Life with Installment or Unit Refund Option.... 22
Joint and Last Survivor Option................. 22
Fixed Period Option............................ 22
Fixed Payment Option........................... 22
Period Certain Option.......................... 23
Joint and Contingent Survivor Option........... 23
ANNUITY TABLES...................................... 24, 25
AMENDMENTS OR ENDORSEMENTS, if any
2
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY CONTRACT SPECIFICATIONS
- --------------------------------------------------------------------------------
PARTICIPANT NAME: John A. Doe CONTRACT NUMBER: Specimen
PARTICIPANT DATE OF BIRTH: 10-30-1956 CERTIFICATE NUMBER: Specimen
PARTICIPANT'S GENDER: Male CONTRACT DATE: 6-30-1996
OWNER: ABC Employer ANNUITY COMMENCEMENT DATE: 7-1-2028*
PRIMARY BENEFICIARY NAME: PLAN: Qualified
ASSIGNMENT: This Certificate may not
be assigned.
See Assignment Provision of this
Certificate.
- --------------------------------------------------------------------------------
INITIAL PURCHASE PAYMENT.................... $500 ($25 pursuant to an Automatic
Investment Program)
MINIMUM SUBSEQUENT PURCHASE PAYMENTS........ $500 ($25 pursuant to an Automatic
Investment Program)
MINIMUM SYSTEMATIC WITHDRAWAL............... $100
MAXIMUM PARTICIPANT AGE..................... 80
MORTALITY AND EXPENSE RISK CHARGE........... 1.00% Annually
ANNUAL ADMINISTRATIVE FEE................... None
WITHDRAWAL CHARGES
Purchase Payment Year..................... 1 2 3 4 5 6 +
Withdrawal Charge......................... 5% 5% 5% 5% 5% 0%
FREE WITHDRAWAL PERCENTAGE....................... 10%
MINIMUM GUARANTEED RATE.......................... 3%
ANNUITY OPTION................................... Life with 10-Year Fixed
Period Option*
SEPARATE ACCOUNT................................. Variflex
SEPARATE ACCOUNT SERIES:
1 Money Market Series
2 High Grade Income Series
3 High Yield Series
4 Global Aggressive Bond Series
5 Growth-income Series
6 Equity Income Series
7 Managed Asset Allocation Series
8 Specialized Asset Allocation Series
9 Growth Series
10 Value Series
11 Worldwide Equity Series
12 Social Awareness Series
13 Emerging Growth Series
14 Small Cap Series
METHOD FOR DEDUCTIONS:
Deductions for Premium Taxes and any unallocated partial Withdrawals,
including Systematic Withdrawals, will be made sequentially from the Contract
Value in the order of the Series listed above and then from the DCA Plus
Account. The General Account is the last Account charged. The value of each
Account will be depleted before the next is charged.
* The Participant may select the Annuity Commencement Date and the Annuity
Option. If no Annuity Commencement Date or Annuity Option is selected by the
Participant, they will be assigned automatically.
3
GVC6322A (9-97)
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
ACCOUNT
An Account is one of the Series or General Account options.
ACCUMULATION UNIT
The Accumulation Unit is a unit of measure. It is used to compute the
Separate Account Contract Value prior to the Annuity Commencement Date. It is
also used to compute the Variable Annuity Payments for Annuity Options 5 and
6.
ANNUITY OPTION
An Annuity Option is a set of provisions that form the basis for making
Annuity Payments. The Annuity Option is set prior to the Annuity Commencement
Date. Please see "Annuity Options" on page 22.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is the date on which Annuity Payments are
scheduled to begin. This date may be changed by the Participant. Please see
"Annuity Commencement Date" on page 19.
ANNUITY UNIT
The Annuity Unit is a unit of measure used to compute Variable Annuity
Payments for Annuity Options 1 through 4, 7 and 8.
AUTOMATIC TRANSFERS
Automatic Transfers are Transfers among the Series and the General Account
options. Such transfers are made automatically on a periodic basis by the
Company at the written request of the Participant. The Company reserves the
right to discontinue, modify or suspend Automatic Transfers.
COMPANY
The Company is Security Benefit Life Insurance Company, 700 SW Harrison
Street, Topeka, Kansas 66636-0001.
CONTRACT ANNIVERSARY
A Contract Anniversary is a 12-month anniversary of the Contract Date.
CONTRACT DATE
The Contract Date is the date the Participant's initial Purchase Payment is
applied and the date the Company uses to determine the date the Contract
becomes incontestable with respect to that Participant. Please see
"Incontestability" on page 8.
CONTRACT YEAR
Contract Years are measured from the Contract Date.
CURRENT INTEREST
The Company may in its discretion pay Current Interest on the General Account
options at a rate that exceeds the Minimum Guaranteed Rate shown on page 3.
The Company will declare the rate of Current Interest, if any, from time to
time.
DESIGNATED BENEFICIARY
Upon the death of the Participant, the Designated Beneficiary will be the
first person on the following list who is alive on the date of death:
1. Primary Beneficiary;
2. Secondary Beneficiary; and
3. the Participant's estate if no one listed above is alive.
4
GVC6322B (9-97)
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS (CONTINUED)
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DESIGNATED BENEFICIARY (CONTINUED)
The Designated Beneficiary receives a death benefit upon the death of the
Participant prior to the Annuity Commencement Date. Please see "Beneficiary
Provisions" on page 10 and "Death Benefit Provisions" on pages 17 and 18.
GENERAL ACCOUNT
The General Account is all of the Company's assets other than those allocated
to the Separate Account or to any other separate account of the Company. The
Company manages the General Account and guarantees that it will credit
interest on General Account Contract Value at an annual rate at least equal
to the Minimum Guaranteed Rate. This Rate is shown on page 3.
GENERAL ACCOUNT OPTIONS
There are two General Account options available under the Contract: (1) the
Traditional General Account; and (2) the DCA Plus Account.
HOME OFFICE
The address of the Company's Home Office is Security Benefit Life Insurance
Company, 700 SW Harrison Street, Topeka, Kansas 66636-0001.
NONNATURAL PERSON
Any group or entity that is not a living person, such as a trust or
corporation.
OWNER
The employer or other entity that makes application for the Contract.
PLAN
The employer-sponsored retirement plan, annuity purchase arrangement, or
deferred compensation program for which the Contract is issued.
PARTICIPANT
A person for whom or with respect to whom Purchase Payments are made under
the Contract.
PARTICIPANT ACCOUNT
An individual account which is established for a Participant to record the
Contract Value for the Participant.
PREMIUM TAX
Any Premium Taxes levied by a state or other governmental entity will be
charged against this Contract. When Premium Tax is assessed after the
Purchase Payment is applied, it will be deducted as described on page 3.
PURCHASE PAYMENT
A Purchase Payment is money Received by the Company for allocation to a
Participant Account.
PURCHASE PAYMENT YEAR
The first Purchase Payment Year begins on the date the Purchase Payment is
applied and increases by one on each successive Purchase Payment Anniversary.
RECEIVED BY THE COMPANY
The phrase "Received by the Company" means receipt by the Company in good
order at its Home Office, 700 SW Harrison Street, Topeka, Kansas 66636-0001.
5
<PAGE>
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DEFINITIONS (CONTINUED)
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SEPARATE ACCOUNT
The Separate Account, shown on page 3 is a separate account established and
maintained by the Company under Kansas law. The Separate Account is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940 as a Unit Investment Trust. It was established by the
Company to support variable annuity contracts. The Company owns the assets of
the Separate Account and maintains them apart from the assets of its general
account and its other separate accounts. The assets held in the Separate
Account equal to the reserves and other Contract liabilities with respect to
the Separate Account may not be charged with liabilities arising from any
other business the Company may conduct.
Income and realized and unrealized gains and losses from assets in the
Separate Account are credited to, or charged against, the Separate Account
without regard to the income, gains or losses from the Company's general
account or its other separate accounts. The Separate Account is divided into
Series shown on page 3. Income and realized and unrealized gains and losses
from assets in each Series are credited to, or charged against, the Series
without regard to income, gains or losses in the other Series. The Company
has the right to transfer to its general account any assets of the Separate
Account that are in excess of the reserves and other Contract liabilities
with respect to the Separate Account. The value of the assets in the Separate
Account on each Valuation Date is determined as of the end of each Valuation
Date.
SERIES
The Separate Account is divided into Series which invest in shares of mutual
funds. Each Series may invest its assets in a separate class or series of a
designated mutual fund or funds. The Series are shown on page 3. Subject to
the regulatory requirements then in force, the Company reserves the right to:
1. change or add designated mutual funds or other investment vehicles;
2. add, remove or combine Series;
3. add, delete or make substitutions for securities that are held or
purchased by the Separate Account or any Series;
4. operate the Separate Account as a management investment company;
5. combine the assets of the Separate Account with other Separate Accounts
of the Company or an affiliate thereof;
6. restrict or eliminate any voting rights of the Owner with respect to the
Separate Account or other persons who have voting rights as to the
Separate Account; and
7. terminate and liquidate any Series.
If any of these changes result in a material change to the Separate Account
or a Series, the Company will notify the Owner of the change. The Company
will not change the investment policy of any Series in any material respect
without complying with the filing and other procedures of the insurance
regulators of the state of issue.
6
GVC6322C (9-97)
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DEFINITIONS (CONTINUED)
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SERIES NET ASSET VALUE
The Series Net Asset Value is equal to: (1) the net asset value of all shares
of the underlying mutual fund held by the Series; plus (2) any cash or other
assets; less (3) all liabilities of the Series.
VALUATION DATE
A Valuation Date is each day the New York Stock Exchange and the Company's
Home Office are open for business.
VALUATION PERIOD
A Valuation Period is the interval of time from one Valuation Date to the
next Valuation Date.
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GENERAL PROVISIONS
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THE CONTRACT
The entire Contract between the Owner and the Company consists of the
Contract, the attached Application, and any Amendments, Endorsements or
Riders to the Contract. All statements made in the Application will, in the
absence of fraud, as ruled by a court of competent jurisdiction, be deemed
representations and not warranties. The Company will use no statement made by
or on behalf of the Owner or the Participant to void this Contract unless it
is in the written Application. Any change in the Contract can be made only
with the written consent of the President, a Vice President, or the Secretary
of the Company.
The Purchase Payment(s) and the Application must be acceptable to the Company
under its rules and practices. If they are not, the Company's liability shall
be limited to a return of the Purchase Payment(s).
CERTIFICATES
The Company will issue certificates to Participants. Each certificate will
set forth the benefits to which the Participant is entitled under the
Contract. Certificates are for information only and are not part of the
Contract.
PLAN PROVISIONS
The Contract is subject to the provisions of the Plan. To the extent provided
by the Plan, any rights that may be exercised by a Participant under the
Contract may instead be exercised by the Owner or a Plan representative.
CHANGE OF CONTRACT
The Company reserves the right to make any change to the provisions of the
Contract to comply with or give the Participant the benefit of any federal or
state statute, rule or regulation. This includes, but is not limited to,
requirements for annuity contracts under the Internal Revenue Code or the
laws of any state. The Company will provide the Owner with a copy of any such
change and will also file such a change with the insurance regulatory
officials of the state in which the Contract is delivered. In addition, upon
at least 30 days written notice to the Owner, the Company may make other
changes to this Contract that will apply only to individuals who become
Participants after the effective date of such change. All such changes will
be subject to any applicable regulatory requirements.
7
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GENERAL PROVISIONS (CONTINUED)
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FUTURE PARTICIPANTS
The Company may in its discretion curtail or prohibit new Participants under
the Contract upon written notice to the Owner.
MISSTATEMENT OF AGE AND SEX
If the age or sex of the Participant has been misstated, payments shall be
adjusted, when allowed by law, to the amount which would have been provided
for the correct age or sex. Proof of the age of Participant may be required
at any time, in a form suitable to the Company. If payments have already
commenced and the misstatement has caused an underpayment, the full amount
due will be paid with the next scheduled payment. If the misstatement has
caused an overpayment, the amount due will be deducted from one or more
future payments.
EVIDENCE OF SURVIVAL
When any payments under the Contract depend on the payee being alive on a
given date, proof that the payee is living may be required by the Company.
Such proof must be in a form accepted by the Company. The Company will have
the right to make reduced payments or withhold payments entirely until such
proof is received.
INCONTESTABILITY
The Contract will not be contested after it has been in force for two years
from the Contract Date during the life of the Participant.
ASSIGNMENT
The Contract cannot be sold, assigned, discounted, or pledged as collateral
for a loan or as security for the performance of an obligation. The benefits,
values, and rights under the Contract are not subject to any creditor claims
to the fullest extent permitted by law. The Contract and its rights cannot be
transferred to anyone other than the Company, except as provided under the
Plan or under a domestic relations order properly issued by a court of
competent jurisdiction and that complies with ERISA, if applicable. To the
extent permitted by the Code and applicable law, the Company will make a Full
or Partial Withdrawal payable to a third party upon the Participant's
request.
TRANSFERS
The Participant may Transfer Contract Value among the General Account options
and Series subject to the following.
The Participant may make only 14 Transfers per Contract Year. Transfers are
not allowed within 30 days of the Annuity Commencement Date. Automatic
Transfers are not included in the 14 Transfers allowed per Contract Year.
After the Annuity Commencement Date, for Annuity Options 1 through 4, 7 and
8, the Owner may Transfer Contract Value only among Series.
With respect to the DCA Plus Account, Transfers are allowed from that Account
only to the Series (excluding the Money Market Series) and Transfers are not
allowed from any Series or the Traditional General Account to the DCA Plus
Account.
8
GVC6322D (9-97)
<PAGE>
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GENERAL PROVISIONS (CONTINUED)
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TRANSFERS (CONTINUED)
The Company reserves the right to: (1) limit the amount that may be subject
to Transfer; (2) waive or limit the number of Transfers allowed each Contract
Year; and (3) suspend Transfers. Transfers must be at least $100.00 or, if
less, the remaining balance in the Account.
The total dollar amount that may be Transferred from the Traditional General
Account in a Contract Year is limited to the greatest of:
1. $5,000;
2. 1/3 of Contract Value allocated to the Traditional General Account on
the date the Transfer request is Received by the Company; or
3. 120% of the dollar amount Transferred from the Traditional General
Account in the prior Contract Year.
The Company reserves the right for a period of time to allow Transfers from
the Traditional General Account in amounts that exceed the limits set forth
above. In any Contract Year following a Contract Year during which such
limits were waived, the total dollar amount that may be Transferred is the
greatest of 1 above; 2 above; or
3. 120% of the lesser of:
a. the dollar amount Transferred from the Traditional General Account in
the prior Contract Year; or
b. the maximum total dollar amount that would have been allowed in the
prior Contract Year under the Transfer provisions above absent the
waiver.
The Company will effect a Transfer to or from a Series on the basis of
Accumulation Unit Value (or Annuity Unit Value) determined as of the end of
the Valuation Period in which the Transfer is effected. The Company will
effect a Transfer from the General Account on the basis of General Account
Contract Value as of the end of the Valuation Period in which the Transfer is
effected.
The Company reserves the right to delay Transfers from the General Account
for up to 6 months as required by most states. The Company will notify you if
there will be a delay.
