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VARIFLEX VARIABLE ANNUITY
ISSUED BY:
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
1-800-888-2461
MAILING ADDRESS:
SECURITY BENEFIT LIFE INSURANCE COMPANY
P.O. BOX 750497
TOPEKA, KANSAS 66675-0497
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This Prospectus describes the Variflex Variable Annuity--a flexible purchase
payment deferred variable annuity contract or single purchase payment immediate
variable annuity contract (the "Contract") offered by Security Benefit Life
Insurance Company ("Security Benefit"). The Contract is available for
individuals and groups as a non-tax qualified retirement plan. The Contract is
also available for individuals and groups in connection with a retirement plan
qualified under Section 401, 403(a), 403(b), 403(c), 408, 408A or 457 of the
Internal Revenue Code. The Contract is designed to give you flexibility in
planning for retirement and other financial goals.
You may allocate your purchase payments to one or more of the Subaccounts
that comprise a separate account of Security Benefit called Variflex, or to the
Fixed Account. Each Subaccount invests in a corresponding Series of the SBL
Fund. The Subaccounts currently available under the Contract are:
* Growth * Global Total Return
* Growth-Income * Managed Asset Allocation
* Money Market * Equity Income
* Worldwide Equity * High Yield
* High Grade Income * Social Awareness
* Enhanced Index * Value
* International * Small Cap
* Mid Cap * Select 25
* Global Strategic Income
The Enhanced Index, International, High Yield, Value, Small Cap and Select 25
Subaccounts generally are not available under your Contract if you purchased
prior to January 4, 1999. The Subaccounts will be available to all Contracts
upon their conversion to Security Benefit's new administrative system. The
Subaccounts also are not available to certain types of the Contract (regardless
of issue date), including Contracts issued for use with pension and profit
sharing plans, deferred compensation plans, SIMPLE IRA and 401(k) plans, Roth
IRAs, simplified employee pension plans and employer sponsored annuity purchase
plans and Contracts with outstanding loans or receiving annuity payments. Please
contact Security Benefit at the number below to determine whether the
Subaccounts are available under your Contract.
Amounts allocated to the Fixed Account will accrue interest at rates that are
paid by Security Benefit as described in "The Fixed Account," page 25. Contract
Value in the Fixed Account is guaranteed by Security Benefit.
Amounts that you allocate to the Subaccounts under a Contract will vary based
on investment performance of the Subaccounts. No minimum amount of Contract
Value is guaranteed.
When you are ready to receive annuity payments, the Contract provides several
options for annuity payments. See "Annuity Options," page 24.
You may return a Contract according to the terms of its Free-Look Right. See
"Free-Look Right," page 19.
This Prospectus concisely sets forth information about the Contract and the
Separate Account that you should know before purchasing the Contract. The
"Statement of Additional Information," dated May 1, 1999, which has been filed
with the Securities and Exchange Commission contains certain additional
information. The Statement of Additional Information, as it may be supplemented
from time to time, is incorporated by reference into this Prospectus and is
available at no charge, by writing Security Benefit at 700 Harrison Street,
Topeka, Kansas 66636 or by calling 1-800-888-2461. The table of contents of the
Statement of Additional Information is set forth on page 38 of this Prospectus.
The SEC maintains a web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference and other
information regarding companies that file electronically with the SEC.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE SBL FUND. YOU
SHOULD READ THE PROSPECTUSES CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
THE CONTRACT IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE VALUE
OF YOUR CONTRACT WILL GO UP AND DOWN AND YOU COULD LOSE MONEY.
DATE: MAY 1, 1999
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TABLE OF CONTENTS
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Page
DEFINITIONS............................................................... 4
SUMMARY................................................................... 5
PURPOSE OF THE CONTRACT................................................ 5
THE SEPARATE ACCOUNT AND THE SBL FUND.................................. 5
FIXED ACCOUNT.......................................................... 5
PURCHASE PAYMENTS...................................................... 5
CONTRACT BENEFITS...................................................... 5
FREE-LOOK RIGHT........................................................ 5
CHARGES AND DEDUCTIONS................................................. 5
Contingent Deferred Sales Charge..................................... 6
Mortality and Expense Risk Charge.................................... 6
Administration Charge................................................ 6
Premium Tax Charge................................................... 6
Other Expenses....................................................... 6
CONTACTING SECURITY BENEFIT............................................ 6
EXPENSE TABLE............................................................. 6
CONTRACTUAL EXPENSES................................................... 6
ANNUAL SEPARATE ACCOUNT EXPENSES....................................... 7
ANNUAL MUTUAL FUND EXPENSES............................................ 7
EXAMPLES............................................................... 7
CONDENSED FINANCIAL INFORMATION........................................... 9
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND SBL FUND.... 12
SECURITY BENEFIT LIFE INSURANCE COMPANY................................ 12
YEAR 2000 COMPLIANCE................................................... 12
PUBLISHED RATINGS...................................................... 12
SEPARATE ACCOUNT....................................................... 13
SBL FUND............................................................... 13
Series A (Growth Series)............................................. 13
Series B (Growth-Income Series)...................................... 13
Series C (Money Market Series)....................................... 14
Series D (Worldwide Equity Series)................................... 14
Series E (High Grade Income Series).................................. 14
Series H (Enhanced Index Series)..................................... 14
Series I (International Series)...................................... 14
Series J (Mid Cap Series)............................................ 14
Series K (Global Strategic Income Series)............................ 14
Series M (Global Total Return Series)................................ 14
Series N (Managed Asset Allocation Series)........................... 14
Series O (Equity Income Series)...................................... 14
Series P (High Yield Series)......................................... 14
Series S (Social Awareness Series)................................... 14
Series V (Value Series).............................................. 14
Series X (Small Cap Series).......................................... 14
Series Y (Select 25 Series).......................................... 14
THE INVESTMENT ADVISER................................................. 15
THE CONTRACT.............................................................. 15
GENERAL................................................................ 15
TYPES OF VARIFLEX CONTRACTS............................................ 15
Single Purchase Payment Immediate Annuity............................ 15
Flexible Purchase Payment Deferred Annuity........................... 15
Group Flexible Purchase Payment Deferred Annuity..................... 15
APPLICATION FOR A CONTRACT............................................. 15
PURCHASE PAYMENTS...................................................... 16
ALLOCATION OF PURCHASE PAYMENTS........................................ 16
DOLLAR COST AVERAGING OPTION........................................... 16
ASSET REALLOCATION OPTION.............................................. 17
TRANSFERS OF CONTRACT VALUE............................................ 17
CONTRACT VALUE......................................................... 17
DETERMINATION OF CONTRACT VALUE........................................ 18
FULL AND PARTIAL WITHDRAWALS........................................... 18
SYSTEMATIC WITHDRAWALS................................................. 19
FREE-LOOK RIGHT........................................................ 19
DEATH BENEFIT.......................................................... 19
Death Benefit for Certain Florida Residents.......................... 20
Death Benefit for Group Unallocated Contracts........................ 20
DISTRIBUTION REQUIREMENTS.............................................. 20
DEATH OF THE ANNUITANT................................................. 21
CHARGES AND DEDUCTIONS.................................................... 21
CONTINGENT DEFERRED SALES CHARGE....................................... 21
WAIVER OF WITHDRAWAL CHARGE............................................ 22
MORTALITY AND EXPENSE RISK CHARGE...................................... 22
ADMINISTRATION CHARGE.................................................. 22
PREMIUM TAX CHARGE..................................................... 22
OTHER CHARGES.......................................................... 23
VARIATIONS IN CHARGES.................................................. 23
GUARANTEE OF CERTAIN CHARGES........................................... 23
SBL FUND EXPENSES...................................................... 23
ANNUITY PERIOD............................................................ 23
GENERAL................................................................ 23
ANNUITY OPTIONS........................................................ 24
Option 1--Life Income................................................ 24
Option 2--Life Income with Guaranteed Payment of 5,
10, 15 or 20 Years................................................. 24
Option 3--Life with Installment Refund Option........................ 24
Option 4--Joint and Last Survivor.................................... 24
Option 5--Payments for a Specified Period............................ 24
Option 6--Payments of a Specified Amount............................. 24
Option 7--Deposit Option............................................. 24
Option 8--Age Recalculation.......................................... 24
Option 9--Period Certain............................................. 25
Option 10--Joint and Contingent Survivor Option...................... 25
Value of Variable Annuity Payments: Assumed Interest Rate............ 25
SELECTION OF AN OPTION................................................. 25
THE FIXED ACCOUNT......................................................... 25
INTEREST............................................................... 25
DEATH BENEFIT.......................................................... 26
CONTRACT CHARGES....................................................... 26
TRANSFERS AND WITHDRAWALS FROM THE FIXED ACCOUNT....................... 26
PAYMENTS FROM THE FIXED ACCOUNT........................................ 26
MORE ABOUT THE CONTRACT................................................... 26
OWNERSHIP.............................................................. 26
Joint Owners......................................................... 27
DESIGNATION AND CHANGE OF BENEFICIARY.................................. 27
DIVIDENDS.............................................................. 27
PAYMENTS FROM THE SEPARATE ACCOUNT..................................... 27
PROOF OF AGE AND SURVIVAL.............................................. 27
MISSTATEMENTS.......................................................... 27
LOANS.................................................................. 27
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS....................... 28
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM............... 29
FEDERAL TAX MATTERS....................................................... 29
INTRODUCTION........................................................... 29
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT................ 29
General.............................................................. 29
Charge for Security Benefit Taxes.................................... 29
Diversification Standards............................................ 29
INCOME TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS........... 30
Surrenders or Withdrawals Prior to the Annuity Commencement Date..... 30
Surrenders or Withdrawals on or after Annuity Commencement Date...... 30
Penalty Tax on Certain Surrenders and Withdrawals.................... 30
ADDITIONAL CONSIDERATIONS.............................................. 31
Distribution-at-Death Rules.......................................... 31
Gift of Annuity Contracts............................................ 31
Contracts Owned by Non-Natural Persons............................... 31
Multiple Contract Rule............................................... 31
Possible Tax Changes................................................. 31
Transfers, Assignments or Exchanges of a Contract.................... 31
QUALIFIED PLANS........................................................ 31
Section 401.......................................................... 32
Section 403(b)....................................................... 33
Section 408 and 408A................................................. 33
Simple Individual Retirement Annuities............................... 34
Roth IRAs............................................................ 34
Section 457.......................................................... 34
Rollovers............................................................ 34
Tax Penalties........................................................ 35
Withholding.......................................................... 35
OTHER INFORMATION......................................................... 35
VOTING OF SBL FUND SHARES.............................................. 35
SUBSTITUTION OF INVESTMENTS............................................ 36
CHANGES TO COMPLY WITH LAW AND AMENDMENTS.............................. 36
REPORTS TO OWNERS...................................................... 36
TELEPHONE TRANSFER PRIVILEGES.......................................... 36
LEGAL PROCEEDINGS...................................................... 37
LEGAL MATTERS.......................................................... 37
PERFORMANCE INFORMATION................................................... 37
ADDITIONAL INFORMATION.................................................... 38
REGISTRATION STATEMENT................................................. 38
FINANCIAL STATEMENTS................................................... 38
STATEMENT OF ADDITIONAL INFORMATION....................................... 38
APPENDIX A - IRA Disclosure Statement
APPENDIX B - Roth IRA Disclosure Statement
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YOU MAY NOT BE ABLE TO PURCHASE THE CONTRACT IN YOUR STATE. YOU SHOULD NOT
CONSIDER THIS PROSPECTUS TO BE AN OFFERING IF THE CONTRACT MAY NOT BE LAWFULLY
OFFERED IN YOUR STATE. YOU SHOULD ONLY RELY UPON INFORMATION CONTAINED IN THIS
PROSPECTUS OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
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DEFINITIONS
Various terms commonly used in this Prospectus are defined as follows:
ACCUMULATION PERIOD -- The period commencing on the Contract Date and ending
on the Annuity Commencement Date or, if earlier, when you terminate the
Contract, either through a full withdrawal, payment of charges, or payment of
the death benefit proceeds.
ACCUMULATION UNIT -- A unit of measure used to calculate Contract Value.
ANNUITANT -- The person that you designate to receive annuity payments. If
you designate Joint Annuitants, "Annuitant" means both Annuitants unless
otherwise stated.
ANNUITY -- A series of periodic income payments made by Security Benefit to
an Annuitant, Joint Annuitant, or Designated Beneficiary during the period
specified in the Annuity Option.
ANNUITY COMMENCEMENT DATE -- The date when annuity payments are to begin.
ANNUITY OPTIONS -- Options under the Contract that prescribe the provisions
under which a series of annuity payments are made.
ANNUITY PERIOD -- The period beginning on the Annuity Commencement Date
during which annuity payments are made.
CONTRACT -- Your individual Contract issued to you by Security Benefit or
your certificate under a Group Contract.
CONTRACT DATE -- The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually the
date that your initial purchase payment is credited to the Contract.
CONTRACT DEBT -- The unpaid loan balance including loan interest.
CONTRACTOWNER OR OWNER -- The person entitled to the ownership rights under
the Contract and in whose name the Contract is issued. The term "Contractowner"
or "Owner" is used in this Prospectus to refer to the Owner of an individual
Contract or Participant under a Group Contract.
CONTRACT VALUE -- The total value of your Contract which includes amounts
allocated to the Subaccounts and the Fixed Account as well as any amount set
aside in the loan account to secure loans as of any Valuation Date.
CONTRACT YEAR -- Each twelve-month period measured from the Contract Date.
DESIGNATED BENEFICIARY -- The Designated Beneficiary is the first person on
the following list who is alive on the date of death of the Owner or the Joint
Owner: the Owner; the Joint Owner; the Primary Beneficiary; the Secondary
Beneficiary; the Annuitant; or if none of the above are alive, the Owner's
Estate. If you purchased your Contract prior to January 4, 1999, the Designated
Beneficiary is the Primary Beneficiary; the Secondary Beneficiary; or if none of
the above are alive, the Annuitant's estate.
FIXED ACCOUNT -- An account that is part of Security Benefit's General
Account to which you may allocate all or a portion of your Contract Value to be
held for accumulation at fixed rates of interest (which may not be less than 3
percent) declared periodically by Security Benefit.
GENERAL ACCOUNT -- All assets of Security Benefit other than those allocated
to the Separate Account or to any other separate account of Security Benefit.
GROUP CONTRACT -- A Contract issued to a group in connection with a Qualified
Plan or a non-tax qualified retirement plan.
HOME OFFICE -- The Annuity Administration Department of Security Benefit,
P.O. Box 750497, Topeka, Kansas 66675-0497.
HOSPITAL -- An institution that is licensed as such by the Joint Commission
of Accreditation of Hospitals, or any lawfully operated institution that
provides in-patient treatment of sick and injured persons through medical,
diagnostic and surgical facilities directed by physicians and 24 hour nursing
services.
PARTICIPANT -- A Participant under a Qualified Plan, a Group Contract or
both.
PURCHASE PAYMENT -- An amount paid to Security Benefit as consideration for
the Contract.
QUALIFIED SKILLED NURSING FACILITY -- A facility licensed by the state to
provide on a daily basis convalescent or chronic care for in-patients who, by
reason of infirmity or illness, are not able to care for themselves.
SBL FUND -- A diversified, open-end management investment company commonly
referred to as a mutual fund.
SEPARATE ACCOUNT -- Variflex, a separate account of Security Benefit that
consists of accounts, referred to as Subaccounts, each of which invests in a
corresponding Series of the SBL Fund.
SUBACCOUNT -- A division of the Separate Account of Security Benefit which
invests in a corresponding series of the SBL Fund. Currently, seventeen
Subaccounts are available under the Contract.
VALUATION DATE -- Each date on which the Separate Account is valued, which
currently includes each day that the New York Stock Exchange is open for
trading. The New York Stock Exchange is closed on weekends and on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
VALUATION PERIOD -- A period used in measuring the investment experience of
each Subaccount of the Separate Account. The Valuation Period begins at the
close of one Valuation Date and ends at the close of the next succeeding
Valuation Date.
VARIFLEX CONTRACT-401(K) AND 408(K) -- A version of the Contract offered
prior to May 1, 1990, to plans qualified under Section 401(k) or 408(k)(6) of
the Internal Revenue Code. The differences between this Contract and the
currently offered versions of the Contract qualifying under Section 401(k) and
408(k)(6) of the code are noted where appropriate.
WITHDRAWAL VALUE -- The amount you will receive upon full withdrawal of the
Contract. It is equal to Contract Value less any Contract Debt, any applicable
withdrawal charge, a pro rata administration charge, and any uncollected premium
taxes.
SUMMARY
This summary provides a brief overview of the more significant aspects of the
Contract. Further detail is provided in this Prospectus, the Statement of
Additional Information, and the Contract. Unless the context indicates
otherwise, the discussion in this summary and the remainder of the Prospectus
relates to the portion of the Contract involving the Separate Account. The Fixed
Account is briefly described under "The Fixed Account," page 25 and in the
Contract.
PURPOSE OF THE CONTRACT -- The flexible purchase payment deferred variable
annuity contract or single purchase payment immediate variable annuity contract
(the "Contract") described in this Prospectus is designed to give you
flexibility in planning for retirement and other financial goals.
You may purchase the Contract as a non-tax qualified retirement plan for an
individual or group ("Non-Qualified Plan"). You may also purchase the Contract,
on a group or individual basis, in connection with a retirement plan qualified
under Section 401, 403(a), 403(b), 403(c), 408, 408A, or 457 of the Internal
Revenue Code of 1986, as amended. These plans are sometimes referred to in this
Prospectus as "Qualified Plans."
THE SEPARATE ACCOUNT AND SBL FUND -- The Separate Account is currently divided
into seventeen accounts referred to as Subaccounts. See "Separate Account," page
13. Each Subaccount invests exclusively in shares of a corresponding Series of
the SBL Fund. The Series of SBL Fund, each of which has a different investment
objective or objectives, are as follows: Growth Series, Growth-Income Series,
Money Market Series, Worldwide Equity Series, High Grade Income Series, Enhanced
Index Series, International Series, Mid Cap (formerly Emerging Growth) Series,
Global Strategic Income (formerly Global Aggressive Bond) Series, Global Total
Return (formerly specialized Asset Allocation) Series, Managed Asset Allocation
Series, Equity Income Series, High Yield Series, Social Awareness Series, Value
Series, Small Cap Series and Select 25 Series. See "SBL Fund," page 13.
You may allocate all or part of your purchase payments to the Subaccounts.
Amounts that you allocate to the Subaccounts will increase or decrease in dollar
value depending on the investment performance of the Series of SBL Fund in which
such Subaccount invests. You bear the investment risk for amounts allocated to a
Subaccount.
FIXED ACCOUNT -- You may allocate all or part of your purchase payments to the
Fixed Account, which is part of Security Benefit's General Account. Amounts that
you allocate to the Fixed Account earn interest at rates determined at the
discretion of Security Benefit and are guaranteed to be at least an effective
annual rate of 3 percent (or higher for certain Contracts issued prior to
January 4, 1999). See "The Fixed Account," page 25.
PURCHASE PAYMENTS -- The minimum initial purchase payment is $500 for a Contract
funding a Non-Qualified Plan or Group Unallocated Contract, $25 for a Contract
funding a Qualified Plan and $2,500 for a single purchase payment immediate
annuity. Thereafter, you may choose the amount and frequency of purchase
payments, except that the minimum subsequent purchase payment is $25. Subsequent
purchase payments are not permitted for a single purchase payment immediate
annuity. See "Purchase Payments," page 15.
CONTRACT BENEFITS -- You may transfer Contract Value among the Subaccounts and
to and from the Fixed Account, subject to certain restrictions as described in
"The Contract," page 15 and "The Fixed Account," page 25.
At any time before the Annuity Commencement Date, you may surrender a
Contract for its Withdrawal Value, and you may make partial withdrawals,
including systematic withdrawals, from Contract Value, subject to certain
restrictions described in "The Fixed Account," page 25. See "Full and Partial
Withdrawals," page 18 and "Federal Tax Matters," page 29 for more information
about withdrawals, including the 10 percent penalty tax that may be imposed upon
full and partial withdrawals (including systematic withdrawals) made prior to
the Owner attaining age 59 1/2.
The Contract provides for a death benefit upon the death of the Owner prior
to the Annuity Commencement Date. See "Death Benefit," page 19 for more
information. The Contract provides for several Annuity Options on either a
variable basis, a fixed basis, or both. Security Benefit guarantees annuity
payments under the fixed Annuity Options. See "Annuity Period," page 23.
FREE-LOOK RIGHT -- You may return the Contract within the Free-Look Period,
which is generally a ten-day period beginning when you receive the Contract. In
this event, Security Benefit will refund to you purchase payments allocated to
the Fixed Account plus the Contract Value in the Subaccounts plus any charges
deducted from Contract Value in the Subaccounts. Security Benefit will refund
purchase payments allocated to the Subaccounts rather than the Contract Value in
those states and circumstances where it is required to do so.
CHARGES AND DEDUCTIONS -- Security Benefit does not deduct sales load from
purchase payments before allocating them to Contract Value. Certain charges will
be deducted in connection with the Contract as described below.
CONTINGENT DEFERRED SALES CHARGE. If you withdraw Contract Value, Security
Benefit may deduct a contingent deferred sales charge (which may also be
referred to as a withdrawal charge). The amount of the withdrawal charge depends
on the Contract Year in which the withdrawal is made. We will waive the
withdrawal charge on the first withdrawal in any Contract Year after the first
Contract Year, to the extent that your withdrawal does not exceed the free
withdrawal amount. The free withdrawal amount in any Contract Year is 10% of
Contract Value as of the date of the first withdrawal in that Contract Year. You
forfeit any free withdrawal amount not used on the first withdrawal in a
Contract Year. The withdrawal charge does not apply to withdrawals of earnings.