CLAIMS OF CREDITORS
The Contract Value and other benefits under the Contract are exempt from the
claims of creditors of the Participant to the extent allowed by law.
NONFORFEITURE VALUES
The Death Benefits, Withdrawal Values and Annuity Payout Values will at least
equal the minimum required by law.
9
<PAGE>
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GENERAL PROVISIONS (CONTINUED)
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PARTICIPATION
The Company pays dividends on some of its contracts. However, the Company
does not expect dividends to become payable on this Contract. At the end of
each Contract Year the Company will determine the Contract's dividend, if
any. The Participant may choose to have it (1) added to the Contract Value;
or (2) paid in cash. If no choice is made, any dividend will be added to
Contract Value.
STATEMENTS
At least once each Contract Year, the Participant shall be sent a statement
including the current Contract Value and any other information required by
law. The Participant may send a written request for a statement at other
intervals. The Company may charge a reasonable fee for such statements.
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BENEFICIARY PROVISIONS
- --------------------------------------------------------------------------------
PRIMARY AND SECONDARY BENEFICIARIES
The Primary Beneficiary is named by the Participant. The Participant may
change any Beneficiary as described in "Beneficiary Changes" below. If the
Primary Beneficiary dies prior to the Participant, the Secondary Beneficiary
becomes the Primary Beneficiary. Unless the Participant directs otherwise,
when there are two or more Primary Beneficiaries, they will receive equal
shares.
BENEFICIARY CHANGES
Subject to the terms of any existing Assignment, the Participant may name a
new Primary Beneficiary or a new Secondary Beneficiary. Any new choice of
Primary Beneficiary or Secondary Beneficiary will revoke any prior choice.
Any change must be made in writing and recorded at the Home Office. The
change will become effective as of the date the written request is signed,
whether or not the Participant is living at the time the change is recorded.
A new choice of Primary Beneficiary or Secondary Beneficiary will not apply
to any payment made or action taken by the Company prior to the time it was
recorded. The Company may require the Contract be returned so these changes
may be made.
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PURCHASE PAYMENT PROVISIONS
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FLEXIBLE PURCHASE PAYMENTS
The Contract becomes in force when the initial Purchase Payment is applied.
The Participant is not required to continue Purchase Payments in the amount
or frequency originally planned. The Participant may: (1) increase or
decrease the amount of Purchase Payments, subject to any Contract limits; or
(2) change the frequency of Purchase Payments. A change in frequency or
amount of Purchase Payments does not require a written request. If no
Purchase Payment is received during the 180-day period beginning on the
Contract Date, the Participant Account will automatically terminate.
10
GVC6322E (9-97)
<PAGE>
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PURCHASE PAYMENT PROVISIONS (CONTINUED)
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PURCHASE PAYMENT LIMITATIONS
Purchase Payments exceeding $1,000,000 will not be accepted without prior
approval by the Company. The Minimum Subsequent Purchase Payment amount is
shown on page 3.
PURCHASE PAYMENT ALLOCATION
Purchase Payments may be allocated among the General Account options and the
Series. The allocations may be a whole dollar amount or whole percentage.
However, no less than $25 per Purchase Payment may be allocated to any
Account. The Participant may change the allocations by written notice to the
Company, unless the Owner has retained that right under the Plan.
PLACE OF PAYMENT
All Purchase Payments under the Contract are to be paid to the Company at its
Home Office. Purchase Payments after the initial Purchase Payment are applied
as of the end of the Valuation Period during which they are Received by the
Company.
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CONTRACT VALUE AND EXPENSE PROVISIONS
- --------------------------------------------------------------------------------
CONTRACT VALUE
On any Valuation Date, the Contract Value is the sum of the following amounts
allocated to a Participant Account: (1) the Separate Account Contract Value;
and (2) the General Account Contract Value. At any time after the first
Contract Year and before the Annuity Commencement Date, the Company reserves
the right to pay to the Participant the Contract Value as a lump sum if it is
below $2,000.
GENERAL ACCOUNT CONTRACT VALUE
On any Valuation Date, the General Account Contract Value is equal to the
first Purchase Payment allocated under the Participant Account to the General
Account options:
PLUS:
1. any other Purchase Payments allocated under the Participant Account to
the General Account options;
2. any Transfers from the Separate Account Contract Value to the General
Account options; and
3. any interest credited.
LESS:
1. any Withdrawals and applicable Withdrawal Charges deducted from the
General Account options;
2. any Transfers from the General Account options to the Separate Account
Contract Value;
3. any applicable Premium Taxes deducted from the General Account options;
4. any Annual Administrative Fee deducted from the General Account options;
5. any General Account Contract Value which is applied to any of Annuity
Options 1 through 4, 7 and 8; and
11
<PAGE>
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CONTRACT VALUE AND EXPENSE PROVISIONS (CONTINUED)
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GENERAL ACCOUNT CONTRACT VALUE (CONTINUED)
6. any Annuity Payments made from General Account Contract Value under
Annuity Options 5 and 6.
GENERAL ACCOUNT INTEREST CREDITING
The Company shall credit interest on General Account Contract Value at an
annual rate at least equal to the Minimum Guaranteed Rate shown on page 3.
Also, the Company may in its sole judgment credit Current Interest at a rate
in excess of the Minimum Guaranteed Rate.
The Company may credit Current Interest on Contract Value that was allocated
or Transferred to a General Account option during one period at a different
rate than amounts allocated or Transferred to a General Account option in
another period. The Company may credit different rates of Current Interest on
the DCA Plus Account and the Traditional General Account options. Therefore,
at any time, portions of General Account Contract Value may be earning
Current Interest at different rates based upon the period during which such
portions were allocated or Transferred to the General Account and the General
Account option selected.
TRADITIONAL GENERAL ACCOUNT
Purchase Payments may be allocated to the Traditional General Account and
Contract Value may be transferred to this Account. Transfers from the
Traditional General Account are limited. Please see the "Transfers"
provisions on page 8.
DCA PLUS ACCOUNT
A Purchase Payment may be allocated to the DCA Plus Account only if both of the
following conditions are met. The Purchase Payment is: (1) received during the
first two Contract Years; and (2) made pursuant to a direct transfer from
another Section 403(b) annuity contract. Contract Value allocated to the DCA
Plus Account will be Transferred monthly to one or more of the Series (not to
include the Money Market Series) as selected by the Participant over a 12-month
period (the "Transfer Year"). The Transfer Year begins on the date a direct
transfer is first allocated to the DCA Plus Account, and the first monthly
Transfer is made on the same date in the following month. A Participant who
allocates a Purchase Payment to the DCA Plus Account must submit to the Company
written instructions specifying: (1) the Series (not to include the Money Market
Series) to which the monthly Transfers are to be made; and (2) the percentage to
be allocated to each such Series. The amount of each monthly Transfer shall be
determined by dividing the amount of Contract Value allocated to the DCA Plus
Account on the date the Transfer is scheduled to be made by the number of months
remaining in the Transfer Year. If a subsequent direct transfer is allocated to
the DCA Plus Account during a Transfer Year, such amount will be transferred to
the Series over the balance of the Transfer Year on the same basis as set forth
above.
SEPARATE ACCOUNT CONTRACT VALUE
On any Valuation Date, the Separate Account Contract Value is the sum of the
then current value of the Accumulation Units allocated to each Series for the
Participant Account.
12
GVC6322F (9-97)
<PAGE>
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CONTRACT VALUE AND EXPENSE PROVISIONS (CONTINUED)
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ACCUMULATION UNIT VALUE
The initial Accumulation Unit Value for each Series was set at $10. The
Accumulation Unit Value for any subsequent Valuation Date is equal to (1)
times (2) where:
1. is the Accumulation Unit Value determined on the immediately preceding
Valuation Date; and
2. is the Net Investment Factor on the Valuation Date with respect to which
the Accumulation Unit Value is being determined.
NET INVESTMENT FACTOR
The Net Investment Factor for any Series as of the end of any Valuation
Period is determined by dividing (1) by (2) and subtracting (3) from the
result, where:
1. is equal to:
a. the net asset value per share of the mutual fund held in the Series
found as of the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions paid
by the Series' underlying mutual fund that is not included in the net
asset value per share; plus or minus
c. a per share charge or credit for any taxes reserved for, which the
Company deems to have resulted from the operation of the Separate
Account or the Subaccounts; operations of the Company with respect to
the Contract; or the payment of premiums or acquisition costs under the
Contract.
2. is the net asset value per share of the Series' underlying mutual fund
as of the end of the prior Valuation Period.
3. is the daily factor representing the Mortality and Expense Risk Charge
which is deducted from the Separate Account
Underlying mutual funds may declare dividends on a daily basis and pay such
dividends once a month. The Net Investment Factor allows for the monthly
reinvestment of these daily dividends. As described above, the gains and
losses from each Series are credited to or charged against the Series without
regard to the gains or losses in the Company or other Series.
DETERMINING ACCUMULATION UNITS
The number of Accumulation Units allocated to a Series under the Participant
Account is found by dividing: (1) the amount allocated to the Series; by (2)
the Accumulation Unit Value for the Series as of the end of the Valuation
Period during which the amount is applied under the Participant Account. The
number of Accumulation Units allocated to a Series under the Participant
Account will not change as a result of investment experience. Events that
change the number of Accumulation Units are:
13
<PAGE>
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CONTRACT VALUE AND EXPENSE PROVISIONS (CONTINUED)
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DETERMINING ACCUMULATION UNITS (CONTINUED)
1. Purchase Payments that are applied to the Series;
2. Contract Value that is Transferred into or out of the Series;
3. Withdrawals and any applicable Withdrawal Charges that are deducted from
the Series;
4. Premium Taxes that are deducted from the Series; and
5. Annual Administrative Fees, if any, that are deducted from the Series.
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct the Mortality and Expense Risk Charge shown on page
3. This charge will be computed and deducted from each Series on each
Valuation Date. This charge is factored into the Accumulation Unit and
Annuity Unit Values on each Valuation Date.
PREMIUM TAX EXPENSE
The Company reserves the right to deduct Premium Tax when due or any time
thereafter. Any applicable Premium Taxes will be allocated as described on
page 3.
ADMINISTRATIVE CHARGE
The Company will deduct from Contract Value the Annual Administrative Fee in
the amount and manner shown on page 3. No Annual Administrative Fee is
deducted on or after the Annuity Commencement Date if one of Annuity Options
1 through 4 or 8 is chosen.
MUTUAL FUND EXPENSES
Each Series invests in shares of a mutual fund. The net asset value per share
of each underlying fund reflects the deduction of any investment advisory and
administration fees and other expenses of the fund. These fees and expenses
are not deducted from the assets of a Series, but are paid by the underlying
funds. The Participant indirectly bears a pro rata share of such fees and
expenses. An underlying fund's fees and expenses are not specified or fixed
under the terms of the Contract.
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WITHDRAWAL PROVISIONS
- --------------------------------------------------------------------------------
WITHDRAWALS
A full or partial Withdrawal of Contract Value is allowed at any time while
the Participant is living. This provision is subject to any federal or state
Withdrawal restrictions.
Upon the Participant's request for a full Withdrawal, the Company will pay
the Withdrawal Value in a lump sum, and the Participant Account will
terminate.
All Withdrawals must meet the following conditions.
1. The request for Withdrawal must be Received by the Company in writing or
under other methods allowed by the Company.
2. The Participant must apply: (a) while this Contract is in force; and (b)
prior to the Annuity Commencement Date.
3. The amount Withdrawn must be at least $100, except upon a full
Withdrawal.
14
GVC6322G (9-97)
<PAGE>
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WITHDRAWAL PROVISIONS (CONTINUED)
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WITHDRAWALS (CONTINUED)
A partial Withdrawal request must state the allocations for deducting the
Withdrawal from each Account. If no allocation is specified, the partial
Withdrawal will be deducted from the Accounts in the order described on page
3, "Method for Deductions."
WITHDRAWAL VALUE
The Withdrawal Value at any time will be the Contract Value less: (1) any
Premium Taxes due or paid by the Company; (2) any Annual Administrative Fee;
and (3) any Withdrawal Charges.
WITHDRAWAL CHARGES
If part or all of the Contract Value is withdrawn, Withdrawal Charges may be
applied at the time of Withdrawal. The Withdrawal Charge is applied to the
lesser of: (1) the amount withdrawn; or (2) the amount of Purchase Payments.
The amount of the charge is based upon the number of Purchase Payment Years
the Purchase Payment has remained in the Participant Account. See the
Withdrawal Charge shown on page 3. For the purpose of determining the
Withdrawal Charges, Purchase Payments are withdrawn before earnings on a
first in first out basis. The Withdrawal Charge will not be assessed under
the following conditions:
1. payments under Annuity Options 1 through 4, 7 and 8;
2. payments under Annuity Options 5 and 6 provided that Annuity Payments
are made for at least 5 years.
3. the death of the Participant;
4. payment after the Participant has become totally and permanently
disabled prior to age 65. This means that the Participant is unable,
because of physical or mental impairment, to perform the material and
substantial duties of any occupation for which the Participant is suited
by means of education, training or experience. The impairment must have
been in existence for more than 180 days to qualify for this benefit.
Such impairment must be expected to result in death or be long-standing
and indefinite. The Company requires proof of disability and will accept
a certified Social Security finding of disability or a doctor's
verification;
5. the Participant is separated from service with the employer that
maintains the Plan and had actively participated in the Plan for five
years before separating from service. Active participation means regular
contributions through a salary reduction arrangement with no
interruptions in Purchase Payments;
6. no Purchase Payments were made to the Participant Account in the five
years preceding the date of the Withdrawal;
7. the Participant is at least 59 1/2 years old and the Participant Account
was established at least five years before the date of the Withdrawal;
8. the Participant Account was established at least fifteen years before
the date of the Withdrawal; or
9. payments made to satisfy the minimum distribution requirements of the
Internal Revenue Code.
15
<PAGE>
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WITHDRAWAL PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
WITHDRAWAL CHARGES (CONTINUED)
The Withdrawal Charge will be assessed against Contract Value allocated to
the Series and the General Account options in the same proportion as the
Withdrawal is allocated.
The Withdrawal Charge may be waived or reduced uniformly on all Participant
Accounts for contracts issued under certain plans or arrangements which are
expected to result in administrative cost savings.
FREE WITHDRAWALS
A Free Withdrawal is a Withdrawal amount which is not subject to Withdrawal
Charges. The amount of Free Withdrawal available in a Contract Year is
determined as follows. In the first Contract Year, it is equal to: (1)
cumulative Purchase Payments made under the Contract; times (2) the Free
Withdrawal Percentage set forth on page 3; less (3) any Free Withdrawals,
including any Free Systematic Withdrawals, made during the Contract Year. The
amount of Free Withdrawal available in subsequent Contract Years is equal to
(1) Contract Value as of the first day of the current Contract Year; times
(2) the Free Withdrawal Percentage; less (3) any Free Withdrawals, including
any Free Systematic Withdrawals, made during the Contract Year. Unused Free
Withdrawal amounts are not carried from one Contract Year to the next. Free
Withdrawals do not reduce Purchase Payments for purposes of calculating the
Withdrawal Charge on future Withdrawals.