The amount of the charge will depend on the Contract Year in which the
withdrawal is made, according to the following schedule:
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WITHDRAWAL CHARGE
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VARIFLEX
THE CONTRACT-401(K)
CONTRACT YEAR CONTRACT AND 408(K)
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1 8% 8%
2 7% 8%
3 6% 8%
4 5% 8%
5 4% 7%
6 3% 6%
7 2% 5%
8 1% 4%
9 and later 0% 0%
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The amount of the withdrawal charge assessed against your Contract will never
exceed 8 percent of purchase payments paid under the Contract. In addition, no
withdrawal charge will be assessed upon: (1) payment of death benefit proceeds;
(2) certain systematic withdrawals; or (3) annuity options that provide for
payments for life, or a period of at least seven years (five years for Contracts
issued prior to January 4, 1999). Subject to insurance department approval,
Security Benefit will also waive the withdrawal charge on a full or partial
withdrawal if the Owner has been confined to a Hospital or Qualified Skilled
Nursing Facility for 90 consecutive days or more. See "Contingent Deferred Sales
Charge," page 21.
MORTALITY AND EXPENSE RISK CHARGE. Security Benefit deducts a daily charge
from the assets of each Subaccount for mortality and expense risks equal to an
annual rate of 1.2 percent of each Subaccount's average daily net assets. See
"Mortality and Expense Risk Charge," page 22.
ADMINISTRATION CHARGE. Security Benefit will deduct from your Contract Value
an administration charge of $30 at each calendar year end. The administration
charge for the Variflex Contract - 401(k) and 408(k) is the lesser of $30 or 2%
of Contract Value as of the calendar year end. Security Benefit does not assess
the administration charge against Contract Value which has been applied under
Annuity Options 1 through 4, 9 and 10. See "Administration Charge," page 22.
PREMIUM TAX CHARGE. Security Benefit assesses a premium tax charge to
reimburse itself for any premium taxes that it incurs with respect to your
Contract. This charge will usually be deducted on the Annuity Commencement Date
or upon full withdrawal if a premium tax was incurred by Security Benefit and is
not refundable. Partial withdrawals, including systematic withdrawals, may be
subject to a premium tax charge if a premium tax is incurred on the withdrawal
by Security Benefit and is not refundable. Security Benefit reserves the right
to deduct such taxes when due or anytime thereafter. Premium tax rates currently
range from 0 percent to 3.5 percent. See "Premium Tax Charge," page 22.
OTHER EXPENSES. Security Benefit pays the operating expenses of the Separate
Account. Investment advisory fees and operating expenses of SBL Fund are paid by
the Fund and are reflected in the net asset value of the Fund shares. For a
description of these charges and expenses, see the prospectus for SBL Fund.
CONTACTING SECURITY BENEFIT -- You should direct all written requests, notices,
and forms required by the Contract, and any questions or inquiries to Security
Benefit Life Insurance Company, P.O. Box 750497, Topeka, Kansas 66675-0497 or by
phone by calling (785) 431-3112 or 1-800-888-2461, extension 3112.
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly and indirectly if you allocate Contract
Value to the Subaccounts. The table reflects any contractual charges, expenses
of the Separate Account, and charges and expenses of the SBL Fund. The table
does not reflect premium taxes that may be imposed by various jurisdictions. See
"Premium Tax Charge," page 22. The information contained in the table is not
generally applicable to amounts allocated to the Fixed Account.
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," page 21. For a more complete description of the SBL Fund's
costs and expenses, see the SBL Fund prospectus, which accompanies this
Prospectus.
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CONTRACTUAL EXPENSES
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Sales Load on Purchase Payments......................................... None
Contingent Deferred Sales Charge (as a percentage of
amount withdrawn attributable to Purchase Payments)................... 8%(1)
Transfer Fee (per transfer)............................................. None
Annual Administration Charge............................................ $30(2)
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ANNUAL SEPARATE ACCOUNT EXPENSES (as a percentage
of each Subaccount's average daily net assets)
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Annual Mortality and Expense Risk Charge................................ 1.20%
----
Total Separate Account Annual Expenses.................................. 1.20%
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ANNUAL SBL FUND EXPENSES
(as a percentage of each Series' average daily net assets)
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TOTAL
ADVISORY OTHER SBL FUND
FEE(3) EXPENSES(4) EXPENSES
Growth (Series A)........................... 0.75% 0.06% 0.81%
Growth-Income (Series B).................... 0.75% 0.05% 0.80%
Money Market (Series C)..................... 0.50% 0.07% 0.57%
Worldwide Equity (Series D)................. 1.00% 0.26% 1.26%
High Grade Income (Series E)................ 0.75% 0.08% 0.83%
Enhanced Index (Series H)................... 0.75% 0.22% 0.97%
International (Series I).................... 1.10% 0.57% 1.67%
Mid Cap (Series J).......................... 0.75% 0.07% 0.82%
Global Strategic Income (Series K).......... 0.75% 0.91% 1.66%
Global Total Return (Series M).............. 1.00% 0.24% 1.24%
Managed Asset Allocation (Series N)......... 1.00% 0.22% 1.22%
Equity Income (Series O).................... 1.00% 0.08% 1.08%
High Yield (Series P)....................... 0.75% 0.18% 0.93%
Social Awareness (Series S)................. 0.75% 0.07% 0.82%
Value (Series V)............................ 0.75% 0.14% 0.89%
Small Cap (Series X)........................ 1.00% 0.59% 1.59%
Select 25 (Series Y)........................ 0.75% 0.34% 1.09%
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1. The amount of the contingent deferred sales charge is determined by
reference to the Contract Year in which the withdrawal is made. Withdrawals
in the first Contract Year are subject to a charge of 8 percent declining to
0 percent in Contract Year 9 and later. The contingent deferred sales charge
schedule for the Variflex Contract - 401(k) and 408(k) is different. See
"Full and Partial Withdrawals," page 18 and "Contingent Deferred Sales
Charge," page 21 for more information.
2. The annual administration charge for the Variflex Contract - 401(k) and
408(k) is the lesser of $30 or 2% of Contract Value as of the calendar year
end.
3. During the fiscal year ended December 31, 1998, the Investment Adviser
waived the advisory fees of Series P and Series X. There can be no assurance
that the Investment Adviser will continue to waive the Series advisory fees
after December 31,1998. Expense information for Series P and X has been
restated to reflect the fees that would have been applicable had there been
no fee waiver.
4. "Other Expenses" for Series H, Series I and Series Y are based on estimated
amounts for the current fiscal year.
- --------------------------------------------------------------------------------
EXAMPLES -- The examples presented below show the expenses that you would pay at
the end of one, three, five or ten years (except for the Enhanced Index,
International and Select 25 Subaccounts which show expenses for only the one and
three year periods). The information presented applies if, at the end of those
time periods, the Contract is (1) surrendered, or (2) annuitized or otherwise
not surrendered. The examples show expenses based upon an allocation of $1,000
to each of the Subaccounts and a hypothetical return of 5 percent.
YOU SHOULD NOT CONSIDER THE EXAMPLES BELOW A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE 5
PERCENT RETURN ASSUMED IN THE EXAMPLES IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ACTUAL RETURNS, WHICH MAY BE
GREATER OR LESSER THAN THE ASSUMED AMOUNT.
Example -- You would pay the expenses shown below assuming full withdrawal of
your Contract at the end of the applicable time period:
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Growth Subaccount......................... $101 $123 $151 $239
Growth-Income Subaccount.................. 102 125 154 245
Money Market Subaccount................... 100 120 144 225
Worldwide Equity Subaccount............... 105 135 172 282
High Grade Income Subaccount.............. 103 129 160 257
Enhanced Index Subaccount................. 103 130 --- ---
International Subaccount.................. 110 149 --- ---
Mid Cap Subaccount........................ 101 123 149 236
Global Strategic Income Subaccount........ 112 154 205 347
Global Total Return Subaccount............ 105 136 174 285
Managed Asset Allocation Subaccount....... 105 136 173 283
Equity Income Subaccount.................. 104 133 168 274
High Yield Subaccount..................... 103 129 160 257
Social Awareness Subaccount............... 101 123 151 239
Value Subaccount.......................... 102 127 158 253
Small Cap Subaccount...................... 109 147 193 322
Select 25 Subaccount...................... 104 133 --- ---
- --------------------------------------------------------------------------------
Example -- You would pay the expenses shown below assuming NO withdrawals
from your Contract:
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Growth Subaccount......................... $21 $65 $111 $239
Growth-Income Subaccount.................. 22 66 114 245
Money Market Subaccount................... 20 61 104 225
Worldwide Equity Subaccount............... 25 77 132 282
High Grade Income Subaccount.............. 23 70 120 257
Enhanced Index Subaccount................. 23 71 --- ---
International Subaccount.................. 30 92 --- ---
Mid Cap Subaccount........................ 21 64 109 236
Global Strategic Income Subaccount........ 32 97 165 347
Global Total Return Subaccount............ 25 78 134 285
Managed Asset Allocation Subaccount....... 25 78 133 283
Equity Income Subaccount.................. 24 75 128 274
High Yield Subaccount..................... 23 54 88 184
Social Awareness Subaccount............... 21 65 111 239
Value Subaccount.......................... 22 69 118 253
Small Cap Subaccount...................... 29 90 153 322
Select 25 Subaccount...................... 24 75 --- ---
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Examples for the Variflex Contract-401(k) and 408(k) are set forth on the
following page.