SYSTEMATIC WITHDRAWALS
Systematic Withdrawals are automatic periodic Withdrawals from the Contract
in substantially equal amounts prior to the Annuity Commencement Date.
In order to start Systematic Withdrawals, the Participant must make the
request in writing. The Minimum Systematic Withdrawal is shown on page 3. The
Participant must choose the type of payment and its frequency. The Systematic
Withdrawal request must state the allocations for deducting the Withdrawals
from each Account. If no allocation is specified, the Withdrawals will be
deducted from the Accounts in the order described on page 3, "Method for
Deductions." The payment type may be: (1) in a fixed amount; (2) in Level
Payments calculated by the Company; (3) for a specified period; (4) all
earnings in the Contract; or (5) based upon the life expectancy of the
Participant or the Participant and a Beneficiary. The payment frequency may
be: (1) monthly; (2) quarterly; (3) semiannually; or (4) annually. Systematic
Withdrawals may be stopped or changed by the Participant upon proper written
request Received by the Company at least 30 days in advance of the requested
date of termination or change. The Company reserves the right to stop, modify
or suspend Systematic Withdrawals at any time.
16
GVC6322H (9-97)
<PAGE>
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WITHDRAWAL PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
FREE SYSTEMATIC WITHDRAWALS
Free Systematic Withdrawals are not subject to a Withdrawal Charge. The
amount of Free Systematic Withdrawals available in a Contract Year is
determined as follows: the amount of Systematic Withdrawals that when
combined with any Free Withdrawals in the current Contract Year, does not
exceed the Free Withdrawal amount available in that Contract Year.
DATE OF REQUEST
The Company will effect a Withdrawal of Separate Account Contract Value on
the basis of Accumulation Unit Value determined as of the end of the
Valuation Period in which all the required information is Received by the
Company. The Company will effect a Systematic Withdrawal of Separate Account
Contract Value on the basis of the Accumulation Unit Value determined as of
the end of the Valuation Period during which such Withdrawal is scheduled.
PAYMENT OF WITHDRAWAL BENEFITS
The Company reserves the right to suspend a Transfer or delay payment of a
Withdrawal from the Separate Account for any period:
1. when the New York Stock Exchange is closed; or
2. when trading on the New York Stock Exchange is restricted; or
3. when an emergency exists as a result of which: (a) disposal of
securities held in the Separate Account is not reasonably practicable;
or (b) it is not reasonably practicable to fairly value the net assets
of the Separate Account; or
4. during any other period when the Securities and Exchange Commission, by
order, so permits to protect owners of securities.
Rules and regulations of the Securities and Exchange Commission will govern
as to whether the conditions set forth above exist.
The Company further reserves the right to delay payment of a Withdrawal from
the General Account for up to six months as required by most states. The
Company will notify you if there will be a delay.
- --------------------------------------------------------------------------------
DEATH BENEFIT PROVISIONS
- --------------------------------------------------------------------------------
DEATH BENEFIT
If any Participant dies prior to the Annuity Commencement Date, a Death
Benefit will be paid to the Designated Beneficiary when due Proof of Death
and instructions regarding payment are Received by the Company.
17
<PAGE>
- --------------------------------------------------------------------------------
DEATH BENEFIT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
DEATH BENEFIT (CONTINUED)
If the age of the Participant was 75 or younger on the Contract Date, the
Death Benefit will be the greatest of: (1) the sum of all Purchase Payments,
less any Premium Taxes due or paid by the Company and less the sum of all
partial Withdrawals; (2) the Contract Value on the date due Proof of Death
and instructions regarding payment are Received by the Company, less any
Premium Taxes due or paid by the Company; or (3) the Stepped-Up Death Benefit
described below.
The Stepped-Up Death Benefit is:
1. the largest Death Benefit on any Contract Anniversary that is both an
exact multiple of five and occurs prior to the Participant reaching age
76; plus
2. any Purchase Payments received since the applicable fifth Contract
Anniversary; less
3. any reductions caused by Withdrawals since the applicable fifth Contract
Anniversary; less
4. any Premium Taxes due or paid by the Company.
If the age of the Participant on the Contract Date was 76 or older, or if due
proof of death and instructions regarding payment are not received within 6
months of the date of the Participant's death, the Death Benefit will be the
Contract Value on the date due Proof of Death and instructions regarding
payment are Received by the Company, less any Premium Taxes due or paid by
the Company.
If a lump sum payment is requested, the payment will be made in accordance
with any laws and regulations that govern the payment of Death Benefits.
PROOF OF DEATH
Any of the following will serve as Proof of Death:
1. certified copy of the death certificate;
2. certified decree of a court of competent jurisdiction as to the finding
of death;
3. written statement by a medical doctor who attended the deceased
Participant; or
4. any proof accepted by the Company.
18
GVC6322I (9-97)
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS
- --------------------------------------------------------------------------------
ANNUITY COMMENCEMENT DATE
The Participant may choose the Annuity Commencement Date at the time of
application. The Annuity commencement Date may not be prior to the third
Contract Anniversary. If no Annuity Commencement Date is chosen, the Company
will use the later of: (1) the Participant's seventieth birthday; or (2) the
tenth Contract Anniversary, but in no event later than the Participant's 85th
birthday. The Annuity Commencement Date must be prior to the Participant's
85th birthday.
The Annuity Commencement Date is the date the first payment will be made to
the Participant under any of the Annuity Options.
CHANGE OF ANNUITY COMMENCEMENT DATE
The Participant may change the Annuity Commencement Date. A request for the
change must be made in writing. The written request must be Received by the
Company at least 30 days prior to the new Annuity Commencement Date as well
as 30 days prior to the previous Annuity Commencement Date.
ANNUITY START AMOUNT
The Annuity Start Amount is applied to one of the Annuity Options listed on
pages 22-23. The Annuity Start Amount is: (1) the Contract Value on the
Annuity Commencement Date; less (2) any Premium Taxes due or paid by the
Company; and less (3) if one of Annuity Options 1 through 4 or 8 is chosen, a
pro rata Administrative Fee. Unless otherwise directed by the Participant,
Annuity Start Amount derived from General Account Contract Value will be
applied to purchase a Fixed Annuity Option; that derived from Separate
Account Contract Value will be applied to purchase a Variable Annuity Option.
WITHDRAWAL CHARGES
Withdrawal Charges are not applied to: (1) Annuity payments made under
Annuity Options 1 through 4, 7 and 8; or (2) those made under annuity Options
5 and 6 that provide for payments over a period of at least 5 years.
Withdrawal Charges are applied to annuity payments under Annuity Options 5
and 6 that provide for payments over a period of less than 5 years. See
"Withdrawal Provisions" on pages 14-17.
ANNUITY TABLES
Annuity Tables A through C show the guaranteed minimum amount of monthly
Annuity Payment per $1,000 of Annuity Start Amount for Annuity Options 1
through 4, 7 and 8 that applies to the first Variable Annuity Payment and to
each payment for Fixed Annuity Payments. The amount of each Annuity Payment
for Annuity Options 1 through 4 and 8 will depend on the Participant's sex
and age on the Annuity Commencement Date.
19
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
ANNUITY TABLES (CONTINUED)
Tables A and B assume 1900 as the year of birth of the Participant. To use
Tables A and B for a Participant born after 1900, the actual age is reduced
by 0.1 (one-tenth) of a year for each year the year of birth exceeds 1900.
For a Participant with a birth year prior to 1900, the actual age is
increased in a like manner. The actual age (in completed months) reduced or
increased becomes the "adjusted age of the Participant" The guaranteed payout
rate is then found by interpolating the Participant's adjusted age between
the ages shown in Tables A and B. Tables A and B are based on the 1983 Table
"A" mortality table and an interest rate of 3.5% per year. On request the
Company will furnish the amount of monthly Annuity Payment per $1,000 applied
for any ages not shown.
For Annuity Options 5 through 7, annuity rates based on age and sex are not
used to calculate Annuity Payments. Annuity Payments for these options are
computed without reference to the Annuity Tables.
ANNUITY PAYMENTS
The Annuity Option is shown on page 3. The Participant may choose any form of
Annuity Option that is allowed by the Company. The Participant may choose an
Annuity Option by written request. This request must be Received by the
Company at least 30 days prior to the Annuity Commencement Date. Several
Annuity Options are listed on pages 22-23. No Annuity Option can be selected
that requires the Company to make periodic payments of less than $100. If no
Annuity Option is chosen prior to the Annuity Commencement Date, the Company
will use Life with 10-Year Fixed Period Option. Each Annuity Option allows
for making Annuity Payments annually, semiannually, quarterly or monthly.
CHANGE OF ANNUITY OPTION
Prior to the Annuity Commencement Date, the Participant may change the
Annuity Option chosen. The Participant must request the change in writing.
This request must be Received by the Company at least 30 days prior to the
Annuity Commencement Date.
FIXED ANNUITY PAYMENTS
With respect to Fixed Annuity Payments, the amounts shown on the Tables are
the guaranteed minimum for each Annuity Payment for Annuity Options 1 through
4, 7 and 8.
VARIABLE ANNUITY PAYMENTS
With respect to Variable Annuity Payments, the amount shown on the Tables is
the guaranteed minimum first Annuity Payment, based on the assumed interest
rate of 3.5% for Annuity Options 1 through 4, 7 and 8. The amount of each
Annuity Payment after the first for these options is computed by means of
Annuity Units.
20
GVC6322J (9-97)
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
ANNUITY UNITS
The number of Annuity Units is found by dividing the first Annuity Payment by
the Annuity Unit Value for the selected Series on the Annuity Commencement
Date. The number of Annuity Units for the Series then remains constant,
unless a Transfer of Annuity Units is made. After the first Annuity Payment,
the dollar amount of each subsequent Annuity Payment is equal to the number
of Annuity Units times the Annuity Unit Value for the Series on the due date
of the Annuity Payment.
The Annuity Unit Value for each Series was first set at $1.00. The Annuity
Unit Value for any subsequent Valuation Date is equal to (a) times (b) times
(c), where:
(a) is the Annuity Unit Value on the immediately preceding Valuation Date;
(b) is the Net Investment Factor for the day;
(c) is a factor used to adjust for an assumed interest rate of 3.5% per
year used to determine the Annuity Payment amounts. The assumed
interest rate is reflected in the Annuity Tables.
NET INVESTMENT FACTOR
The Net Investment Factor for any Series as of the end of any Valuation
Period is determined by dividing (1) by (2) and subtracting (3) from the
result, where:
1. is equal to:
a. the net asset value per share of the mutual fund held in the Series,
found as of the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
paid by the Series' underlying mutual fund that is not included in
the net asset value per share; plus or minus
c. a per share charge or credit for any taxes reserved for, which the
Company deems to have resulted from the operation of the Separate
Account or Series; the operations of the Company with respect to the
Contract; or the payment of premium or acquisition costs under the
Contract.
2. is the net asset value per share of the Series' underlying mutual fund
as found as of the end of the prior Valuation Period.
3. is a factor representing the Mortality and Expense Risk Charge which is
deducted from the Separate Account.
Underlying mutual funds may declare dividends on a daily basis and pay such
dividends once a month. The Net Investment Factor allows for the monthly
reinvestment of these daily dividends. As described above, the gains and
losses from each Series are credited or charged against the Series without
regard to the gains or losses in the Company or other Series.
21
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
ALTERNATE ANNUITY OPTION RATES
The Company may, at the time of election of an Annuity Option, offer more
favorable rates in lieu of the guaranteed rates shown in the Annuity Tables.
ANNUITY OPTIONS
OPTION 1
LIFE OPTION: This option provides payments for the life of the Participant.
Table A shows some of the guaranteed rates for this option.
OPTION 2
LIFE WITH FIXED PERIOD OPTION: This option provides payments for the life of
the Participant. A fixed period of 5, 10, 15
or 20 years may be chosen. Payments will be made to the end of this period
even if the Participant dies prior to the end of the period. If the
Participant dies before receiving all the payments during the fixed period,
the remaining payments will be made to the Designated Beneficiary. Table A
shows some of the guaranteed rates for this option.
OPTION 3
LIFE WITH INSTALLMENT OR UNIT REFUND OPTION: This option provides payments
for the life of the Participant, with a period certain determined by dividing
the Annuity Start Amount by the amount of the first payment. A fixed number
of payments will be made even if the Participant dies. If the Participant
dies before receiving the fixed number of payments, any remaining payments
will be made to the Designated Beneficiary.
OPTION 4
JOINT AND LAST SURVIVOR OPTION: This option provides payments for the life of
the Participant and a second person. Payments will be made as long as either
is living. Table B shows some of the guaranteed rates for this option.
OPTION 5
FIXED PERIOD OPTION: This option provides payments for a fixed number of
years between 5 and 20. If the Contract Value is held in the General Account,
then the amount of the payments will vary as a result of the interest rate
(as adjusted periodically) credited on the General Account. This rate is
guaranteed to be no less than the Guaranteed Rate shown on page 3. If the
Contract Value is held in the Separate Account, then the amount of the
payments will vary as a result of the investment performance of the Series
chosen. If the Participant dies before receiving the fixed number of
payments, any remaining payments will be made to the Designated Beneficiary.
OPTION 6
FIXED PAYMENT OPTION: This option provides a fixed payment amount. This
amount is paid until the amount applied, including daily interest
adjustments, is paid. If the Contract Value is held in the General Account,
then the number of payments will vary as a result of the interest rate (as
adjusted periodically) credited on the General Account. This rate is
guaranteed to be no less than the Guaranteed Rate shown on page 3. If the
Contract Value is held in the Separate Account, then the number of payments
will vary as a result of the investment performance of the Series chosen. If
the Participant dies before receiving all the payments, any remaining
payments will be made to the Designated Beneficiary.
22
GVC6322K (9-97)
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
OPTION 7
PERIOD CERTAIN OPTION: This option provides payments for a fixed period of 5,
10, 15 or 20 years. Payments will be made until the end of this period. If
the Participant dies prior to the end of the period, the remaining payments
will be made to the Designated Beneficiary. Table C shows some of the
guaranteed rates for this option.
OPTION 8
JOINT AND CONTINGENT SURVIVOR OPTION: This option provides payments for the
life of the Participant. Payments will be made to the Participant as long as
he or she is living. Upon the death of the Participant, payments will be made
to a second person named by the Participant as long as he or she is living.
If such person is not living upon the death of the Participant, no further
payments will be made. Table B shows some of the guaranteed rates for this
option.
23
<PAGE>
ANNUITY TABLES
- --------------------------------------------------------------------------------
Table A
Settlement Options One, Two, and Three
Minimum Initial Monthly Installments per $1,000 of Amount Applied
<TABLE>
<CAPTION>
Adjusted Option One Option Two Option Three
Age Life Life with Fixed Period Unit
of Participant Only 5 Years 10 Years 15 Years 20 Years Refund
- ---------------------------- ------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
MALE
55 4.99 4.97 4.91 4.80 4.66 4.73
56 5.09 5.07 5.00 4.88 4.72 4.81
57 5.20 5.17 5.10 4.97 4.78 4.90
58 5.32 5.29 5.20 5.05 4.85 4.99
59 5.44 5.41 5.31 5.14 4.91 5.08
60 5.57 5.53 5.42 5.23 4.97 5.18
61 5.71 5.67 5.54 5.33 5.04 5.29
62 5.86 5.81 5.67 5.42 5.10 5.40
63 6.02 5.97 5.80 5.52 5.16 5.51
64 6.20 6.13 5.94 5.62 5.22 5.63
65 6.36 6.31 6.08 5.72 5.28 5.76
66 6.58 6.49 6.23 5.82 5.33 5.90
67 6.79 6.69 6.38 5.92 5.38 6.04
68 7.02 6.90 6.54 6.02 5.43 6.19
69 7.26 7.12 6.71 6.12 5.48 6.35
70 7.52 7.35 6.87 6.21 5.52 6.52
71 7.80 7.60 7.05 6.30 5.55 6.69
72 8.09 7.86 7.22 6.39 5.59 6.88
73 8.41 5.13 7.40 6.47 5.62 7.07
74 8.75 8.42 7.57 6.55 5.64 7.27
75 9.12 8.72 7.75 6.62 5.66 7.49
FEMALE
55 4.54 4.53 4.51 4.46 4.38 4.40
56 4.62 4.61 4.58 4.53 4.44 4.47
57 4.71 4.70 4.66 4.60 4.51 4.54
58 4.80 4.79 4.75 4.68 4.57 4.62
59 4.90 4.88 4.84 4.76 4.64 4.70
60 5.00 4.99 4.93 4.84 4.70 4.78
61 5.11 5.09 5.03 4.93 4.77 4.87
62 5.23 5.21 5.14 5.02 4.84 4.96
63 5.36 5.33 5.25 5.12 4.91 5.06
64 5.49 5.46 5.37 5.21 4.98 5.17
65 5.64 5.60 5.50 5.31 5.05 5.28
66 5.79 5.75 5.63 5.42 5.12 5.39
67 5.95 5.91 5.77 5.53 5.19 5.52
68 6.13 6.08 5.91 5.63 5.25 5.65
69 6.32 6.26 6.07 5.74 5.32 5.79
70 6.53 6.46 6.23 5.86 5.37 5.94
71 6.75 6.67 6.40 5.97 5.43 6.09
72 6.99 6.89 6.58 6.08 5.48 6.26
73 7.26 7.13 6.76 6.18 5.52 6.44
74 7.54 7.39 6.95 6.29 5.57 6.63
75 7.85 7.67 7.14 6.39 5.60 6.83
</TABLE>
Values not shown will be provided upon request. Annual, semiannual, or
quarterly installments can be determined by multiplying the monthly
installments by 11.812853, 5.9572227, and 2.9914196 respectively.
24
GVC6322L (9-97)
<PAGE>
ANNUITY TABLES
- --------------------------------------------------------------------------------
Table B
Settlement Options Four and Eight
Minimum Initial Monthly Installments per $1,000 of Amount Applied
Adjusted Age of
Female Participant Adjusted Age of Male Participant
55 60 62 65 70 75
- --------------------------------------------------------------------------------
55 4.16 4.27 4.30 4.35 4.42 4.47
60 4.34 4.51 4.57 4.66 4.78 4.86
62 4.41 4.61 4.68 4.79 4.94 5.04
65 4.51 4.76 4.85 4.99 5.20 5.35
70 4.66 4.99 5.13 5.34 5.67 5.95
75 4.78 5.19 5.37 5.66 6.16 6.63
Values not shown will be provided upon request. Annual, semiannual, or
quarterly installments can be determined by multiplying the monthly
installments by 11.812853, 5.9572227, and 2.9914196 respectively.
- --------------------------------------------------------------------------------
TABLE C
SETTLEMENT OPTION SEVEN
MINIMUM INITIAL MONTHLY INSTALLMENT PER $1,000 OF AMOUNT APPLIED
PERIOD CERTAIN
5 Years 10 Years 15 Years 20 Years
- --------------------------------------------------------------------------------
18.11 9.83 7.1 5.75
Values not shown will be provided upon request. Annual, semiannual, or quarterly
installments can be determined by multiplying the monthly installments by
11.812853, 5.9572227, and 2.9914196 respectively.
25
<PAGE>
This is a Certificate under a GROUP FLEXIBLE PREMIUM DEFERRED VARIABLE
ANNUITY CONTRACT.
* Purchase Payments may be made until the earlier of the Annuity
Commencement Date or termination of participation under the Contract
* A Death Benefit may be paid prior to the Annuity Commencement Date
according to the Contract provisions.
* Annuity Payments begin on the Annuity Commencement Date using the
method specified in this Certificate.
ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGO]
Security Benefit Life Insurance Company
A Member of The Security Benefit Group of Companies
700 SW Harrison Street, Topeka, KS 66636-0001
1-800-888-2461
26
<PAGE>
ENDORSEMENT FOR ANNUITY CERTIFICATE LOAN PROVISION
INTRODUCTION AND REQUIREMENTS FOR A LOAN:
This endorsement is attached to and made part of the Policy or Certificate
as appropriate: (1) as of its date of issue; or (2) as of the date shown below.
References in the endorsement to "Policy" shall be deemed to include
"Certificate" where appropriate. The General or Fixed Account of the Policy is
herein referred to as the "Fixed Account." The person herein called "the
Borrower", "you", or "your" is: (1) the Owner of the Policy; or (2) a
Participant under a Certificate if approved by the Owner. Security Benefit Life
Insurance Company is herein called "SBL".
Prior to the scheduled start of retirement annuity installments (the
"maturity date"), SBL will lend an amount applied for to the Borrower subject to
the limitations, interest rates, and repayment procedures set out in: (1) this
endorsement; and (2) the loan agreement between the Borrower and SBL. Any loan
applied for must be for a minimum of $1,000. All loans must be repaid before the
maturity date.
The maximum loan amount for all policies combined, is generally equal to
the lesser of: (1) $50,000 reduced by the excess of: (a) the highest outstanding
loan balance within the preceding 12-month period ending on the day before the
date the loan is made; over (b) the outstanding loan balance on the date the
loan is made; or (2) 50% of your account value or $10,000, whichever is greater.
However, you may not borrow an amount which exceeds your total annuity account
value minus the amount needed as security described below.
When your loan is approved, SBL will transfer to an account within the
Fixed Account, referred to as the Loan Account, an amount equal to the amount of
your loan. In addition, 10% of the loaned amount will be held in the Fixed
Account as security for the loan.
REPAYMENT PROCEDURES:
All loans under this and prior loan endorsements must be repaid as
specified in the loan agreement and endorsement. Except for cases that qualify
under the Internal Revenue Code, as determined by SBL, all loans must be repaid
within 5 years of approval. All loan repayments must be scheduled to be paid in
equal amounts on the same day of each calendar month or calendar quarter. For
monthly repayments the first scheduled repayment may not be later than 30 days
after the date of approval of the loan application by SBL. For quarterly
repayments the first scheduled repayment may not be later than 90 days after the
date of approval of the loan application by SBL. Before a loan is allowed a
written application and loan agreement must be received by SBL. The written
application and loan agreement must be completed on SBL's form. SBL may postpone
final approval or disapproval of a loan for up to six months after the
application for a loan is received.
Each loan payment must be labeled as such. Any payment not labeled as a
loan payment will be treated as a Purchase Payment. Each loan payment will
reduce the Loan Account by the amount the payment reduces the outstanding loan
balance. The amount held as security will also be reduced by each loan payment
so that the security is equal to 10% of the outstanding loan balance immediately
after the loan payment is made. Amounts which are no longer needed in the Loan
Account will be allocated in accordance with current purchase payment allocation
instructions. However, amounts which are no longer needed as security will NOT
automatically be allocated in accordance with purchase payment allocation
instructions. The loan may be repaid in full at any time. When repaid in full,
the Loan Account and the amount held as security will be reduced to $0.
FAILURE TO MAKE PAYMENTS:
If any required loan payment is not paid, within 30 days of the due date
for loans with a monthly repayment schedule or within 90 days of the due date
for loans with a quarterly repayment schedule, the TOTAL OUTSTANDING LOAN
BALANCE will be deemed to be in default. The entire loan balance, with any
accrued interest, will be reported to the Internal Revenue Service ("IRS") on
Form 1099-R for the year the default occurred. Once a loan has gone into
default, regularly scheduled payments will not be accepted. However, the
principal plus accrued interest may be paid in full at any time. Notwithstanding
any other provision of the Policy or this endorsement to the contrary, no new
loans will be allowed when there is a loan in default.
Interest will continue to accrue on a loan in default. You may pay accrued
interest each year when notified by SBL. If such interest is not paid by
December 31st of each year, it will be added to the outstanding balance of the
loan and will be reported to the IRS on Form 1099-R. Account value equal to the
amount of the accrued interest will be transferred to the Loan Account. Account
value held in the Fixed Account as security for the loan will also be increased
so that the security is again equal to 10% of the outstanding loan. If a loan
continues to be in default when you attain age 59 1/2, the total outstanding
balance will be deducted from your account value. The Policy will be
automatically terminated if the outstanding loan balance on a loan in default
equals or exceeds the amount for which the Policy may be surrendered. The
proceeds from the Policy will be used to repay the debt and any applicable
surrender or withdrawal charges.
GV6821 L-4 (1-97)
<PAGE>
INTERNAL REVENUE CODE:
SBL makes no representations or guarantees as to the tax effect a loan may
have on the Borrower. SBL suggests that the Borrower consult an independent tax
counsel for specific advice.
INTEREST RATES:
The loan rate of interest is 2% more than the minimum interest rate
guaranteed in the Policy. Account value securing the loan will be credited with
the current interest rate. Amounts in the Loan Account will be credited with the
minimum guaranteed rate specified in the Policy. Interest will be charged each
day that the debt is not repaid. Account value securing the loan will be
credited with interest each day the debt remains unpaid.
OTHER EFFECTS ON POLICY AND CERTIFICATE PROVISIONS:
Partial withdrawals, surrenders, or transfers will not be allowed on
amounts held in the Loan Account or on amounts held as security for the loan.
If the Policy is surrendered, or if a death benefit becomes payable, the
amount otherwise receivable will be reduced by the amount of the outstanding
loan, plus any accrued interest.
SECURITY BENEFIT LIFE INSURANCE COMPANY
ROGER K. VIOLA
Secretary
- -----------------------------------------
Endorsement Effective Date, if other than
Date of Issue of Policy.
<PAGE>
TAX-SHELTERED ANNUITY
ENDORSEMENT
TAX-SHELTERED ANNUITY ENDORSEMENT
This Contract is established as a Tax-Sheltered Annuity ("TSA") under
Section 403(b) of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor provision, pursuant to the Owner's request in
the application. Accordingly, this Endorsement is attached to and made
part of the Contract as of its issue date or, if later, the date shown
below. If this is a group contract, references to the "Owner" and to
the "Contract" shall, respectively, be deemed to include the
Participant and the Participant's Certificate where appropriate.
TAX-SHELTERED ANNUITY PROVISIONS
To ensure treatment as a TSA, this Contract will be subject to the
requirements of Code Section 403(b), which are briefly summarized
below:
(a) Purchase Payments made on behalf of the Owner pursuant to a
salary reduction agreement when added to "elective deferral"
contributions under all other plans, contracts or arrangements
in which the Owner participates, may not exceed the annual
limitation on such contributions as provided in Code Section
401(a)(30).
(b) Purchase Payments applied to the Contract on behalf of the
Owner which exceed the applicable "exclusion allowance"
(within the meaning of Code Section 403(b)(2)) or the
limitations contained in Code Section 415 shall not be
excludable from gross income.
(c) Purchase Payments that exceed any of the foregoing limitations
may be returned, distributed or otherwise corrected using any
method permissible under the Code.
NONDISCRIMINATION REQUIREMENTS
(a) Except if this Contract is purchased by a "church" (within the
meaning of Code Section 3121(w)), the Plan must satisfy the
nondiscrimination requirements of Code Section 403(b)(12).
(b) Purchase Payments not made pursuant to a salary reduction
agreement will satisfy the nondiscrimination requirements of
Code Section 403(b)(12) provided they satisfy the requirements
of Code Section 401(a)(4) (nondiscrimination in
contributions), Code Section 401(a)(5) (permitted disparity),
Code Section 401(a)(17) (annual limit on compensation), Code
Section 401(m) (average contribution percentage test) and Code
Section 410(b) (coverage).
(c) Purchase Payments made pursuant to a salary reduction
agreement will satisfy the nondiscrimination requirements of
Code Section 403(b)(12) provided that every employee of the
Employer sponsoring the Plan, may elect to make Purchase
Payments of more than $200 pursuant to a salary reduction
agreement.
6832 A (R9-96) -1-
<PAGE>
DISTRIBUTION RESTRICTIONS AND REQUIREMENTS
(a) Distributions attributable to Purchase Payments made pursuant
to a salary reduction agreement may be made only when the
Owner attains age 59 1/2, separates from service, dies,
becomes "disabled" (within the meaning of Code Section
403(b)(11)) or incurs a hardship. A distribution made due to a
hardship may not include income attributable to such Purchase
Payments.
(b) Distributions from this Contract must comply with the minimum
distribution and incidental death benefit requirements of Code
Section 403(b)(10). Accordingly, an Owner's entire interest
under the Contract generally must be distributed (or begin to
be distributed) by April 1 of the calendar year following the
later of (i) the calendar year in which the Owner attains age
70 1/2, or (ii) the calendar year in which the Owner retires
(the "Required Beginning Date").
Distributions commencing not later than the Required Beginning
Date may be made over the life of the Owner or over the lives
of the Owner and his or her Designated Beneficiary (or over a
period not extending beyond the life expectancy of the Owner
or the life expectancy of the Owner and his or her Designated
Beneficiary).
(c) If the Owner dies before distribution of his or her interest
in the Contract has begun in accordance with paragraph (b)
above, the Owner's entire interest must be distributed within
five years, unless: (i) such interest is distributed to a
Designated Beneficiary over his or her life (or over a period
not extending beyond such Designated Beneficiary's life
expectancy); and (ii) such distribution begins not later than
one year after the Owner's death. If the Designated
Beneficiary is the Owner's surviving spouse, the date on which
the distributions are required to begin shall not be earlier
than the date on which the Owner would have attained age 70
1/2.
(d) If the Owner dies after distribution of his or her interest in
this Contract has begun in accordance with paragraph (b) above
but before his or her entire interest has been distributed,
the remaining interest must be distributed at least as rapidly
as under the method of distribution being used prior to the
Owner's death.
(e) All distributions must comply with a method of distribution
offered by the Company under this Contract.
(f) If the Owner receives a distribution from this Contract that
qualifies as an "eligible rollover distribution" (within the
meaning of Code Section 402(f)(2)(A)) and elects to have such
distribution paid directly to an "eligible retirement plan"
(within the meaning of Code Section 402(c)), such distribution
shall be made in the form of a direct transfer to the eligible
retirement plan. The Company may establish reasonable
administrative rules applicable to such direct transfers.