- --------------------------------------------------------------------------------
Example - You would pay the expenses shown below assuming full withdrawal of
your Variflex Contract - 401(k) and 408(k) at the end of the applicable time
period:
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Growth Subaccount......................... $101 $143 $181 $239
Growth-Income Subaccount.................. 102 145 184 245
Money Market Subaccount................... 100 139 174 225
Worldwide Equity Subaccount............... 105 155 202 282
High Grade Income Subaccount.............. 103 148 190 257
Enhanced Index Subaccount................. 103 149 --- ---
International Subaccount.................. 110 169 --- ---
Mid Cap Subaccount........................ 101 142 179 236
Global Strategic Income Subaccount........ 112 173 234 347
Global Total Return Subaccount............ 105 156 204 285
Managed Asset Allocation Subaccount....... 105 155 203 283
Equity Income Subaccount.................. 104 153 198 274
High Yield Subaccount..................... 103 148 190 257
Social Awareness Subaccount............... 101 143 181 239
Value Subaccount.......................... 102 147 188 253
Small Cap Subaccount...................... 109 166 223 322
Select 25 Subaccount...................... 104 153 --- ---
- --------------------------------------------------------------------------------
Example -- You would pay the expenses shown below assuming No withdrawals from
your Variflex Contract - 401(k) and 408(k):
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Growth Subaccount......................... $21 $65 $111 $239
Growth-Income Subaccount.................. 22 66 114 245
Money Market Subaccount................... 20 61 104 225
Worldwide Equity Subaccount............... 25 77 132 282
High Grade Income Subaccount.............. 23 70 120 257
Enhanced Index Subaccount................. 23 71 --- ---
International Subaccount.................. 30 92 --- ---
Mid Cap Subaccount....................... 21 64 109 236
Global Strategic Income Subaccount........ 32 97 165 347
Global Total Return Subaccount............ 25 78 134 285
Managed Asset Allocation Subaccount....... 25 78 133 283
Equity Income Subaccount.................. 24 75 128 274
High Yield Subaccount..................... 23 70 120 257
Social Awareness Subaccount............... 21 65 111 239
Value Subaccount.......................... 22 69 118 253
Small Cap Subaccount...................... 29 90 153 322
Select 25 Subaccount...................... 24 75 --- ---
- --------------------------------------------------------------------------------
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following condensed financial information presents accumulation unit values
for each of the years in the ten-year period ended December 31, 1998, as well as
ending accumulation units outstanding for Qualified and Non-Qualified Contracts
under the Subaccounts.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
QUALIFIED CONTRACTS 1998 1997 1996 1995(d)(e) 1994 1993 1992(c) 1991(a)(b) 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH SUBACCOUNT
Accumulation unit
value:
Beginning of period $58.19 $45.76 $37.75 $27.94 $28.75 $25.59 $23.30 $17.33 $19.45 $14.59
End of period $72.11 $58.19 $45.76 $37.75 $27.94 $28.75 $25.59 $23.30 $17.33 $19.45
Accumulation units
outstanding at the
end of period 11,996,953 11,293,953 10,310,079 9,203,332 7,723,910 6,900,722 6,640,177 5,420,372 4,616,955 3,191,257
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH-INCOME
SUBACCOUNT
Accumulation unit
value:
Beginning of period $58.22 $46.58 $39.88 $31.03 $32.37 $29.89 $28.47 $20.92 $22.16 $17.46
End of period $61.86 $58.22 $46.58 $39.88 $31.03 $32.37 $29.89 $28.47 $20.92 $22.16
Accumulation units
outstanding at the
end of period 14,055,295 15,086,547 15,264,292 14,963,215 14,312,801 13,236,948 11,381,462 8,753,337 6,449,776 4,613,783
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
SUBACCOUNT
Accumulation unit
value:
Beginning of period $18.97 $18.26 $17.59 $16.89 $16.48 $16.26 $15.94 $15.27 $14.33 $13.30
End of period $19.71 $18.97 $18.26 $17.59 $16.89 $16.48 $16.26 $15.94 $15.27 $14.33
Accumulation units
outstanding at the
end of period 3,068,671 2,479,744 3,252,140 2,989,809 3,578,026 2,680,809 2,373,251 2,161,924 1,913,734 3,216,085
- ------------------------------------------------------------------------------------------------------------------------------------
WORLDWIDE EQUITY
SUBACCOUNT
Accumulation unit
value:
Beginning of period $15.26 $14.51 $12.51 $11.42 $11.25 $ 8.65 $8.99 $8.07 $10.57 $11.74
End of period $18.11 $15.26 $14.51 $12.51 $11.42 $11.25 $8.65 $8.99 $ 8.07 $10.57
Accumulation units
outstanding at the
end of period 12,848,790 12,804,601 11,881,450 10,236,349 9,361,197 5,863,967 2,070,715 917,833 466,703 607,650
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH GRADE INCOME
SUBACCOUNT
Accumulation unit
value:
Beginning of period $23.58 $21.69 $22.11 $18.87 $20.52 $18.44 $17.37 $15.04 $14.26 $12.90
End of period $25.16 $23.58 $21.69 $22.11 $18.87 $20.52 $18.44 $17.37 $15.04 $14.26
Accumulation units
outstanding at the
end of period 3,419,362 3,446,850 3,673,833 3,912,046 3,891,426 3,731,587 2,912,605 2,255,909 1,673,154 1,403,313
- ------------------------------------------------------------------------------------------------------------------------------------
MID CAP SUBACCOUNT
Accumulation unit
value:
Beginning of period $21.37 $18.03 $15.46 $13.10 $13.97 $12.44 $10.00 --- --- ---
End of period $24.91 $21.37 $18.03 $15.46 $13.10 $13.97 $12.44 --- --- ---
Accumulation units
outstanding at the
end of period 6,781,176 6,738,379 5,563,881 4,387,739 3,947,047 2,131,858 455,105 --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL STRATEGIC
INCOME SUBACCOUNT
Accumulation unit
value:
Beginning of period $12.50 $12.00 $10.69 $10.00 --- --- --- --- --- ---
End of period $13.20 $12.50 $12.00 $10.69 --- --- --- --- --- ---
Accumulation units
outstanding at the
end of period 398,409 425,354 306,339 129,589 --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL TOTAL RETURN
SUBACCOUNT
Accumulation unit
value:
Beginning of period $12.59 $12.01 $10.64 $10.00 --- --- --- --- --- ---
End of period $14.01 $12.59 $12.01 $10.64 --- --- --- --- --- ---
Accumulation units
outstanding at the
end of period 1,545,270 1,672,896 1,274,106 611,652 --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGED ASSET
ALLOCATION
SUBACCOUNT
Accumulation unit
value:
Beginning of period $13.89 $11.87 $10.66 $10.00 --- --- --- --- --- ---
End of period $16.26 $13.89 $11.87 $10.66 --- --- --- --- --- ---
Accumulation units
outstanding at the
end of period 1,950,323 1,057,271 626,179 295,053 --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME
SUBACCOUNT
Accumulation unit
value:
Beginning of period $17.49 $13.78 $11.62 $10.00 --- --- --- --- --- ---
End of period $18.83 $17.49 $13.78 $11.62 --- --- --- --- --- ---
Accumulation units
outstanding at the
end of period 5,369,499 4,135,375 2,016,966 604,325 --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS
SUBACCOUNT
Accumulation unit
value:
Beginning of period $22.72 $18.75 $15.97 $12.65 $13.31 $12.04 $10.47 $10.00 --- ---
End of period $29.50 $22.72 $18.75 $15.97 $12.65 $13.31 $12.04 $10.47 --- ---
Accumulation units
outstanding at the
end of period 3,152,738 2,531,119 2,083,090 1,615,845 1,344,063 993,233 513,953 127,699 --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
NON-QUALIFIED
CONTRACTS
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH SUBACCOUNT
Accumulation unit
value:
Beginning of period $58.17 $45.74 $37.74 $27.92 $28.74 $25.58 $23.30 $17.32 $19.45 $14.59
End of period $72.07 $58.17 $45.74 $37.74 $27.92 $28.74 $25.58 $23.30 $17.32 $19.45
Accumulation units
outstanding at the
end of period 2,665,560 2,652,767 2,575,426 2,306,163 1,578,797 1,483,618 1,766,896 1,328,865 952,806 594,856
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH-INCOME
SUBACCOUNT
Accumulation unit
value:
Beginning of period $58.17 $46.54 $39.84 $31.00 $32.34 $29.87 $28.44 $20.91 $22.16 $17.46
End of period $61.81 $58.17 $46.54 $39.84 $31.00 $32.34 $29.87 $28.44 $20.91 $22.16
Accumulation units
outstanding at the
end of period 3,323,526 3,653,913 3,721,884 3,669,299 3,515,364 3,262,600 2,560,986 1,774,534 1,293,121 1,000,815
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
SUBACCOUNT
Accumulation unit
value:
Beginning of period $18.98 $18.26 $17.59 $16.89 $16.48 $16.26 $15.94 $15.28 $14.32 $13.29
End of period $19.71 $18.98 $18.26 $17.59 $16.89 $16.48 $16.26 $15.94 $15.28 $14.32
Accumulation units
outstanding at the
end of period 1,314,658 1,089,550 1,681,230 1,469,153 2,475,349 1,913,212 1,031,855 1,000,378 954,107 846,414
- ------------------------------------------------------------------------------------------------------------------------------------
WORLDWIDE EQUITY
SUBACCOUNT
Accumulation unit
value:
Beginning of period $15.26 $14.51 $12.51 $11.42 $11.25 $ 8.65 $8.99 $8.07 $10.57 $11.74
End of period $18.11 $15.26 $14.51 $12.51 $11.42 $11.25 $8.65 $8.99 $ 8.07 $10.57
Accumulation units
outstanding at the
end of period 3,724,722 3,730,734 3,484,411 3,140,486 2,803,304 2,150,932 678,110 279,878 125,010 211,920
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH GRADE INCOME
SUBACCOUNT
Accumulation unit
value:
Beginning of period $23.56 $21.67 $22.09 $18.85 $20.50 $18.42 $17.36 $15.02 $14.25 $12.89
End of period $25.14 $23.56 $21.67 $22.09 $18.85 $20.50 $18.42 $17.36 $15.02 $14.25
Accumulation units
outstanding at the
end of period 1,321,999 1,535,471 1,377,342 1,325,159 1,392,830 1,290,268 962,775 784,496 582,285 519,624
- ------------------------------------------------------------------------------------------------------------------------------------
MID CAP SUBACCOUNT
Accumulation unit
value:
Beginning of period $21.36 $18.03 $15.46 $13.09 $13.96 $12.44 $10.00 --- --- ---
End of period $24.89 $21.36 $18.03 $15.46 $13.09 $13.96 $12.44 --- --- ---
Accumulation units
outstanding at the
end of period 2,140,621 2,019,008 1,559,302 1,248,987 1,211,099 610,801 68,338 --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL STRATEGIC
INCOME SUBACCOUNT
Accumulation unit
value:
Beginning of period $12.49 $12.00 $10.69 $10.00 --- --- --- --- --- ---
End of period $13.20 $12.49 $12.00 $10.69 --- --- --- --- --- ---
Accumulation units
outstanding at the
end of period 180,061 212,934 178,818 74,528 --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL TOTAL
RETURN SUBACCOUNT
Accumulation unit
value:
Beginning of period $12.59 $12.00 $10.64 $10.00 --- --- --- --- --- ---
End of period $14.01 $12.59 $12.00 $10.64 --- --- --- --- --- ---
Accumulation units
outstanding at the
end of period 585,003 687,020 532,893 297,967 --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGED ASSET
ALLOCATION
SUBACCOUNT
Accumulation unit
value:
Beginning of period $13.89 $11.87 $10.66 $10.00 --- --- --- --- --- ---
End of period $16.26 $13.89 $11.87 $10.66 --- --- --- --- --- ---
Accumulation units
outstanding at the
end of period 739,827 459,560 374,276 226,555 --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME
SUBACCOUNT
Accumulation unit
value:
Beginning of period $17.48 $13.78 $11.62 $10.00 --- --- --- --- --- ---
End of period $18.83 $17.48 $13.78 $11.62 --- --- --- --- --- ---
Accumulation units ---
outstanding at the
end of period 1,427,599 1,257,818 710,206 234,242 --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS
SUBACCOUNT
Accumulation unit
value:
Beginning of period $22.73 $18.75 $15.98 $12.66 $13.31 $12.04 $10.47 $10.00 --- ---
End of period $29.51 $22.73 $18.75 $15.98 $12.66 $13.31 $12.04 $10.47 --- ---
Accumulation units
outstanding at the
end of period 1,036,280 904,831 746,852 612,235 543,287 389,861 226,145 98,344 --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Social Awareness Subaccount was first publicly offered on May 1, 1991.
(b) Effective May 1, 1991, the investment objective of Worldwide Equity
Subaccount was changed from high current income to long-term capital growth
through investment in common stocks and equivalents of companies domiciled
in foreign countries and the United States.
(c) Mid Cap Subaccount was first publicly offered on October 1, 1992.
(d) Global Strategic Income, Global Total Return, Managed Asset Allocation and
Equity Income Subaccounts were first publicly offered on June 1, 1995.
(e) Effective June 1, 1995, the investment objective of Growth-Income
Subaccount was changed from seeking to provide income with secondary
emphasis on capital appreciation to seeking long-term growth of capital
with secondary emphasis on income.
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND SBL FUND
SECURITY BENEFIT LIFE INSURANCE COMPANY -- Security Benefit is a life insurance
company organized under the laws of the State of Kansas. It was organized
originally as a fraternal benefit society and commenced business February 22,
1892. It became a mutual life insurance company under its present name on
January 2, 1950.
On July 31, 1998, Security Benefit converted from a mutual life insurance
company to a stock life insurance company ultimately controlled by Security
Benefit Mutual Holding Company, a Kansas mutual holding company. Membership
interests of persons who were Contractowners as of July 31, 1998 became
membership interests in Security Benefit Mutual Holding Company as of that date,
and persons who acquire policies from Security Benefit after that date
automatically become members in the mutual holding company.
Security Benefit offers life insurance policies and annuity contracts, as
well as financial and retirement services. It is admitted to do business in the
District of Columbia, and in all states except New York. As of the end of 1998,
The Company had total assets of approximately $7.9 billion. Together with its
subsidiaries, The Company has total funds under management of approximately $8.8
billion.
The Principal Underwriter for the Contracts is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company wholly owned by
Security Benefit.
YEAR 2000 COMPLIANCE -- Like other insurance companies, as well as other
financial and business organizations around the world, Security Benefit and SBL
Fund could be adversely affected if the computer systems used by Security
Benefit or the Fund's Investment Adviser, and other service providers, in
performing their administrative functions do not properly process and calculate
date-related information and data before, during and after January 1, 2000. Some
computer software and hardware systems currently cannot distinguish between the
year 2000 and the year 1900 or some other date because of the way date fields
were encoded. This is commonly known as the "Year 2000 Problem." If not
addressed, the Year 2000 Problem could impact (i) the administrative services
provided by Security Benefit with respect to the Contract and (ii) the
management services provided to SBL Fund by the Investment Adviser, as well as
transfer agency, accounting, custody, distribution and other services provided
to the Fund.
Security Benefit and the Investment Adviser have adopted a plan to be "Year
2000 Compliant" with respect to both their internally built systems as well as
systems provided by external vendors. We consider a system Year 2000 Compliant
when it is able to correctly process, provide and/or receive data before, during
and after the Year 2000. Security Benefit and the Investment Adviser's overall
approach to addressing the Year 2000 issue is as follows: (1) to inventory their
internal and external hardware, software, telecommunications and data
transmissions to customers and conduct a risk assessment with respect to the
impact that a failure on any such system would have on its business operations;
(2) to modify or replace their internal systems and obtain vendor certifications
of Year 2000 compliance for systems provided by vendors or replace such systems
that are not Year 2000 Compliant; and (3) to implement and test their systems
for Year 2000 compliance. Security Benefit and the Investment Adviser have
completed the inventory of their internal and external systems and have made
substantial progress toward completing the modification/replacement of their
internal systems as well as obtaining Year 2000 Compliant certifications from
their external vendors. Overall systems testing commenced in early 1998 and will
extend into the first eight months of 1999.
Although Security Benefit and the Investment Adviser have taken steps to
ensure that their systems will function properly before, during and after the
Year 2000, their key operating systems and information sources are provided by
or through external vendors which creates uncertainty to the extent Security
Benefit and the Investment Adviser are relying on the assurance of such vendors
as to whether their systems will be Year 2000 Compliant. The costs or
consequences of incomplete or untimely resolution of the Year 2000 issue are
unknown to Security Benefit and the Investment Adviser at this time but could
have a material adverse impact on the operations of Security Benefit, the
separate account, the underlying Fund and the Investment Adviser.
The Year 2000 Problem is also expected to impact companies, which may include
issuers of portfolio securities held by SBL Fund, to varying degrees based upon
various factors, including, but not limited to, the company's industry sector
and degree of technological sophistication. The Fund and the Investment Adviser
are unable to predict what impact, if any, the Year 2000 Problem will have on
issuers of the portfolio securities held by the Fund.
PUBLISHED RATINGS -- Security Benefit may from time to time publish in
advertisements, sales literature and reports to Owners, the ratings and other
information assigned to it by one or more independent rating organizations such
as A. M. Best Company and Standard & Poor's. The purpose of the ratings is to
reflect the financial strength and/or claims-paying ability of Security Benefit
and should not be considered as bearing on the investment performance of assets
held in the Separate Account. Each year A. M. Best Company reviews the financial
status of thousands of insurers, culminating in the assignment of Best's
Ratings. These ratings reflect their current opinion of the relative financial
strength and operating performance of an insurance company in comparison to the
norms of the life/health insurance industry. In addition, the claims-paying
ability of Security Benefit as measured by Standard & Poor's Insurance Ratings
Services may be referred to in advertisements or sales literature or in reports
to Owners. These ratings are opinions of an operating insurance company's
financial capacity to meet the obligations of its insurance and annuity policies
in accordance with their terms. Such ratings do not reflect the investment
performance of the Separate Account or the degree of risk associated with an
investment in the Separate Account.
SEPARATE ACCOUNT -- Security Benefit established the Separate Account under
Kansas law on January 31, 1984. The Contract provides that the income, gains, or
losses of the Separate Account, whether or not realized, are credited to or
charged against the assets of the Separate Account without regard to other
income, gains, or losses of Security Benefit. Kansas law provides that assets in
a separate account attributable to the reserves and other liabilities under the
contracts may not be charged with liabilities arising from any other business
that the insurance company conducts if, and to the extent the contracts so
provide. The Contract contains such a provision. Security Benefit owns the
assets in the Separate Account and is required to maintain sufficient assets in
the Separate Account to meet all Separate Account obligations under the
Contracts. Security Benefit may transfer to its General Account assets that
exceed anticipated obligations of the Separate Account. All obligations arising
under the Contracts are general corporate obligations of Security Benefit.
Security Benefit may invest its own assets in the Separate Account for other
purposes, but not to support contracts other than variable annuity contracts,
and may accumulate in the Separate Account proceeds from Contract charges and
investment results applicable to those assets.
The Separate Account is currently divided into seventeen Subaccounts. The
Contract provides that the income, gains and losses, whether or not realized,
are credited to, or charged against, the assets of each Subaccount without
regard to the income, gains or losses in the other Subaccounts. Each Subaccount
invests exclusively in shares of a specific Series of the SBL Fund. Security
Benefit may in the future establish additional Subaccounts of the Separate
Account, which may invest in other Series of the SBL Fund or in other
securities, mutual funds, or investment vehicles.
The Separate Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with the
SEC does not involve supervision by the SEC of the administration or investment
practices of the Separate Account or of Security Benefit.
SBL FUND -- SBL Fund is a diversified, open-end management investment company of
the series type. It is registered with the SEC under the 1940 Act. Such
registration does not involve supervision by the SEC of the investments or
investment policy of the Fund. SBL Fund currently has seventeen separate
portfolios ("Series"), each of which pursues different investment objectives and
policies.
Shares of the Fund currently are offered only for purchase by separate
accounts of Security Benefit to serve as an investment medium for variable life
insurance policies and variable annuity contracts issued by Security Benefit.
Thus, SBL Fund serves as an investment medium for both variable life insurance
policies and variable annuity contracts. This is called "mixed funding." Shares
of SBL Fund also may be sold in the future to separate accounts of other
insurance companies, both affiliated and not affiliated with Security Benefit.
This is called "shared funding." Security Benefit currently does not foresee any
disadvantages to Contractowners arising from either mixed or shared funding;
however, due to differences in tax treatment or other considerations, it is
theoretically possible that the interests of owners of various contracts for
which SBL Fund serves as an investment medium might at some time be in conflict.
However, Security Benefit, the Fund's Board of Directors, and any other
insurance companies that participate in SBL Fund in the future are required to
monitor events in order to identify any material conflicts that arise from the
use of the Fund for mixed and/or shared funding. SBL Fund's Board of Directors
is required to determine what action, if any, should be taken in the event of
such a conflict. If such a conflict were to occur, Security Benefit might be
required to withdraw the investment of one or more of its separate accounts from
SBL Fund. This might force the Fund to sell securities at disadvantageous
prices.
A summary of the investment objective of each Series of SBL Fund is set forth
below. We cannot assure that any Series will achieve its objective. More
detailed information is contained in the accompanying prospectus of SBL Fund,
including information on the risks associated with the investments and
investment techniques of each Series.
SBL FUND'S PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
SERIES A (GROWTH SERIES) -- Amounts that you allocate to the Growth Subaccount
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 (GROWTH-INCOME SERIES) -- Amounts that you allocate to the
Growth-Income Subaccount 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. Series B may also temporarily
invest in government bonds or commercial paper.
SERIES C (MONEY MARKET SERIES) -- Amounts that you allocate to the Money Market
Subaccount 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 (WORLDWIDE EQUITY SERIES) -- Amounts that you allocate to the Worldwide
Equity Subaccount 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 (HIGH GRADE INCOME SERIES) -- Amounts that you allocate to the High
Grade Income Subaccount 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 H (ENHANCED INDEX SERIES) -- Amounts that you allocate to the Enhanced
Index Subaccount are invested in Series H. The investment objective of Series H
is to seek to outperform the S&P 500 Index through stock selection resulting in
different weightings of common stocks relative to the index.
SERIES I (INTERNATIONAL SERIES) -- Amounts that you allocate to the
International Subaccount are invested in Series I. The investment objective of
Series I is to seek long-term capital appreciation by investing primarily in
non-U.S. equity securities and other securities with equity characteristics.
SERIES J (MID CAP SERIES) -- Amounts that you allocate to the Mid Cap (formerly
Emerging Growth) Subaccount 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.
SERIES K (GLOBAL STRATEGIC INCOME SERIES) -- Amounts that you allocate to the
Global Strategic Income (formerly Global Aggressive Bond) Subaccount 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 known as "junk bonds").
SERIES M (GLOBAL TOTAL RETURN SERIES) -- Amounts that you allocate to the Global
Total Return (formerly Specialized Asset Allocation) Subaccount 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 through asset allocation and security selection by investing in a
diversified portfolio of global equity and bond securities.