NONFORFEITABILITY
(a) The Owner's rights under this Contract shall be nonforfeitable
except for failure to pay future Premiums.
(b) This Contract may not be transferred, sold, assigned or
pledged as collateral for a loan or as security for the
performance of an obligation or for any other purposes to any
person other than the Company.
<PAGE>
MULTIPLE CONTRACTS
(a) If for any taxable year an Owner is covered by this Contract
and any other TSA, all such contracts shall be treated as a
single contract.
PLAN PROVISIONS
The Plan, including certain Plan provisions required by the Employee
Retirement Income Security Act of 1974 or other applicable law, may
limit the Owner's rights under this Contract. The Plan provisions may:
(a) Limit the Owner's right to make Purchase Payments;
(b) Restrict the time when the Owner may elect to receive payments
under this Contract;
(c) Require the consent of the Owner's spouse before the Owner may
elect to receive payments under this Contract;
(d) Require that all distributions be made in the form of a joint
and survivor annuity for the Owner and the Owner's spouse
unless both consent to a different form of distribution;
(e) Require that the Owner's spouse be the Designated Beneficiary;
(f) Require that the Owner remain employed by the Employer
sponsoring the Plan for a specified period of time before the
Owner's rights under this Contract become fully vested; or
(g) Otherwise restrict the Owner's exercise of rights under the
Contract or give the Employer sponsoring the Plan (or a Plan
representative) the right to exercise certain rights on the
Owner's behalf.
No such Plan provision shall limit an Owner's rights under this
Contract, unless the Employer sponsoring the Plan has provided the
Company with written notification of such provision. In no event shall
any such Plan provision enlarge the Company's obligations under this
Contract.
TAX CONSEQUENCES
(a) The Company will not incur any liability or be responsible for
the timing, purpose or propriety of any contribution or
distribution; any tax or penalty imposed on account of any
such contribution or distribution; or any other failure, in
whole or in part, by the Owner or the Employer to comply with
the provisions set forth in the Code or any other law.
ADMINISTRATION
The Company does not act as the Administrator of the Plan. Accordingly,
the Company will not incur any liability or be responsible for
interpreting the Plan or deciding any question arising thereunder.
SECURITY BENEFIT LIFE INSURANCE COMPANY
ROGER K. VIOLA
Secretary
- ----------------------------
Endorsement Effective Date
(If Other Than Issue Date)
<PAGE>
[SBL LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY ("SBL")
- --------------------------------------------------------------------------------
A Member of The Security 700 SW Harrison St.
Benefit Group of Companies Topeka, Kansas 66636-0001
VARIABLE ANNUITY APPLICATION
(EDUCATOR SERIES)
- --------------------------------------------------------------------------------
1. OWNER (Employer)
Name______________________________________________
Address___________________________________________
__________________________________________________
Tax I.D. or SSN___________________________________
Group Contract Number_____________________________
- --------------------------------------------------------------------------------
2. ALLOCATION OF PURCHASE PAYMENTS
Small Cap Series* ___________%
Emerging Growth Series* ___________%
Social Awareness Series* ___________%
Worldwide Equity Series* ___________%
Value Series* ___________%
Growth Series* ___________%
Specialized Asset Allocation Series* ___________%
Managed Asset Allocation Series* ___________%
Equity Income Series* ___________%
Growth-Income Series* ___________%
Global Aggressive Bond Series* ___________%
High Yield Series* ___________%
High Grade Income Series* ___________%
Money Market Series* ___________%
General Account ___________%
Other _____________________________________ ___________%
100%
- --------------------------------------------------------------------------------
3. DCA PLUS ACCOUNT**
Please allocate my direct transfer in the amount of $________ to the DCA
Plus Account and make transfers from the DCA Plus Account to the following
Series (not to include the ____ Money Market Series) in the percentages
indicated.
(1)_____________ ________%
Series
(2)_____________ ________%
Series
(3)_____________ ________%
Series 100%
I understand that my DCA Plus Account will be transferred in 12 monthly
transfers to the Series set forth above as described in the Contract and
prospectus and that at the end of that time period, all Contract Value
originally allocated to the DCA Plus Account will be invested in the
Variflex Series.
**Available only for amounts allocated pursuant to a direct transfer from a
Section 403(b) annuity. Please complete Section 3 below.
- --------------------------------------------------------------------------------
4. Participant
Name______________________________________________
Address___________________________________________
__________________________________________________
Sex M [ ] F [ ] Date of Birth _________________
Tax I.D. or SSN___________________________________
- --------------------------------------------------------------------------------
5. PRIMARY BENEFICIARY
Name______________________________________________
Address___________________________________________
__________________________________________________
Relationship to Owner_____________________________
Date of Birth_____________________________________
Tax I.D. or SSN___________________________________
-------------------------------------------------------------------------------
6. CONTINGENT BENEFICIARY
Name______________________________________________
Address___________________________________________
__________________________________________________
Relationship to Owner_____________________________
Date of Birth_____________________________________
Tax I.D. or SSN___________________________________
- --------------------------------------------------------------------------------
7. TYPE OF ANNUITY CONTRACT
(check one box below)
[ ] 403(b)(TSA) [ ] 401(a) (Qual. Pension/Profit Sharing)
[ ] 457 (Def. Comp.) [ ] 401(k) (Qual. Savings Plan)
Type of Plan:
__________________________________________________
__________________________________________________
- --------------------------------------------------------------------------------
8. TYPE OF GROUP CONTRACT
A. Control of the Contract will be invested in:
[ ] Owner [ ] Participant [ ] Other _________________________________
B. Will purchase payments be allocated to participant certificates?
[ ] Yes [ ] No
Please note that employers completing initial application for a master group
contract, need only complete Sections 1 and 7 through 10.
- --------------------------------------------------------------------------------
9. EMPLOYER INFORMATION
Employer Name____________________________________
Type of Organization (e.g. public school system)
_________________________________________________
Employer Address_________________________________
Billing Statement Address________________________
Amount of Purchase Payments to be made:$_________
Frequency__________times per year
Beginning Date___________________________________
Will Employer make contributions? [ ] Yes [ ] No
- --------------------------------------------------------------------------------
10. Will this annuity replace or change any other insurance or annuity?
Yes [ ] No [ ]
If yes, state company(ies) and contract number(s)___________________________
Type of contract____________________________________________________________
If 1035 exchange or other transfer of assets, attach: (1) exchange form(s)
or letter(s); and (2) replacement form(s) if applicable.
- --------------------------------------------------------------------------------
11. Special Instructions________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
- --------------------------------------------------------------------------------
12. PLEASE CHECK THE FOLLOWING SERVICES THAT YOU WISH TO ELECT:
Telephone Transfer Privilege
[ ] I (we) authorize SBL to make transfers among accounts and/or change
the allocation of future purchase payments and make changes to an
existing Asset Reallocation or Dollar Cost Averaging option, based on
telephone instructions. SBL has procedures to confirm that such
instructions are genuine and will not be liable for any losses due to
fraudulent or unauthorized instructions provided it complies with its
procedures, which are set forth in the variable annuity prospectus.
- --------------------------------------------------------------------------------
V7566 (9-97)
<PAGE>
13. [ ] AUTOMATIC DOLLAR COST AVERAGING
Please establish an automatic transfer from_______________________________
(Series or General Account)
to (1)_____________________________________
(Series or General Account)
(Please indicate the dollar or percentage split if going to one or more
accounts) (2)_____________________________________
(Series or General Account)
Please establish the transfer under the following option:
Check only one:
A. [ ] $______________________ per transfer over _____________ months/years
B. [ ] Fixed Period _____________ months/years. At the end of the Fixed
Period, all Contract Value will have been transferred from the
Series/General Account.
C. [ ] Only Interest/Earnings over ___________ months/years. Earnings
will accrue for one time period (a month or quarter) from the
effective date before the first transfer occurs.
Please make transfers: [ ] Monthly [ ] Quarterly
I understand that automatic transfers from the General Account are limited
as described in the current prospectus.
- --------------------------------------------------------------------------------
14. [ ] ASSET REALLOCATION REQUEST
Please establish the Asset Reallocation option as follows:
Small Cap Series ___________%
Emerging Growth Series ___________%
Social Awareness Series ___________%
Worldwide Equity Series ___________%
Value Series ___________%
Growth Series ___________%
Specialized Asset Allocation Series ___________%
Managed Asset Allocation Series ___________%
Equity Income Series ___________%
Growth-Income Series ___________%
Global Aggressive Bond Series ___________%
High Yield Series ___________%
High Grade Income Series ___________%
Money Market Series ___________%
General Account ___________%
Please make my first transaction on ___________________________and every 3
Month Day Year
months thereafter.
The General Account may not be used if the reallocation would violate the
transfer provisions of the General Account as stated in the prospectus.
INITIAL PURCHASE PAYMENTS WILL BE ALLOCATED BASED ON INSTRUCTIONS IN
SECTION 4, UNLESS OTHERWISE INDICATED.
- --------------------------------------------------------------------------------
15. [ ] SECUR-O-MATIC BANK DRAFT (ATTACH VOID CHECK)
Establish a [ ] Monthly [ ] Quarterly draft from my bank account on the:
[ ] 7th [ ] 14th [ ] 21st [ ] 28th
Amount of Draft$____________________________________________________________
Name of Bank:__________________________Bank Phone Number:___________________
Bank Address:_______________________________________________________________
Street City State Zip Code
Bank Account Number:__________________Transit Routing Number:_______________
I authorize SBL to make withdrawals from my checking account which I
maintain at the above listed bank. This authorization is limited to the
payment to SBL of the amount indicated on this application. I authorize my
bank to pay and charge to my bank account any withdrawals made by and
payable to SBL for this purpose. This authority is to remain in effect until
revoked by me in writing, and until SBL and the bank actually receive such
notice, I agree neither SBL nor the bank shall have any liability to me in
making any such withdrawals.
- --------------------------------------------------------------------------------
I have been given a current prospectus that describes the contract for which I
am applying and a current prospectus for the fund which underlies each Series
above. If my annuity contract qualifies under Section 403(b), I declare that I
know: (1) the limits on redemption imposed by Section 403(b)(11) of the Internal
Revenue Code; and (2) the investment choices available under my employer's
Section 403(b) plan to which I may elect to transfer my account balance. *I KNOW
THAT ANNUITY PAYMENTS AND WITHDRAWAL VALUES, IF ANY, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT OF SBL ARE VARIABLE AND DOLLAR
AMOUNTS ARE NOT GUARANTEED. The amount paid and the application must be
acceptable to SBL under its rules and practices. If they are, the contract
applied for will be effective on its Contract Date. If they are not, SBL will be
liable only for the return of the amount paid.
- --------------------------------------------------------------------------------
TAX IDENTIFICATION NUMBER CERTIFICATION**
UNDER PENALTIES OF PERJURY I CERTIFY THAT:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me); and
2. I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(IRS) that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding. THE INTERNAL REVENUE SERVICE DOES NOT
REQUIRE YOUR CONSENT TO ANY PROVISIONS OF THIS DOCUMENT OTHER THAN THE
CERTIFICATION REQUIRED TO AVOID BACKUP WITHHOLDING.
- --------------------------------------------------------------------------------
Dated at______________________________________________
this __________ day of _______________________, 19____
______________________________________________________
Participant Signature
______________________________________________________
Owner Signature (if required)
REPRESENTATIVE'S STATEMENT - To the best of knowledge, this application is not
involved in replacement of life insurance or annuities, as defined in applicable
Insurance Department Regulations, except as stated in Section 10 above. I have
complied with the requirements for disclosure and/or replacement.
______________________________________________________
Representative Signature and Number
______________________________________________________
Print Representative's Full Name and Phone and Number
______________________________________________________
Broker/Dealer Name and Number
- --------------------------------------------------------------------------------
**CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you have
been notified by IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return. For
contributions to an individual retirement arrangement (IRA), and generally
payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN.
- --------------------------------------------------------------------------------
[ ] Check this box if you would like a Statement of Additional Information.
15-15660-00
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
SECURITY BENEFIT LIFE INSURANCE COMPANY
(The Corporation was originally incorporated under
the name of "The National Council of The Knights
and Ladies of Security" which was later changed to
"The Security Benefit Association." Its original
Articles of Incorporation were filed with the
Kansas Secretary of State on February 22, 1892.)
FIRST.
The name of this Corporation shall be SECURITY BENEFIT LIFE INSURANCE COMPANY.
SECOND.
The Company is organized not for profit and is formed to make insurance upon the
lives of persons and every insurance appertaining thereto or connected
therewith, and to grant, purchase or dispose of annuities; to make insurance on
the health of individuals, against accidental personal injury, disablement or
death, and against loss, liability or expense on account thereof; and to provide
benefits for its policy holders in the case of illness or injury.
THIRD.
The location of its registered office in the State of Kansas is at 700 Harrison
Street in the City of Topeka, State of Kansas; and the name and address of its
resident agent is Security Benefit Life Insurance Company, 700 Harrison Street,
Topeka, Shawnee County, Kansas 66636.
FOURTH.
The term for which the Company is to exist is perpetual.
FIFTH.
The Board of Directors shall consist of ten persons.
SIXTH.
The Company shall operate on the mutual plan and shall have no capital stock.
<PAGE>
SEVENTH.
The conditions of membership in the company shall be fixed by the Board of
Directors.
EIGHTH.
A Director shall not be personally liable to the Corporation or to its
policyholders for monetary damages for breach of fiduciary duty as a director,
provided that this sentence shall not eliminate nor limit the liability of a
director.
A. for any breach of his or her duty of loyalty to the Corporation or its
policyholders;
B. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
C. under the provisions of K.S.A. 17-6424 and amendments thereto; or
D. for any transaction from which the director derived an improper
personal benefit.
This Article Eighth shall not eliminate or limit the liability of a
director for any act or omission occurring prior to the date this Article Eighth
becomes effective.
IT IS HEREBY CERTIFIED that the foregoing Restated Articles of
Incorporation only restate and integrate and do not further amend the provisions
of the Corporation's articles of incorporation as theretofore amended or
supplemented, and that there is no discrepancy between those provisions and the
provisions of the restated articles.
IT IS FURTHER CERTIFIED that the Restated Articles of Incorporation were
duly set forth, proposed, approved, and declared advisable by a resolution duly
adopted by the Board of Directors of the Corporation at a regular meeting held
on September 23/24, 1996, in accordance with the provisions of K.S.A. 17-6605
and amendments thereto, and the General Corporation Code of the State of Kansas,
and that these Restated Articles of Incorporation constitute all of the Articles
of Incorporation of the Corporation and do hereby supersede the Corporation's
Articles of Incorporation originally filed as formerly supplemented or amended.
<PAGE>
IN WITNESS WHEREOF, I have hereunto subscribed my name at Topeka, Kansas,
on this 31st day of October, 1996.
HOWARD R. FRICKE
--------------------------------------------
Howard R. Fricke, President
ATTEST:
ROGER K. VIOLA
- -----------------------------------
Roger K. Viola, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
The foregoing instrument was acknowledged before me this 31st day of
October, 1996, by Howard R. Fricke and Roger K. Viola, president and secretary,
respectively, of Security Benefit Life Insurance Company, a Kansas corporation,
on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal at Topeka, Kansas, on this 31st day of October, 1996.