SERIES N (MANAGED ASSET ALLOCATION SERIES) -- Amounts that you allocate to the
Managed Asset Allocation Subaccount 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 (EQUITY INCOME SERIES) -- Amounts that you allocate to the Equity
Income Subaccount 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 (HIGH YIELD SERIES) -- Amounts that you allocate to the High Yield
Subaccount 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 (SOCIAL AWARENESS SERIES) -- Amounts that you allocate to the Social
Awareness Subaccount 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 S may temporarily
invest in government bonds or commercial paper.
SERIES V (VALUE SERIES) -- Amounts that you allocate to the Value Subaccount 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 Adviser
believes are undervalued relative to assets, earnings, growth potential or cash
flow.
SERIES X (SMALL CAP SERIES) -- Amounts that you allocate to the Small Cap
Subaccount 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 $1.2 billion at the time of purchase).
SERIES Y (SELECT 25 SERIES) -- Amounts that you allocate to the Select 25
Subaccount are invested in Series Y. The investment objective of Series Y is to
seek long-term growth of capital by concentrating its investments in a core
position of 20-30 common stocks of growth companies which have exhibited
consistent above average earnings growth.
THE INVESTMENT ADVISER -- Security Management Company, LLC, 700 SW Harrison
Street, Topeka, Kansas 66636, serves as Investment Adviser to each Series of SBL
Fund. The Investment Adviser is registered with the SEC as an investment
adviser. The Investment Adviser formulates and implements continuing programs
for the purchase and sale of securities in compliance with the investment
objectives, policies, and restrictions of each Series, and is responsible for
the day to day decisions to buy and sell securities for the Series except Series
D, H, I, K, M, N, O and X. See the accompanying SBL Fund prospectus for details.
The Investment Adviser has engaged OppenheimerFunds, Inc., Two World Trade
Center, New York, New York 10048-0203, to provide investment advisory services
to Series D; Bankers Trust Company, 130 Liberty Street, New York, New York 10006
to provide investment advisory services to Series H and I; Wellington Management
Company LLP, 75 State Street, Boston, Massachusetts 02109 to provide investment
advisory services to Series K and M; T. Rowe Price Associates, Inc., 100 East
Pratt Street, Baltimore, Maryland 21202 to provide investment advisory services
to Series N and O; and Strong Capital Management Corporation, 900 Heritage
Reserve, Menomonee, Wisconsin 53051 to provide investment advisory services to
Series X.
THE CONTRACT
GENERAL -- Security Benefit issues the Contract offered by this Prospectus. It
is a flexible purchase payment deferred variable annuity. It is also available
as a single purchase payment immediate variable annuity. To the extent that you
allocate all or a portion of your purchase payments to the Subaccounts, the
Contract is significantly different from a fixed annuity contract in that you
assume the risk of investment gain or loss under the Contract rather than
Security Benefit. When you are ready to begin receiving annuity payments, the
Contract provides several Annuity Options under which Security Benefit will pay
periodic annuity payments on a variable basis, a fixed basis or both, beginning
on the Annuity Commencement Date. The amount that will be available for annuity
payments will depend on the investment performance of the Subaccounts to which
you have allocated purchase payments and the amount of interest credited on
Contract Value that you have allocated to the Fixed Account.
The Contract is available for purchase by an individual or group as a non-tax
qualified retirement plan ("Non-Qualified Plan"). The Contract is also eligible
for purchase in connection with certain tax qualified retirement plans that meet
the requirements of Section 401, 403(a), 403(b), 403(c), 408, 408A, or 457 of
the Internal Revenue Code ("Qualified Plan"). Certain federal tax advantages are
currently available to retirement plans that qualify as (1) self-employed
individuals' retirement plans under Section 401, such as HR-10 and Keogh plans,
(2) pension or profit-sharing plans established by an employer for the benefit
of its employees under Section 401 or 403(a), (3) individual retirement accounts
or annuities, including those established by an employer as a simplified
employee pension plan, under Section 408, (4) annuity purchase plans of public
school systems and certain tax-exempt organizations under Section 403(b) or
403(c), or (5) deferred compensation plans for employees established by a unit
of a state or local government or by a tax-exempt organization under Section
457. Joint Owners are permitted only on a Contract issued pursuant to a
Non-Qualified Plan.
TYPES OF VARIFLEX CONTRACTS -- Different types of the Contracts are offered by
Security Benefit through this Prospectus. The types of the Contract vary in the
amount and timing of the minimum purchase payments, and in various other
respects. The different types of the Contract are described below:
SINGLE PURCHASE PAYMENT IMMEDIATE ANNUITY. This type of Contract is used for
an individual where a single purchase payment has been allocated to provide for
annuity payments to commence immediately.
FLEXIBLE PURCHASE PAYMENT DEFERRED ANNUITY. This type of Contract is used for
an individual where periodic purchase payments will be made with annuity
payments to commence at a later date.
GROUP FLEXIBLE PURCHASE PAYMENT DEFERRED ANNUITY CONTRACT. This type of
Contract is used when purchase payments under group plans are to be accumulated
until the retirement date of each Participant. Under a Group Allocated Contract,
Contract Value is established for each Participant for whom payments are being
made and the benefit at retirement will be determined by your Contract Value at
that time.
Under a Group Unallocated Contract, the purchase payments are not allocated
to the individual Participants but are credited to the Contractowner's account.
When a Participant becomes entitled to receive payments under the provisions of
the Plan, the appropriate amount of Contract Value may be withdrawn by the
Contractowner to provide the Participant with an annuity.
APPLICATION FOR A CONTRACT -- If you wish to purchase a Contract, you may submit
an application and an initial purchase payment to Security Benefit, as well as
any other form or information that Security Benefit may require. Security
Benefit reserves the right to reject an application or purchase payment for any
reason, subject to Security Benefit's underwriting standards and guidelines and
any applicable state or federal law relating to nondiscrimination.
The maximum age of an Owner or Annuitant for which a Contract will be issued
is age 90 (age 75 for Contracts issued in Florida). If there are Joint Owners or
Annuitants, the maximum issue age will be determined by reference to the older
Owner or Annuitant.
PURCHASE PAYMENTS -- The minimum initial purchase payment is $500 for a Contract
funding a Non-Qualified Plan or Group Unallocated Contract, $25 for a Contract
funding a Qualified Plan and $2,500 for single purchase payment immediate
annuity. Thereafter, you may choose the amount and frequency of purchase
payments, except that the minimum subsequent purchase payment is $25. Security
Benefit does not permit subsequent purchase payments for a single purchase
payment immediate annuity. Total purchase payments exceeding $1 million will not
be accepted without prior approval of Security Benefit.
Security Benefit will apply the initial purchase payment not later than the
end of the second Valuation Date after the Valuation Date it is received by
Security Benefit; provided that the purchase payment is preceded or accompanied
by an application that contains sufficient information to establish an account
and properly credit such purchase payment. The application form will be provided
by Security Benefit. If Security Benefit does not receive a complete
application, Security Benefit will notify you that it does not have the
necessary information to issue a Contract. If you do not provide the necessary
information to Security Benefit within five Valuation Dates after the Valuation
Date on which Security Benefit first receives the initial purchase payment or if
Security Benefit determines it cannot otherwise issue the Contract, Security
Benefit will return the initial purchase payment to you unless you consent to
Security Benefit retaining the purchase payment until the application is made
complete.
Security Benefit will credit subsequent purchase payments as of the end of
the Valuation Period in which they are received by Security Benefit at its Home
Office. Purchase payments after the initial purchase payment may be made at any
time prior to the Annuity Commencement Date, so long as the Owner is living.
Subsequent purchase payments under a Qualified Plan may be limited by the terms
of the plan and provisions of the Internal Revenue Code.
ALLOCATION OF PURCHASE PAYMENTS -- In an application for a Contract, you select
the Subaccounts or the Fixed Account to which purchase payments will be
allocated. Purchase payments will be allocated according to your instructions
contained in the application or more recent instructions received, if any,
except that no purchase payment allocation is permitted that would result in
less than $25 per payment being allocated to any one Subaccount or the Fixed
Account. The allocations must be a whole dollar or whole percentage. Available
allocation alternatives include the seventeen Subaccounts and the Fixed Account.
You may change the purchase payment allocation instructions by submitting a
proper written request to Security Benefit's Home Office. A proper change in
allocation instructions will be effective upon receipt by Security Benefit at
its Home Office and will continue in effect until you submit a change in
instructions to the company. You may make changes in your purchase payment
allocation and changes to an existing Dollar Cost Averaging or Asset
Reallocation Option by telephone provided the Telephone Transfer section of the
application or an Authorization for Telephone Requests form is properly
completed, signed, and filed at Security Benefit's Home Office. Changes in the
allocation of future purchase payments have no effect on existing Contract
Value. You may, however, transfer Contract Value among the Subaccounts and the
Fixed Account in the manner described in "Transfers of Contract Value," page 17.
DOLLAR COST AVERAGING OPTION -- Prior to the Annuity Commencement Date, you may
dollar cost average your Contract Value by authorizing Security Benefit to make
periodic transfers of Contract Value from any one Subaccount to one or more of
the other Subaccounts. Dollar cost averaging is a systematic method of investing
in which securities are purchased at regular intervals in fixed dollar amounts
so that the cost of the securities gets averaged over time and possibly over
various market cycles. The option will result in the transfer of Contract Value
from one Subaccount to one or more of the other Subaccounts. Amounts transferred
under this option will be credited at the price of the Subaccount as of the end
of the Valuation Dates on which the transfers are effected. Since the price of a
Subaccount's Accumulation Units will vary, the amounts transferred to a
Subaccount will result in the crediting of a greater number of units when the
price is low and a lesser number of units when the price is high. Similarly, the
amounts transferred from a Subaccount will result in a debiting of a greater
number of units when the price is low and a lesser number of units when the
price is high. Dollar cost averaging does not guarantee profits, nor does it
assure that you will not have losses.
A Dollar Cost Averaging Request form is available upon request. On the form,
you must designate whether Contract Value is to be transferred on the basis of a
specific dollar amount, fixed period or earnings only, the Subaccount or
Subaccounts to and from which the transfers will be made, the desired frequency
of the transfers, which may be on a monthly or quarterly basis, and the length
of time during which the transfers shall continue or the total amount to be
transferred over time.
After Security Benefit has received a Dollar Cost Averaging Request in proper
form at its Home Office, Security Benefit will transfer Contract Value in the
amounts you designate from the Subaccount from which transfers are to be made to
the Subaccount or Subaccounts you have chosen. The minimum amount that you may
transfer each month or quarter to any one Subaccount is $25. Security Benefit
will effect each transfer on the date you specify or if no date is specified, on
the monthly or quarterly anniversary, whichever corresponds to the period
selected, of the date of receipt at the Home Office of a Dollar Cost Averaging
Request in proper form. Transfers will be made until the total amount elected
has been transferred, or until Contract Value in the Subaccount from which
transfers are made has been depleted. Amounts periodically transferred under
this option are not currently subject to any transfer charges.
You may instruct Security Benefit at any time to terminate the option by
written request to Security Benefit's Home Office. In that event, the Contract
Value in the Subaccount from which transfers were being made that has not been
transferred will remain in that Subaccount unless you instruct us otherwise. If
you wish to continue transferring on a dollar cost averaging basis after the
expiration of the applicable period, the total amount elected has been
transferred, or the Subaccount has been depleted, or after the Dollar Cost
Averaging Option has been canceled, a new Dollar Cost Averaging Request must be
completed and sent to the Home Office. Security Benefit requires that you wait
at least a month (or a quarter if transfers were made on a quarterly basis)
before reinstating Dollar Cost Averaging after it has been terminated for any
reason. Security Benefit may discontinue, modify, or suspend the Dollar Cost
Averaging Option at any time.
You may also dollar cost average Contract Value to or from the Fixed Account,
subject to certain restrictions described under "The Fixed Account," page 25.
ASSET REALLOCATION OPTION -- Prior to the Annuity Commencement Date, you may
authorize Security Benefit to automatically transfer Contract Value on a
quarterly, semiannual or annual basis to maintain a particular percentage
allocation among the Subaccounts. The Contract Value allocated to each
Subaccount will grow or decline in value at different rates during the selected
period. Asset Reallocation automatically reallocates the Contract Value in the
Subaccounts to the allocation you selected on a quarterly, semiannual or annual
basis, as you select. Asset Reallocation is intended to transfer Contract Value
from those Subaccounts that have increased in value to those Subaccounts that
have declined in value. Over time, this method of investing may help you buy low
and sell high. This investment method does not guarantee profits, nor does it
assure that you will not have losses.
To elect this option an Asset Reallocation Request in proper form must be
received by Security Benefit at its Home Office. An Asset Reallocation Request
form is available upon request. On the form, you must indicate the applicable
Subaccounts, the applicable time period and the percentage of Contract Value to
be allocated to each Subaccount.
Upon receipt of the Asset Reallocation Request, Security Benefit will effect
a transfer or, in the case of a new Contract, will allocate the initial purchase
payment, among the Subaccounts based upon the percentages that you selected.
Thereafter, Security Benefit will transfer Contract Value to maintain that
allocation on each quarterly, semiannual or annual anniversary, as applicable,
of the date of Security Benefit's receipt of the Asset Reallocation Request in
proper form. The amounts transferred will be credited at the price of the
Subaccount as of the end of the Valuation Date on which the transfer is
effected. Amounts periodically transferred under this option are not currently
subject to any transfer charges.
You may instruct Security Benefit at any time to terminate this option by
written request to Security Benefit's Home Office. In that event, the Contract
Value in the Subaccounts that has not been transferred will remain in those
Subaccounts regardless of the percentage allocation unless you instruct us
otherwise. If you wish to continue Asset Reallocation after it has been
canceled, a new Asset Reallocation Request form must be completed and sent to
Security Benefit's Home Office. Security Benefit may discontinue, modify, or
suspend, and reserves the right to charge a fee for the Asset Reallocation
Option at any time.
Contract Value allocated to the Fixed Account may be included in the Asset
Reallocation option, subject to certain restrictions described in "Transfers and
Withdrawals from the Fixed Account," page 26.
TRANSFERS OF CONTRACT VALUE -- Prior to the Annuity Commencement Date, you may
transfer Contract Value among the Subaccounts upon proper written request to
Security Benefit's Home Office. You may make transfers (other than transfers
pursuant to the Dollar Cost Averaging and Asset Reallocation Options) by
telephone if the Telephone Transfer section of the application or an
Authorization for Telephone Requests form has been properly completed, signed
and filed at Security Benefit's Home Office. The minimum transfer amount is
$500, or the amount remaining in a given Subaccount. The minimum transfer amount
does not apply to transfers under the Dollar Cost Averaging or Asset
Reallocation Options.
You may also transfer Contract Value from the Subaccounts to the Fixed
Account; however, transfers from the Fixed Account to the Subaccounts are
restricted as described in "The Fixed Account," page 25.
Security Benefit generally does not limit the frequency of transfers,
although Security Benefit reserves the right to limit them as to any individual,
or in the future, in general, to not more than 14 transfers in a Contract Year.
Security Benefit also reserves the right to limit the size and frequency of such
transfers, and to discontinue telephone transfers.
CONTRACT VALUE -- The Contract Value is the sum of the amounts under your
Contract held in each Subaccount and the Fixed Account as well as any amount set
aside in the loan account to secure loans as of any Valuation Date.
On each Valuation Date, the amount of Contract Value allocated to any
particular Subaccount will be adjusted to reflect the investment experience of
that Subaccount. See "Determination of Contract Value," page 17. No minimum
amount of Contract Value is guaranteed. You bear the entire investment risk
relating to the investment performance of Contract Value allocated to the
Subaccounts.
DETERMINATION OF CONTRACT VALUE -- Your Contract Value will vary to a degree
that depends upon several factors, including investment performance of the
Subaccounts to which you have allocated Contract Value, payment of purchase
payments, the amount of any outstanding Contract Debt, partial withdrawals, and
the charges assessed in connection with the Contract. The amounts allocated to
the Subaccounts will be invested in shares of the corresponding Series of SBL
Fund. The investment performance of the Subaccounts will reflect increases or
decreases in the net asset value per share of the corresponding Series and any
dividends or distributions declared by a Series. Any dividends or distributions
from any Series of the Fund will be automatically reinvested in shares of the
same Series, unless Security Benefit, on behalf of the Separate Account, elects
otherwise.
Assets in the Subaccounts are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's
interest in a Subaccount. When you allocate purchase payments to a Subaccount,
your Contract is credited with Accumulation Units. The number of Accumulation
Units to be credited is determined by dividing the dollar amount allocated to
the particular Subaccount by the price for the Subaccount as of the end of the
Valuation Period in which the purchase payment is credited. In addition, other
transactions including 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 price of the affected Subaccount. The
price of each Subaccount is determined on each Valuation Date. The number of
Accumulation Units credited to a Contract shall not be changed by any subsequent
change in the value of an Accumulation Unit, but the dollar value of an
Accumulation Unit may vary from Valuation Date to Valuation Date depending upon
the investment experience of the Subaccount and charges against the Subaccount.
The price of each Subaccount's units initially was $10. The price of a
Subaccount on any Valuation Date takes into account the following: (1) the
investment performance of the Subaccount, which is based upon the investment
performance of the corresponding Series of SBL Fund, (2) any dividends or
distributions paid by the corresponding Series, (3) the charges, if any, that
may be assessed by Security Benefit for taxes attributable to the operation of
the Subaccount, and (4) the mortality and expense risk charge under the
Contract.
FULL AND PARTIAL WITHDRAWALS -- A Contractowner may make a partial withdrawal of
Contract Value, or surrender the Contract for its Withdrawal Value. A full or
partial withdrawal, including a systematic withdrawal, may be taken from
Contract Value at any time while the Owner is living and before the Annuity
Commencement Date, subject to limitations under the applicable plan for
Qualified Plans and applicable law. A full or partial withdrawal request will be
effective as of the end of the Valuation Period that a proper written request is
received by Security Benefit at its Home Office. A proper written request must
include the written consent of any effective assignee or irrevocable
Beneficiary, if applicable.
The proceeds received upon a full withdrawal will be the Contract's
Withdrawal Value. The Withdrawal Value is equal to the Contract Value as of the
end of the Valuation Period during which a proper withdrawal request is received
by Security Benefit at its Home Office, less any outstanding Contract Debt, any
applicable withdrawal charge, a pro rata administration charge and any
uncollected premium taxes.
Security Benefit requires the signature of all Owners on any request for
withdrawal, and a guarantee of all such signatures to effect the transfer or
exchange of all or part of the Contract for another investment. The signature
guarantee must be provided by an eligible guarantor, such as a bank, broker,
credit union, national securities exchange or savings association. Security
Benefit further requires that any request to transfer or exchange all or part of
the Contract for another investment be made upon a transfer form provided by
Security Benefit which is available upon request.
A partial withdrawal may be requested for a specified percentage or dollar
amount of Contract Value. A request for a partial withdrawal will result in a
payment by Security Benefit of the amount specified in the partial withdrawal
request provided there is sufficient Contract Value to meet the request. Upon
payment, the Contract Value will be reduced by an amount equal to the payment
and any applicable withdrawal charge and premium tax. If a partial withdrawal is
requested after the first Contract Year that would leave the Withdrawal Value in
the Contract less than $2,000, Security Benefit reserves the right to treat the
partial withdrawal as a request for a full withdrawal. For Contracts issued
prior to January 4, 1999, if your withdrawal exceeds 90 percent of Contract
Value, Security Benefit may elect to treat your withdrawal as a full withdrawal.
Security Benefit will deduct the amount of a partial withdrawal from the
Contract Value in the Subaccounts and the Fixed Account, according to the
Contractowner's instructions to Security Benefit. If a Contractowner does not
specify the allocation, Security Benefit will deduct the withdrawal from the
Contract Value in the Subaccounts and the Fixed Account in the following order:
Money Market Subaccount, High Grade Income Subaccount, High Yield Subaccount,
Global Strategic Income Subaccount, Growth-Income Subaccount, Equity Income
Subaccount, Managed Asset Allocation Subaccount, Global Total Return Subaccount,
Enhanced Index Subaccount, Growth Subaccount, Select 25 Subaccount, Value
Subaccount, Worldwide Equity Subaccount, International Subaccount, Social
Awareness Subaccount, Mid Cap Subaccount, and Small Cap Subaccount and then from
the Fixed Account. The value of each account will be depleted before the next
account is charged.
A full or partial withdrawal, including a systematic withdrawal, may be
subject to a withdrawal charge if a withdrawal is made during the first eight
Contract Years and may be subject to a premium tax charge to reimburse Security
Benefit for any tax on premiums on a Contract that may be imposed by various
states and municipalities. Security Benefit may deduct a pro rata administration
charge upon a full withdrawal. See "Contingent Deferred Sales Charge," page 21,
"Administration Charge," page 22 and "Premium Tax Charge," page 22.
A full or partial withdrawal, including a systematic withdrawal, may result
in receipt of taxable income to the Owner and, if made prior to the Owner
attaining age 59 1/2, may be subject to a 10 percent penalty tax. In the case of
Contracts issued in connection with retirement plans that meet the requirements
of Section 401(a), 403, 408 or 457 of the Internal Revenue Code, reference
should be made to the terms of the particular Qualified Plan for any limitations
or restrictions on withdrawals. For more information, see "Restrictions on
Withdrawals from Qualified Plans," page 28. The tax consequences of a withdrawal
under the Contract should be carefully considered. See "Federal Tax Matters,"
page 29.