L. CHARMAINE LUCAS
--------------------------------------------
Notary Public
My Appointment Expires: 04/01/98
Approved for filing.
KATHLEEN SEBELIUS
- -----------------------------------
Kathleen Sebelius
Commissioner of Insurance
Date: 11-12-96
-------------------------
<PAGE>
BYLAWS OF
SECURITY BENEFIT LIFE INSURANCE COMPANY
KNIGHTS & LADIES OF SECURITY - FEBRUARY 22, 1892
SECURITY BENEFIT ASSOCIATION - SEPTEMBER 24, 1919
SECURITY BENEFIT LIFE INSURANCE COMPANY - JANUARY 2, 1950
<PAGE>
BYLAWS OF
SECURITY BENEFIT LIFE INSURANCE COMPANY
ARTICLE I - OFFICES
1. The Home Office and principal place of business of the Company shall be
in the city of Topeka, state of Kansas. The Company may also establish
branch offices at such other places as the Board of Directors may from
time to time determine.
ARTICLE II - ANNUAL MEETING
1. A meeting of the policyholders for the election of directors shall be
held annually at the home office of the company at two o'clock p.m. on
the first Tuesday in June. The first annual meeting shall be held on the
first Tuesday in June in the year 1952. Subsequent annual meetings shall
be held on the first Tuesday in June in each year thereafter.
2. Notice of the time and place of the annual meeting shall be given by
imprinting the same on either premium notices, premium receipts, premium
record stubs, or on annual reports mailed to the policyholders.
3. Special meetings of policyholders may be called at any time, for any
purpose or purposes whatsoever, by the President, the Chief Executive
Officer, the Chairman of the Board or by the vote of a majority of the
entire number of the members of the board of directors.
4. Notice of the time and place of any special meeting shall be given to all
policyholders who were shown on the records of the Company to be
policyholders on the date fixed by the Board for the purpose of
determining the members entitled to notice of and to vote at the special
meeting (the "Record Date"), which date shall be not less than 10 nor
more than 90 days before the date of such meeting, in writing and mailed
to the policyholder at his or her last known address as indicated by the
Company's records. Notice of any special meeting shall specify the place,
the day and the hour of the meeting and the general nature of the
business to be transacted. Such notice shall be given not less than 10
nor more than 60 days before the date of the meeting.
ARTICLE III - VOTING
1. The qualified voters of the company shall consist of every policyholder.
For the purpose of this section the term "policyholder" shall mean (1)
the person insured under an individual policy of insurance issued upon
the application of such person; (2) the person who effectuates any such
policy upon the life of another; (3) the person to whom any annuity or
pure endowment is presently or prospectively payable by the terms of an
individual annuity or pure endowment policy, except where the policy
declares some other person to be the owner thereof, in which case such
owner shall be deemed to be the policyholder; or (4) the employer, firm,
group or association to whom or in whose name a master policy or contract
of group insurance or other from of group hospital or disability
insurance, including group
<PAGE>
annuity, shall have been issued and held, which employer, firm, group or
association shall be deemed to be one policyholder within the meaning of
this section. No other person shall be deemed to be a "policyholder" for
the purpose of this section. A policyholder as defined in this section
shall be entitled to only one vote regardless of the number or size of
his policies or contracts. The policyholder may vote in person; or may
vote by proxy signed by the person legally entitled to vote the same,
provided the proxy shall be received by the Company by the close of
business on the day preceding the date of the meeting at which such proxy
is to be voted.
2. The qualified policyholders present, in person or by proxy, at any annual
or special meeting shall constitute a quorum and any matter properly
before the meeting shall be decided by a majority of the policyholders
present, unless a different percentage is prescribed by law.
3. Each qualified policyholder present at the annual meeting shall have the
right to cast as many votes in the aggregate as shall equal the number of
directors to be regularly elected. Each qualified policyholder, in person
or by proxy, may cast the whole number of votes for one candidate or may
divide his votes among two or more candidates.
4. Notwithstanding any inconsistent provisions of this section, if the
company by action of its directors establishes one or more separate
accounts for purposes of issuing contracts providing benefits which vary
directly according to the investment experience of such separate account
or accounts, the directors, upon approval of the rules and regulations
for each separate account will set forth the special voting rights and
procedures for owners of variable contracts under such separate account
relating to investment policy, investment advisory services, selection of
independent public accountants, and such other matters as they deem
appropriate in relation to the administration of the assets of such
separate account.
ARTICLE IV - BOARD OF DIRECTORS
1. The management of all the affairs, property and business of the company
shall be vested in and exercised by a board of directors of ten (10)
persons, all of whom shall be policyholders in the company. The board of
directors may from time to time appoint an executive committee and other
committees with such powers as it may see fit, subject to such conditions
as may be prescribed by the board. All committees so appointed shall
report their acts and doings to the board of directors at its next
meeting. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at
the meeting in the place of any such absent or disqualified member.
2. The directors now in office shall continue to hold office for the
remainder of the terms for which they were severally elected.
<PAGE>
3. At each annual meeting there shall be elected not less than one-fifth nor
more than one-third of the members of the board of directors to serve for
not more than five years nor more than three years respectively.
4. The board of directors shall, at least ninety days prior to any annual
meeting, nominate candidates for each vacancy in the board to be filled
at such annual meeting.
5. Any group of qualified policyholders equal in number to or greater in
number than one percent of the total number of policies of the company in
force may make other nominations for one or more vacancies in the board
of directors by filing with the secretary, at least ninety days prior to
any annual meeting, a duly signed and acknowledged certificate giving the
names and addresses of the candidates nominated. Upon receiving such
certificate, the secretary shall thereupon report the receipt thereof to
the board of directors at its first regular meeting following receipt of
such certificate.
6. Should the board of directors fail to nominate candidates for vacancies
in the board of directors to be filled at the annual meeting as provided
in Section 4 hereof, and should the policyholders fail to nominate
candidates for vacancies in the board of directors to be filled at the
annual meeting then, and in such case, vacancies to be filled at the
annual meeting may be filled by the policyholders.
7. Any vacancy in the board occurring in the interim between annual meetings
shall be filled by the remaining members thereof until the next annual
meeting, at which time a successor shall be elected to fill the unexpired
term except vacancies occurring by reason of increase in number of
directors, in which event such vacancies shall be filled at the annual
meeting.
8. Regular and special meetings of the board of directors may be held at
such place or places within or without the state of Kansas as the board
of directors may from time to time designate. Special meetings of the
board of directors may be called at any time by the president or by any
three directors. The secretary shall give notice of each special meeting
by mailing the same at least two days before the meeting or by
telegraphing the same at least one day before the meeting to each
director, but such notice may be waived by any director. Unless otherwise
indicated in the notice thereof, any and all business may be transacted
at a special meeting. The number of directors necessary to constitute a
quorum shall be not less than five; except that if the board of directors
consists of nine members or less, a majority may constitute a quorum.
9. The fee to be paid to the directors for their services shall be fixed by
resolution of the board.
10. The board of directors may appoint advisory directors to serve for a
period of not more than one year. Such appointed directors shall act only
in an advisory capacity without right to vote. An advisory director may
be removed by the board of directors whenever in its judgment the best
interests of the company would be served thereby. The fee to be paid
advisory directors for their services shall be fixed by resolution of the
board.
<PAGE>
11. Nothing in this Article, however, should be construed as to prevent the
directors from establishing one or more separate accounts for purposes of
issuing contracts with variable benefits and approving such additional
voting rights for variable contract owners as may be authorized or
required by the law.
ARTICLE V - OFFICERS
1. The officers of the company shall be a chairman of the board, a
president, one or more vice presidents, a treasurer, a secretary, an
actuary, and such other officers as may be appointed by the board of
directors. Any two or more offices may be held by the same person, except
the offices of president and secretary. All officers of the company,
except appointed officers, shall be elected annually by the board of
directors at the first meeting of the board of directors held after each
annual meeting of the policyholders. If the election of officers shall
not be held at such meeting, such election shall be held as soon
thereafter as conveniently may be. Vacancies may be filled or new offices
filled at any meeting of the board of directors. Each officer shall hold
office until his successor shall have been duly elected or appointed and
shall have qualified, or until his death, or until he shall have resigned
or shall have been removed in the manner hereinafter provided.
Any officer elected or appointed by the board of directors may be removed
by the board of directors whenever in its judgment the best interest of
the company would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
2. The chairman of the board shall preside at all meetings of policyholders
or directors and shall perform such other duties as shall be assigned to
him by the board of directors. In the absence of the chairman of the
board, the president shall preside over meetings of policyholders or
directors.
3. The president shall be chief executive officer of the company, unless the
chairman of the board is so designated, and he shall perform such other
duties as are incident to the office of the president or are properly
assigned to him by the board of directors.
4. The vice presidents shall have such powers and discharge such duties as
may be assigned to them from time to time by the board of directors.
5. The treasurer shall have charge and custody of and be responsible for all
funds and securities of the company; shall disburse the funds of the
company in payments of just demands against it or as may be ordered by
the board of directors, and in general perform all the duties incident to
the office of treasurer and such other duties as may from time to time be
assigned to him by the board of directors. The assistant treasurer, if
any, may sign in place of the treasurer with the same force and effect as
the treasurer is authorized to sign.
6. The secretary shall keep the minutes of meetings of the policyholders and
of the board of directors, see that all notices are duly given in
accordance with the provisions of these
<PAGE>
bylaws or as required by law; shall be custodian of the corporate records
and seal of the company, and in general perform all duties incident to
the office of secretary and such other duties as may from time to time be
assigned to him by the board of directors. The assistant secretary, if
any, may sign and attest documents with the same force and effect as the
secretary is authorized to sign and attest.
7. The actuary shall have general supervision over all computations relating
to premium rates, policy dividends, reserves and surrender values,
preparation of the annual statement of the company, perform such other
duties as are incident to his office and such other duties as may from
time to time be assigned to him by the board of directors. In absence or
inability of the actuary, his duties may be performed by an associate
actuary or by an assistant actuary.
8. The salaries of the officers shall be fixed from time to time by the
board of directors, and no officer shall be prevented from receiving such
salary by reason of the fact that he is also a director of the company.
9. The company shall indemnify every person, his heirs, executors or
administrators, who is or was a director, officer, or employee of the
company, or is or was serving at the request of the company as a
director, officer or employee of another business entity, to the full
extent permitted or authorized by the laws of the state of Kansas, as now
in effect and as hereafter amended, against any liability, judgment,
fine, amount paid in settlement, cost or expense (including attorney's
fees) asserted or threatened against and incurred by such person in his
capacity as or arising out of his status as a director, officer, or
employee of the company or, if serving at the request of the company as a
director, officer or employee of another business entity. The
indemnification provided by this bylaw provision shall not be exclusive
of any other rights to which those indemnified may be entitled under any
other bylaw or under any agreement, vote of stockholders or disinterested
directors or otherwise, and shall not limit in any way any right which
the company may have to make different or further indemnifications with
respect to the same or different persons or classes of persons.
ARTICLE VI - SEAL
1. The corporate seal of the company shall consist of two concentric circles
between which shall be the name of the company and in the center of which
shall be inscribed the year of its incorporation.
ARTICLE VII - FRATERNAL CERTIFICATES
1. The gross premium payable with respect to each fraternal certificate
issued by the corporation shall be the sum designated prior to
transformation of the corporation from a fraternal benefit society to a
mutual life insurance company as home office premium plus a collection
charge equal to the sum paid prior to such transformation as subordinate
council dues or collection fee. Provided, however, that the annual
collection charge payable with respect to each fraternal certificate
shall not in any case exceed $2.40.
<PAGE>
2. The gross premium for each fraternal certificate shall become due and
payable, without notice, on the first day of the calendar month following
the period for which prior payment has been made. The first calendar
month following the period for which payment has been made shall be
allowed as a grace period during which the certificate shall remain in
full force and effect. If the gross premium for any certificate is not
paid when due or within the grace period, such certificate shall be in
default and all rights and benefits thereunder shall be forfeited,
without notice, except as may otherwise be provided by the terms of such
certificate.
3. Every fraternal certificate which shall become in default on account of
nonpayment of gross premiums may be reinstated at any time within sixty
days after the date of such default by payment in full of the gross
premiums in arrears, provided the insured under such certificate is in
sound mental and physical condition on the date of such payment. Any
payment of gross premiums made for the purpose of effecting reinstatement
under the provisions of this section shall constitute a representation by
the insured making such payment that he or she is in sound mental and
physical condition; and the receipt and retention of such payment shall
not effect reinstatement of the certificate if the insured is not in
sound mental and physical condition.
4. Every fraternal certificate which shall become in default on account of
nonpayment of gross premiums, and which shall not have been reinstated
within sixty days after the date of such default, may be reinstated only
in accordance with and as permitted by the rules and regulations for
reinstatement prescribed by the board of directors.
5. Any person or corporation may be appointed as a beneficiary in a
fraternal certificate, except as eligibility with respect to
beneficiaries may be restricted by the laws of the state in which the
certificate was first delivered to the insured.
6. The owner of a fraternal certificate in force may at any time change the
beneficiary by filing a satisfactory written notice therefor with the
company at its home office. The fraternal certificate need not be
presented for endorsement except upon written request of the company. A
change of beneficiary shall not be effective until it has been recorded
by the company at its home office. After such recordation, the change
shall relate back to and take effect as of the date the owner signed said
written request, whether or not the insured be living at the time of such
recordation, but without prejudice to the company on account of any
payment made by it before receipt of such written request at its home
office. If there be more than one beneficiary the interest of any
deceased beneficiary shall pass to the survivor or survivors, unless
otherwise directed by the owner and recorded at the home office. If no
designated beneficiary survives the insured, the amount payable under the
certificate shall be paid in a lump sum to the executors or
administrators of the insured.
7. Whenever the age of an insured in a fraternal certificate has been
understated in his or her application for insurance, and the correct age
was within the age limits of the corporation, the amount of the death
benefit payable under such certificate shall be such as the premiums
<PAGE>
paid would have purchased at the correct age according to the
corporation's premium rates in force on the issue date of the
certificate. If the correct age of the insured was not within the age
limits of the corporation, the liability of the corporation under his or
her certificate shall be the premiums paid thereon. If the age has been
overstated in the application, no additional amount of insurance or other
values shall be granted on account of any excess premium paid, but such
excess premium shall be returned without interest.
8. That part of the gross premium designated prior to transformation of the
corporation as home office premium shall, with respect to fraternal
certificates issued on the pure assessment plan, be payable in accordance
with the following premium table:
PREMIUMS PER $1,000 OF INSURANCE
AGE NEAREST AGE NEAREST
BIRTHDAY MONTHLY ANNUAL BIRTHDAY MONTHLY ANNUAL
16 $1.15 $13.25 49 $3.25 $37.45
17 1.20 13.50 50 3.40 39.25
18 1.20 13.80 51 3.60 41.10
19 1.20 14.10 52 3.75 43.10
20 1.25 14.40 53 3.95 45.30
21 1.30 14.75 54 4.15 47.55
22 1.30 15.10 55 4.35 50.00
23 1.35 15.45 56 4.60 52.65
24 1.40 15.80 57 4.85 55.45
25 1.40 16.20 58 5.10 58.45
26 1.45 16.65 59 5.40 61.65
27 1.50 17.10 60 5.70 65.05
28 1.50 17.55 61 6.00 67.25
29 1.55 18.05 62 6.40 71.10
30 1.60 18.55 63 6.80 75.30
31 1.65 19.10 64 7.20 79.85
32 1.70 19.70 65 7.65 84.70
33 1.75 20.30 66 8.15 89.95
34 1.80 20.95 67 8.65 95.60
35 1.90 21.65 68 9.25 101.70
36 1.95 22.40 69 9.85 108.30
37 2.00 23.15 70 10.55 115.45
38 2.10 24.00 71 11.30 123.15
39 2.15 24.85 72 12.15 131.55
40 2.25 25.80 73 13.00 140.60
<PAGE>
AGE NEAREST AGE NEAREST
BIRTHDAY MONTHLY ANNUAL BIRTHDAY MONTHLY ANNUAL
41 2.30 26.80 74 14.00 150.50
42 2.40 27.85 75 15.10 161.20
43 2.50 28.95 76 16.25 172.85
44 2.60 30.15 77 17.55 185.55
45 2.70 31.45 78 19.00 199.35
46 2.85 32.80 79 20.60 214.45
47 2.95 34.25 80 and over 22.35 230.90
48 3.10 35.90
The premium rates as stated in said table shall be based upon the
attained age nearest birthday of the insured as of July 1, 1935. Each
insured under a pure assessment fraternal certificate shall, after
premiums in accordance with the above table have been paid for three full
years, be entitled to the nonforfeiture options of extended term
insurance, paid up insurance or certificate loans to the extent of the
tabular reserve to the credit of such certificate.
9. Any insured under a pure assessment fraternal certificate may, in lieu of
making premium payments in accordance with the premium table specified in
the preceding section, elect to continue to make monthly payments upon
his certificate at the rate paid for the month of January, 1935. In the
event of such election, the certificate upon which such payment is made
shall automatically be reduced to such face amount of whole life
insurance (with the reserve thereon computed according to the American
Experience Table of Mortality with an interest assumption of 4%) as the
payment actually made would purchase at the rates specified in said
premium table for the attained age nearest birthday of the insured as of
July 1, 1935. The payment by any insured for the month of July, 1935, and
subsequent months at the rate paid by such insured for the month of
January, 1935, shall be considered an election by such insured to reduce
the amount of his certificate and continue the same in force for such
reduced face amount. Each insured who elects to continue to make monthly
payments upon his certificate at the rate paid for the month of January,
1935, shall, after such payments have been made for three full years, be
entitled to the nonforfeiture options of extended term insurance, paid up
insurance or certificate loans to the extent of the tabular reserve to
the credit of such certificate.
10. Every fraternal certificate issued prior to January 1, 1938, which
contains nonforfeiture provisions is, with respect to such provisions,
hereby amended as follows:
In the event the owner does not within sixty days after the due date
of any premium in default elect in writing any of the other
available nonforfeiture options, the insurance will be automatically
continued in force as nonparticipating extended term insurance in
accordance with the extended term insurance provision of the
certificate: Provided, however, that the insurance under a
certificate which does not contain an extended term insurance
provision will be automatically continued in
<PAGE>
force as nonparticipating paid up insurance in accordance with the
paid up insurance provision of the certificate.
11. The owner of each fraternal certificate in good standing prior to the
transformation of the corporation from a fraternal benefit society to a
mutual life insurance company shall have the right after such
transformation to transfer the insurance evidenced by such certificate to
the mutual life plan in the manner provided by law. The company shall not
have the right to levy an assessment against the owner of such
transferred insurance or impose a lien against the reserve standing to
the credit thereof.
12. The right and power heretofore existing in the corporation to levy an
assessment in addition to the gross premiums payable with respect to each
fraternal certificate is hereby irrevocably waived.
13. The term "fraternal certificate," wherever the same appears in these
bylaws, shall mean and apply to all beneficiary certificates issued by
the corporation prior to its transformation from a fraternal benefit
society to a mutual life insurance company.
ARTICLE VIII - AMENDMENTS
1. These bylaws may be amended, changed or repealed by a majority of the
board of directors at any regular or special meeting of the board. They
may also be amended, changed or repealed at any annual meeting of the
policyholders by a majority vote of the policyholders at any annual
meeting, provided that such proposed amendment, change or repeal to be
considered at the annual meeting of the policyholders shall have been
submitted in writing and filed with the secretary at least ninety days
before the time for holding the annual meeting at which action thereon is
to be taken.
<PAGE>
[SBG LOGO]
- --------------------------------------------------------------------------------
Security Benefit Life Insurance Company 700 SW Harrison St.
Security Benefit Group, Inc. Topeka, Kansas 66636-0001
Security Distributors, Inc. (785) 431-3000
Security Management Company, LLC
September 15, 1997
Security Benefit Life Insurance Company
700 SW Harrison Street
Topeka, KS 66636-0001
Dear Sir/Madam:
This letter is with reference to the Registration Statement of Variflex Separate
Account of which Security Benefit Life Insurance Company (hereinafter "SBL") is
the Depositor. Said Registration Statement is being filed with the Securities
and Exchange Commission for the purpose of registering the variable annuity
contracts issued by SBL and the interests in the Variflex Separate Account under
such variable annuity contracts which will be sold pursuant to an indefinite
registration.
I have examined the Articles of Incorporation and Bylaws of SBL, minutes of the
meetings of the Board of Directors and other records, and pertinent provisions
of the Kansas insurance laws, together with applicable certificates of public
officials and other documents which I have deemed relevant. Based on the
foregoing, it is my opinion that:
1. SBL is duly organized and validly existing as a mutual life insurance
company under the laws of the State of Kansas.
2. Variflex Separate Account has been validly created as a Separate Account in
accordance with the pertinent provisions of the insurance laws of Kansas.
3. SBL has the power, and has validly and legally exercised it, to create and
issue the variable annuity contracts which are administered within and by
means of the Variflex Separate Account.
4. The amount of variable annuity contracts to be sold pursuant to the
indefinite registration, when issued, will represent binding obligations of
SBL in accordance with their terms providing said contracts were issued for
the considerations set forth therein and evidenced by appropriate policies
and certificates.
I hereby consent to the inclusion in the Registration Statement of my foregoing
opinion.
Respectfully submitted,
AMY J. LEE
Amy J. Lee
Associate General Counsel and Vice President
Security Benefit Life Insurance Company
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 7, 1997, with respect to the financial
statements of Security Benefit Life Insurance Company and Subsidiaries and the
financial statements of Variflex included in the Registration Statement on Form
N-4 and the related Statement of Additional Information accompanying the
Prospectus of the Variflex Variable Annuity Educator Series.
Ernst & Young LLP
Kansas City, Missouri
September 26, 1997
<PAGE>
GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
1 Year
1000 (1+T) 1 = 1,169.83
(1+T) 1 = (1.16983)(1)
1+T = 1.16983
T = .16983
5 Years
1000 (1+T) 5 = 1,940.18
((1+T) 5)1/5 = (1.94018)1/5
1+T = 1.1417
T = .1417
10 Years
1000 (1+T) 10 = 3,650.00
((1+T) 10)1/10 = (3.65000)1/10
1+T = 1.1382
T = .1382
<PAGE>
GROWTH-INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
1 Year
1000 (1+T) 1 = 1,124.81
(1+T) 1 = (1.12481)1
1+T = 1.12481
T = .12481
5 Years
1000 (1+T) 5 = 1,606.08
((1+T) 5)1/5 = (1.60608)1/5
1+T = 1.0994
T = .0994
10 Years
1000 (1+T) 10 = 3,277.53
((1+T) 10)1/10 = (3.27753)1/10
1+T = 1.1260
T = .1260
<PAGE>
MONEY MARKET YIELD
Money Market Series (Series C) as of December 30, 1996
CALCULATION OF CHANGE IN UNIT VALUE:
( Unrounded Unrounded )
( Price Price )
( 12-31-XX - 12-24-XX ) = 10.78122901043 - 10.77311607944 = .00075307190
--------------------- -------------------------------
( Unrounded Price ) 10.77311607944
( 12-24-XX )
ANNUALIZED YIELD:
365/7 (.00075307190) = 3.93%
EFFECTIVE YIELD:
(1 + .00075307190)365/7 - 1 = 4.00%
<PAGE>
WORLDWIDE EQUITY SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
1 Year
1000 (1+T) 1 = 1,117.59
(1+T) 1 = (1.11759)(1)
1+T = 1.11759
T = .11759
5 Years
1000 (1+T) 5 = 1,586.05
((1+T) 5)1/5 = (1.58605)1/5
1+T = 1.0966
T = .0966
10 Years
1000 (1+T) 10 = 1,213.51
((1+T) 10)1/10 = (1.21351)1/10
1+T = 1.0195
T = .0195
<PAGE>
HIGH GRADE INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
1 Year
1000 (1+T) 1 = 938.49
(1+T) 1 = (.93849)(1)
1+T = .93849
T = -.06151
5 Years
1000 (1+T) 5 = 1,214.03
((1+T) 5)1/5 = (1.21403)1/5
1+T = 1.0396
T = .0396
10 Years
1000 (1+T) 10 = 1,833.87
((1+T) 10)1/10 = (1.83387)1/10
1+T = 1.0625
T = .0625
<PAGE>
SOCIAL AWARENESS SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
1 Year
1000 (1+T) 1 = 1,130.67
(1+T) 1 = (1.13067)1
1+T = 1.13067
T = .13067
5 Years
1000 (1+T) 5 = 1,762.68
((1+T) 5)1/5 = (1.76268)1/5
1+T = 1.1200
T = .1200
5.67 Years (From Date of Inception May 1, 1991)
1000 (1+T) 5.67 = 1,867.43
((1+T) 5.67)1/5.67 = (1.86743)1/5.67
1+T = 1.1164
T = .1164
EMERGING GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
1 Year
1000 (1+T) 1 = 1,123.76
(1+T) 1 = (1.12376)1
1+T = 1.12376
T = .12376
4.25 Years (From Date of Inception October 1, 1992)
1000 (1+T) 4.25 = 1,756.85
((1+T) 4.25)1/4.25 = (1.75685)1/4.25
1+T = 1.1418
T = .1418
<PAGE>
GLOBAL AGGRESSIVE BOND SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
1 Year
1000 (1+T) 1 = 1,080.35
(1+T) 1 = (1.08035)1
1+T = 1.08035
T = .08035
1.58 Years (From Date of Inception June 1, 1995)
1000 (1+T) 1.58 = 1,159.01
((1+T) 1.58)1.58 = (1.15901)1.58
1+T = 1.0979
T = .0979
SPECIALIZED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
1 Year
1000 (1+T) 1 = 1,085.64
(1+T) 1 = (1.08564)1
1+T = 1.08564
T = .08564
1.58 Years (From Date of Inception June 1, 1995)
1000 (1+T) 1.58 = 1,159.29
((1+T) 1.58)1.58 = (1.15929)1.58
1+T = 1.0981
T = .0981
<PAGE>
MANAGED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
1 Year
1000 (1+T) 1 = 1,071.33
(1+T) 1 = (1.07133)1
1+T = 1.07133
T = .07133
1.58 Years (From Date of Inception June 1, 1995)
1000 (1+T) 1.58 = 1,146.36
((1+T) 1.58)1.58 = (1.146.36)1.58
1+T = 1.0903
T = .0903
EQUITY INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
1 Year
1000 (1+T) 1 = 1,143.47
(1+T) 1 = (1.14347)1
1+T = 1.14347
T = .1435
1.58 Years (From Date of Inception June 1, 1995)
1000 (1+T) 1.58 = 1,338,52
((1+T) 1.58)1.58 = (1.33852)1.58
1+T = 1.2027
T = .2027
<PAGE>
HIGH YIELD SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
0.41 Years (From Date of Inception August 5, 1996)
1000 (1+T) .43 = 1,017.00
(1+T) .43 = (1.01700).43
1+T = 1.0420
T = .0420
<PAGE>
GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
(WITHOUT CONTINGENT DEFERRED SALES CHARGE)
1 Year
1000 (1+T) 1 = 1,214.80
(1+T) 1 = 1.2148
1+T = 1.2148
T = .2148
5 Years
1000 (1+T) 5 = 1,980.30
((1+T) 5)1/5 = 1.9803
1+T = 1.1464
T = .1464
10 Years
1000 (1+T) 10 = 3,650.00
((1+T) 10)1/10 = 3.6500
1+T = 1.1382
T = .1382
<PAGE>
GROWTH-INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
(WITHOUT CONTINGENT DEFERRED SALES CHARGE)
1 Year
1000 (1+T) 1 = 1,169.80
(1+T) 1 = 1.1698
1+T = 1.1698
T = .1698
5 Years
1000 (1+T) 5 = 1,647.80
((1+T) 5)1/5 = 1.6478
1+T = 1.1051
T = .1051
10 Years
1000 (1+T) 10 = 3,277.50
((1+T) 10)1/10 = 3.2775
1+T = 1.1260
T = .1260
<PAGE>
WORLDWIDE EQUITY SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
(WITHOUT CONTINGENT DEFERRED SALES CHARGE)
1 Year
1000 (1+T) 1 = 1,162.60
(1+T) 1 = 1.1626
1+T = 1.1626
T = .1626
5 Years
1000 (1+T) 5 = 1,627.90
((1+T) 5)1/5 = 1.6279
1+T = 1.1024
T = .1024
10 Years
1000 (1+T) 10 = 1,213.50
((1+T) 10)1/10 = 1.2135
1+T = 1.0195
T = .0195
<PAGE>
HIGH GRADE INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
(WITHOUT CONTINGENT DEFERRED SALES CHARGE)
1 Year
1000 (1+T) 1 = 982.70
(1+T) 1 = .9827
1+T = .9827
T = -.0173
5 Years
1000 (1+T) 5 = 1,257.70
((1+T) 5)1/5 = 1.2577
1+T = 1.0469
T = .0469
10 Years
1000 (1+T) 10 = 1,833.90
((1+T) 10)1/10 = 1.8339
1+T = 1.0625
T = .0625
<PAGE>
EMERGING GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
(WITHOUT CONTINGENT DEFERRED SALES CHARGE)
1 Year
1000 (1+T) 1 = 1,168.80
(1+T) 1 = 1.1688
1+T = 1.1688
T = .1688
4.25 Years (From Date of Inception October 1, 1992)
1000 (1+T) 4.25 = 1,798.40
((1+T) 4.25)1/4.25 = 1.7984
1+T = 1.1481
T = .1481
<PAGE>
GLOBAL AGGRESSIVE BOND SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
(WITHOUT CONTINGENT DEFERRED SALES CHARGE)
1 Year
1000 (1+T) 1 = 1,125.40
(1+T) 1 = 1.1254
1+T = 1.1254
T = .1254
1.58 Years (From Date of Inception June 1, 1995)
1000 (1+T) 1.58 = 1,203.00
((1+T) 1.58)1.58 = 1.2030
1+T = 1.1241
T = .1241
SPECIALIZED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
(WITHOUT CONTINGENT DEFERRED SALES CHARGE)
1 Year
1000 (1+T) 1 = 1,130.60
(1+T) 1 = 1.1306
1+T = 1.1306
T = .1306
1.58 Years (From Date of Inception June 1, 1995)
1000 (1+T) 1.58 = 1,203.00
((1+T) 1.58)1.58 = 1.2030
1+T = 1.1241
T = .1241
<PAGE>
MANAGED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
(WITHOUT CONTINGENT DEFERRED SALES CHARGE)
1 Year
1000 (1+T) 1 = 1,116.30
(1+T) 1 = 1.1163
1+T = 1.1163
T = .1163
1.58 Years (From Date of Inception June 1, 1995)
1000 (1+T) 1.58 = 1,190.00
((1+T) 1.58)1.58 = 1.1900
1+T = 1.1164
T = .1164
EQUITY INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
(WITHOUT CONTINGENT DEFERRED SALES CHARGE)
1 Year
1000 (1+T) 1 = 1,188.50
(1+T) 1 = 1.1885
1+T = 1.1885
T = .1885
1.58 Years (From Date of Inception June 1, 1995)
1000 (1+T) 1.58 = 1,381.00
((1+T) 1.58)1.58 = 1.3810
1+T = 1.2267
T = .2267
<PAGE>
SOCIAL AWARENESS SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
(WITHOUT CONTINGENT DEFERRED SALES CHARGE)
1 Year
1000 (1+T) 1 = 1,175.70
(1+T) 1 = 1.1757
1+T = 1.1757
T = .1757
5 Years
1000 (1+T) 5 = 1,803.70
((1+T) 5)1/5 = 1.8037
1+T = 1.1252
T = .1252
5.67 Years (From Date of Inception May 1, 1991)
1000 (1+T) 5.67 = 1,867.40
((1+T) 5.67)1/5.67 = 1.8674
1+T = 1.1164
T = .1164
<PAGE>
HIGH YIELD SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1996
(WITHOUT CONTINGENT DEFERRED SALES CHARGE)
.41 Year (From Date of Inception August 5, 1996)
1000 (1+T) .41 = 1,062.00
(1+T) .41).41 = 1.0620
1+T = 1.1580
T = .1580
<PAGE>
VARIFLEX EDUCATOR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES A (GROWTH)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996 1,214.83 - 1,000 214.83 / 1,000 = 21.48%
1995 1,351.74 - 1,000 351.74 / 1,000 = 35.17%
1994 973.13 - 1,000 (26.87) / 1,000 = (2.69)%
1993 1,126.68 - 1,000 126.68 / 1,000 = 12.67%
1992 1,099.88 - 1,000 99.88 / 1,000 = 9.99%
1991 1,347.18 - 1,000 347.18 / 1,000 = 34.72%
1990 893.18 - 1,000 (106.82) / 1,000 = (10.68)%
1989 1,334.65 - 1,000 334.65 / 1,000 = 33.47%
1988 1,090.71 - 1,000 90.71 / 1,000 = 9.07%
1987 1,052.27 - 1,000 52.27 / 1,000 = 5.23%
1986 1,052.63 - 1,000 52.63 / 1,000 = 5.26%
<PAGE>
VARIFLEX EDUCATOR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES B (GROWTH-INCOME)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996 1,169.81 - 1,000 169.81 / 1,000 = 16.98%
1995 1,284.85 - 1,000 284.85 / 1,000 = 28.48%
1994 961.17 - 1,000 (38.83) / 1,000 = (3.88)%
1993 1,085.35 - 1,000 85.35 / 1,000 = 8.54%
1992 1,050.94 - 1,000 50.94 / 1,000 = 5.09%
1991 1,364.05 - 1,000 364.05 / 1,000 = 36.40%
1990 947.07 - 1,000 (52.93) / 1,000 = (5.29)%
1989 1,270.91 - 1,000 270.91 / 1,000 = 27.09%
1988 1,180.26 - 1,000 180.26 / 1,000 = 18.03%
1987 1,026.43 - 1,000 26.43 / 1,000 = 2.64%
1986 1,176.17 - 1,000 176.17 / 1,000 = 17.62%
<PAGE>
VARIFLEX EDUCATOR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES C (MONEY MARKET)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996 1,039.54 - 1,000 39.54 / 1,000 = 3.95%
1995 1,041.16 - 1,000 41.16 / 1,000 = 4.12%
1994 1,026.80 - 1,000 26.80 / 1,000 = 2.68%
1993 1,015.71 - 1,000 15.71 / 1,000 = 1.57%
1992 1,022.48 - 1,000 22.48 / 1,000 = 2.25%
1991 1,045.91 - 1,000 45.91 / 1,000 = 4.59%
1990 1,066.91 - 1,000 66.91 / 1,000 = 6.69%
1989 1,080.00 - 1,000 80.00 / 1,000 = 8.00%
1988 1,061.64 - 1,000 61.64 / 1,000 = 6.16%
1987 1,053.39 - 1,000 53.39 / 1,000 = 5.34%
1986 1,053.19 - 1,000 53.19 / 1,000 = 5.32%
<PAGE>
VARIFLEX EDUCATOR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES D (WORLD WIDE EQUITY)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996 1,162.59 - 1,000 162.59 / 1,000 = 16.26%
1995 1,095.79 - 1,000 95.79 / 1,000 = 9.58%
1994 1,016.55 - 1,000 16.55 / 1,000 = 1.66%
1993 1,303.30 - 1,000 303.30 / 1,000 = 30.33%
1992 964.50 - 1,000 (35.50) / 1,000 = (3.55)%
1991* 1,032.87 - 1,000 32.87 / 1,000 = 3.29%
*From May 1, 1991 to December 31, 1991.
<PAGE>
VARIFLEX EDUCATOR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES E (HIGH GRADE INCOME)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996 982.71 - 1,000 (17.29) / 1,000 = (1.73)%
1995 1,171.05 - 1,000 171.05 / 1,000 = 17.11%
1994 921.64 - 1,000 (78.36) / 1,000 = (7.84)%
1993 1,114.35 - 1,000 114.35 / 1,000 = 11.43%
1992 1,064.16 - 1,000 64.16 / 1,000 = 6.42%
1991 1,157.49 - 1,000 157.49 / 1,000 = 15.75%
1990 1,056.83 - 1,000 56.83 / 1,000 = 5.68%
1989 1,107.95 - 1,000 107.95 / 1,000 = 10.79%
1988 1,060.41 - 1,000 60.41 / 1,000 = 6.04%
1987 1,014.52 - 1,000 14.52 / 1,000 = 1.45%
1986 1,085.81 - 1,000 85.81 / 1,000 = 8.58%
<PAGE>
VARIFLEX EDUCATOR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES S (SOCIAL AWARENESS)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996 1,175.68 - 1,000 175.68 / 1,000 = 17.57%
1995 1,263.05 - 1,000 263.05 / 1,000 = 26.31%
1994 952.20 - 1,000 (47.80) / 1,000 = (4.78)%
1993 1,108.05 - 1,000 108.05 / 1,000 = 10.81%
1992 1,151.22 - 1,000 151.22 / 1,000 = 15.12%
1991* 1,048.59 - 1,000 48.59 / 1,000 = 4.86%
*From May 1, 1991 to December 31, 1991.
<PAGE>
VARIFLEX EDUCATOR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES J (EMERGING GROWTH)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996 1,168.77 - 1,000 168.77 / 1,000 = 16.88%
1995 1,180.38 - 1,000 180.38 / 1,000 = 18.04%
1994 939.48 - 1,000 (60.52) / 1,000 = (6.05)%
1993 1,125.79 - 1,000 125.79 / 1,000 = 12.58%
1992* 1,243.81 - 1,000 243.81 / 1,000 = 24.38%
*From October 1, 1992 to December 31, 1992.
<PAGE>
VARIFLEX EDUCATOR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES K (GLOBAL AGGRESSIVE BOND)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996 1,125.35 - 1,000 125.35 / 1,000 = 12.54%
1995* 1,069.00 - 1,000 69.00 / 1,000 = 6.90%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX EDUCATOR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES M (SPECIALIZED ASSET ALLOCATION)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996 1,130.64 - 1,000 130.64 / 1,000 = 13.06%
1995* 1,064.00 - 1,000 64.00 / 1,000 = 6.40%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX EDUCATIR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES N (MANAGED ASSET ALLOCATION)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996 1,116.32 - 1,000 116.32 / 1,000 = 11.63%
1995* 1,066.00 - 1,000 66.00 / 1,000 = 6.60%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX EDUCATOR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES O (EQUITY INCOME)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996 1,188.47 - 1,000 188.47 / 1,000 = 18.85%
1995* 1,162.00 - 1,000 162.00 / 1,000 = 16.20%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX EDUCATOR SERIES
NON-STANDARDIZED TOTAL RETURN
SERIES P (HIGH YIELD)
Quotation of Total Return for the periods of January 1, 1986 to December 31,
1996.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL %INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1996* 1,060.94 - 1,000 60.94 / 1,000 = 6.09%
*From August 5, 1996 to December 31, 1996.
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Thomas R. Clevenger, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SBL VARIABLE ANNUITY ACCOUNT (VARIFLEX EDUCATOR
SERIES) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of September,
1997.
THOMAS R. CLEVENGER
- -------------------
Thomas R. Clevenger
SUBSCRIBED AND SWORN to before me this 15th day of September, 1997.
JANA R. SELLEY
- --------------
Notary Public
My Commission Expires:
June 14, 2000
- ---------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Sister Loretto Marie Colwell, being a Director of SECURITY BENEFIT LIFE
INSURANCE COMPANY, by these presents do make, constitute and appoint Howard R.
Fricke, James R. Schmank and Roger K. Viola, and each of them, my true and
lawful attorneys, each with full power and authority for me and in my name and
behalf to sign Registration Statements, any amendments thereto and any
applications for exemptive relief filed pursuant to the Investment Company Act
of 1940 or the Securities Act of 1933, as amended, and any instrument or
document filed as part thereof, or in connection therewith or in any way related
thereto, in connection with Variable Annuity Contracts offered, issued or sold
by SECURITY BENEFIT LIFE INSURANCE COMPANY and any SBL VARIABLE ANNUITY ACCOUNT
(VARIFLEX EDUCATOR SERIES) with like effect as though said Registration
Statements and other documents had been signed and filed personally by me in the
capacity aforesaid. Each of the aforesaid attorneys acting alone shall have all
the powers of all of said attorneys. I hereby ratify and confirm all that the
said attorneys, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of September,
1997.
SISTER LORETTO MARIE COLWELL
- ----------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 15th day of September, 1997.
JANA R. SELLEY
- --------------
Notary Public
My Commission Expires:
June 14, 2000
- ----------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John C. Dicus, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SBL VARIABLE ANNUITY ACCOUNT (VARIFLEX EDUCATOR
SERIES) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of September,
1997.
JOHN C. DICUS
- -------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 15th day of September, 1997.
JANA R. SELLEY
- --------------
Notary Public
My Commission Expires:
June 14, 2000
- ----------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Steven J. Douglass, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SBL VARIABLE ANNUITY ACCOUNT (VARIFLEX EDUCATOR
SERIES) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of September,
1997.
STEVEN J. DOUGLASS
- ------------------
Steven J. Douglass
SUBSCRIBED AND SWORN to before me this 15th day of September, 1997.
JANA R. SELLEY
- --------------
Notary Public
My Commission Expires:
June 14, 2000
- ----------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Howard R. Fricke, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint James R. Schmank and
Roger K. Viola, and each of them, my true and lawful attorneys, each with full
power and authority for me and in my name and behalf to sign Registration
Statements, any amendments thereto and any applications for exemptive relief
filed pursuant to the Investment Company Act of 1940 or the Securities Act of
1933, as amended, and any instrument or document filed as part thereof, or in
connection therewith or in any way related thereto, in connection with Variable
Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE INSURANCE
COMPANY and any SBL VARIABLE ANNUITY ACCOUNT (VARIFLEX EDUCATOR SERIES) with
like effect as though said Registration Statements and other documents had been
signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of September,
1997.
HOWARD R. FRICKE
- ----------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 15th day of September, 1997.
JANA R. SELLEY
- --------------
Notary Public
My Commission Expires:
June 14, 2000
- ---------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, W. W. Hanna, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SBL VARIABLE ANNUITY ACCOUNT (VARIFLEX EDUCATOR
SERIES) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of September,
1997.
W. W. HANNA
- -----------
W. W. Hanna
SUBSCRIBED AND SWORN to before me this 11th day of September, 1997.
CAROLYN R. SOUDERS
- ------------------
Notary Public
My Commission Expires:
July 21, 1999
- ---------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Laird G. Noller, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SBL VARIABLE ANNUITY ACCOUNT (VARIFLEX EDUCATOR
SERIES) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of September,
1997.
LAIRD G. NOLLER
- ---------------
Laird G. Noller
SUBSCRIBED AND SWORN to before me this 15th day of September, 1997.
JANA R. SELLEY
- --------------
Notary Public
My Commission Expires:
June 14, 2000
- -----------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Frank C. Sabatini, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SBL VARIABLE ANNUITY ACCOUNT (VARIFLEX EDUCATOR
SERIES) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of September,
1997.
FRANK C. SABATINI
- -----------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 15th day of September, 1997.
JANA R. SELLEY
- --------------
Notary Public
My Commission Expires:
June 14, 2000
- ---------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Robert C. Wheeler, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SBL VARIABLE ANNUITY ACCOUNT (VARIFLEX EDUCATOR
SERIES) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of September,
1997.
ROBERT C. WHEELER
- -----------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 15th day of September, 1997.
JANA R. SELLEY
- --------------
Notary Public
My Commission Expires:
June 14, 2000
- -------------------------
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000740583
<NAME> VARIFLEX EDUCATOR SERIES
<SERIES>
<NUMBER> 001
<NAME> SERIES A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 491,521
<INVESTMENTS-AT-VALUE> 591,595
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 591,595
<PAYABLE-FOR-SECURITIES> 591,591
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 591,595
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 12,929,890
<SHARES-COMMON-PRIOR> 11,550,576
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,511
<NET-ASSETS> 591,591
<DIVIDEND-INCOME> 4,003
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 6,383
<NET-INVESTMENT-INCOME> (2,380)
<REALIZED-GAINS-CURRENT> 54,595
<APPREC-INCREASE-CURRENT> 40,511
<NET-CHANGE-FROM-OPS> 92,726
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,887
<NUMBER-OF-SHARES-REDEEMED> 3,508
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,379
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,383
<AVERAGE-NET-ASSETS> 494,802
<PER-SHARE-NAV-BEGIN> 37.75
<PER-SHARE-NII> (.20)
<PER-SHARE-GAIN-APPREC> 8.20
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 45.75
<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000740583
<NAME> VARIFLEX EDUCATOR SERIES
<SERIES>
<NUMBER> 002
<NAME> SERIES B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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