SYSTEMATIC WITHDRAWALS -- Security Benefit currently offers a feature under
which you may select systematic withdrawals. Under this feature, a Contractowner
may elect to receive systematic withdrawals while the Owner is living and before
the Annuity Commencement Date by sending a properly completed Systematic
Withdrawal Request form to Security Benefit at its Home Office. This option may
be elected at any time after the first Contract Year, or during the first
Contract Year, if Contract Value is $40,000 or more at the time of election. A
Contractowner may designate the systematic withdrawal amount as a percentage of
Contract Value allocated to the Subaccounts and/or Fixed Account, as a fixed
period, as a specified dollar amount, as all earnings in the Contract, or based
upon the life expectancy of the Owner or the Owner and a beneficiary. A
Contractowner also may designate the desired frequency of the systematic
withdrawals, which may be monthly, quarterly, semiannually or annually. The
Contractowner may stop or modify systematic withdrawals upon proper written
request received by Security Benefit at its Home Office at least 30 days in
advance of the requested date of termination or modification. A proper request
must include the written consent of any effective assignee or irrevocable
Beneficiary, if applicable.
Each systematic withdrawal must be at least $25. Upon payment, your Contract
Value will be reduced by an amount equal to the payment proceeds plus any
applicable withdrawal charge and premium tax. Any systematic withdrawal that
equals or exceeds the Withdrawal Value will be treated as a full withdrawal. In
no event will payment of a systematic withdrawal exceed the Withdrawal Value.
The Contract will automatically terminate if a systematic withdrawal causes the
Contract's Withdrawal Value to equal zero.
Security Benefit will effect each systematic withdrawal as of the end of the
Valuation Period during which the withdrawal is scheduled. The deduction caused
by the systematic withdrawal, including any applicable withdrawal charge, will
be allocated from the Contractowner's Contract Value in the Subaccounts and the
Fixed Account, as directed by the Contractowner. If a Contractowner does not
specify the allocation, the systematic withdrawal will be deducted from the
Contract Value in the Subaccounts and the Fixed Account in the following order:
Money Market Subaccount, High Grade Income Subaccount, High Yield Subaccount,
Global Strategic Income Subaccount, Growth-Income Subaccount, Equity Income
Subaccount, Managed Asset Allocation Subaccount, Global Total Return Subaccount,
Enhanced Index Subaccount, Growth Subaccount, Select 25 Subaccount, Value
Subaccount, Worldwide Equity Subaccount, International Subaccount, Social
Awareness Subaccount, Mid Cap Subaccount, and Small Cap Subaccount and then from
the Fixed Account. The value of each account will be depleted before the next
account is charged.
Systematic withdrawals generally are subject to any applicable withdrawal
charges. Systematic withdrawals may be made without a withdrawal charge provided
that you have not made a free withdrawal during the Contract Year and your
systematic withdrawals do not exceed an amount determined as follows: 10 percent
of Contract Value as of the Valuation Date the first systematic withdrawal
request is received during the Contract Year. Systematic withdrawals that exceed
this amount are subject to any applicable withdrawal charge.
Security Benefit may, at any time, discontinue, modify, or suspend systematic
withdrawals. You should consider carefully the tax consequences of a systematic
withdrawal, including the 10 percent penalty tax which may be imposed on
withdrawals made prior to the Owner attaining age 59 1/2. See "Federal Tax
Matters," page 29.
FREE-LOOK RIGHT -- You may return a Contract within the Free-Look Period, which
is generally a ten-day period beginning when you receive the Contract. Security
Benefit will then deem void the returned Contract and will refund to you any
purchase payments allocated to the Fixed Account plus the Contract Value in the
Subaccounts as of the end of the Valuation Period during which the returned
Contract is received by Security Benefit. Security Benefit will refund purchase
payments allocated to the Subaccounts rather than Contract Value in those states
and circumstances that require it to do so.
DEATH BENEFIT -- If the Owner (or Annuitant if you purchased your Contract prior
to January 4, 1999) dies prior to the Annuity Commencement Date, Security
Benefit will pay the death benefit proceeds to the Designated Beneficiary upon
receipt of due proof of the Owner's (or if applicable, the Annuitant's) death
and instructions regarding payment to the Designated Beneficiary. If there are
Joint Owners, the death benefit proceeds will be payable upon receipt of due
proof of death of either Owner prior to the Annuity Commencement Date and
instructions regarding payment.
If the surviving spouse of the deceased Owner is the sole Designated
Beneficiary, such spouse may elect to continue the Contract in force, subject to
certain limitations. See "Distribution Requirements" below. If the Owner is not
a natural person, the death benefit proceeds will be payable upon receipt of due
proof of death of the Annuitant prior to the Annuity Commencement Date and
instructions regarding payment. Additionally, if the Owner is not a natural
person, the amount of the death benefit will be based on the age of the oldest
Annuitant on the date the Contract was issued. If the death of the Owner occurs
on or after the Annuity Commencement Date, any death benefit will be determined
according to the terms of the Annuity Option. See "Annuity Options," page 24.
The death benefit proceeds will be the death benefit reduced by any
outstanding Contract Debt and any uncollected premium tax. If an Owner (or if
applicable, the Annuitant) dies during the Accumulation Period and the age of
each Owner (or Annuitant) was 75 or younger on the date the Contract was issued,
the amount of the death benefit will be the greatest of:
* The sum of all Purchase Payments, less any reductions caused by previous
withdrawals,
* The Contract Value on the date due proof of death and instructions regarding
payment are received by Security Benefit, or
* The stepped-up death benefit.
The stepped-up death benefit is:
* The largest death benefit on any Contract anniversary that is an exact
multiple of six and occurs prior to the oldest Owner (or if applicable, the
Annuitant) attaining age 76, plus
* Any Purchase Payments made since the applicable Contract anniversary, less
* Any withdrawals since the applicable anniversary.
For Contracts in effect for six Contract Years or more as of May 1, 1991, the
Contract anniversary immediately preceding May 1, 1991, is deemed to be the
sixth Contract anniversary for purposes of determining the stepped-up death
benefit.
If an Owner (or if applicable, an Annuitant) dies during the Accumulation
Period and the age of any Owner (or Annuitant) was 76 or greater on the date the
Contract was issued, the death benefit will be the greater of:
* The Contract Value on the date due proof of death and instructions regarding
payment are received by Security Benefit at its Home Office, or
* Total purchase payments reduced by any partial withdrawals.
The death benefit proceeds will be paid to the Designated Beneficiary in a
single sum or under one of the Annuity Options, as elected by the Designated
Beneficiary. If the Designated Beneficiary is to receive annuity payments under
an Annuity Option, there may be limits under applicable law on the amount and
duration of payments that the Beneficiary may receive, and requirements
respecting timing of payments. A tax adviser should be consulted in considering
Annuity Options. See "Federal Tax Matters," page 29 and "Distribution
Requirements," below for a discussion of the tax consequences in the event of
death.
DEATH BENEFIT FOR CERTAIN FLORIDA RESIDENTS. If you were a resident of
Florida and purchased your Contract prior to January 4, 1999, your death benefit
is as follows. If the Annuitant is 75 or younger as of the date of his or her
death, the death benefit is the greatest of: (1) the sum of all purchase
payments reduced by any partial withdrawals; (2) the Contract Value as of the
date due proof of death and instructions regarding payment are received by
Security Benefit at its Home Office; or (3) the largest Contract Value on any
Contract anniversary that is an exact multiple of six, less any partial
withdrawals since that anniversary. If the Annuitant is 76 or older as of the
date of his or her death, the death benefit is the Contract Value as of the date
due proof of death and instructions regarding payment are received by Security
Benefit at its Home Office, less any applicable withdrawal charge. Security
Benefit currently waives the withdrawal charge applicable to the death benefit.
DEATH BENEFIT FOR GROUP UNALLOCATED CONTRACTS. The death benefit under a
group unallocated contract is determined by reference to the terms of the
Qualified Plan. The Contractowner must inform Security Benefit of the amount of
the death benefit, and its payment will be treated as a partial withdrawal.
Security Benefit will not impose a withdrawal charge upon such a withdrawal and
it will not be considered a free withdrawal under the Contract.
DISTRIBUTION REQUIREMENTS -- For Contracts issued in connection with
Non-Qualified Plans, the federal tax laws require that Security Benefit pay a
death benefit upon the death of the Owner, and Security Benefit will do so under
all Contracts, including those issued prior to January 4, 1999. If the surviving
spouse of the deceased Owner is the sole Designated Beneficiary, such spouse may
elect to continue this Contract in force until the earliest of the spouse's
death or the Annuity Commencement Date or receive the death benefit proceeds.
For any Designated Beneficiary other than a surviving spouse, only those
options may be chosen that provide for complete distribution of such Owner's
interest in the Contract within five years of the death of the Owner. If the
Designated Beneficiary is a natural person, that person alternatively can elect
to begin receiving annuity payments within one year of the Owner's death over a
period not extending beyond his or her life or life expectancy. If the Owner of
the Contract is not a natural person, these distribution rules are applicable
upon the death of or a change in the primary Annuitant.
For Contracts issued in connection with Qualified Plans, the terms of the
particular Qualified Plan and the Internal Revenue Code should be reviewed with
respect to limitations or restrictions on distributions following the death of
the Owner or Annuitant. Because the rules applicable to Qualified Plans are
extremely complex, a competent tax adviser should be consulted.
DEATH OF THE ANNUITANT -- For Contracts issued currently, if the Annuitant dies
prior to the Annuity Commencement Date, and the Owner is a natural person and is
not the Annuitant, no death benefit proceeds will be payable under the Contract.
The Owner may name a new Annuitant within 30 days of the Annuitant's death. If a
new Annuitant is not named, Security Benefit will designate the Owner as
Annuitant. On the death of the Annuitant after the Annuity Commencement Date,
any guaranteed payments remaining unpaid will continue to be paid to the
Designated Beneficiary pursuant to the Annuity Option in force at the date of
death. See "Death Benefit," above for a discussion of the death benefit in the
event of the Annuitant's death for Contracts issued prior to January 4, 1999.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE -- Security Benefit does not deduct sales
charges from purchase payments before allocating them to your Contract Value.
However, except as set forth below, Security Benefit may assess a contingent
deferred sales charge (which may also be referred to as a withdrawal charge) on
a full or partial withdrawal, including systematic withdrawals, depending upon
the Contract Year in which the withdrawal is made.
Security Benefit will waive the withdrawal charge on the first withdrawal in
any Contract Year after the first Contract Year, to the extent that such
withdrawal does not exceed the Free Withdrawal amount. The Free Withdrawal
amount in any Contract Year is equal to 10 percent of Contract Value as of the
date of the first withdrawal in that Contract Year. You forfeit any Free
Withdrawal amount not used on the first withdrawal in a Contract Year. The
withdrawal charge generally applies to the amount of any withdrawal that exceeds
the Free Withdrawal amount.
If your Contract is funding a charitable remainder trust, the free withdrawal
is available beginning in the first Contract Year, and you may make periodic
free withdrawals provided that the total free withdrawals in any Contract Year
do not exceed the Free Withdrawal amount discussed above.
For Group Unallocated Contracts, the free withdrawal is available after the
first Contract Year. The first withdrawal in each calendar month under such a
Contract is free to the extent that total free withdrawals in any Contract Year
do not exceed 10 percent of Contract Value as of the beginning of that Contract
Year.
The withdrawal charge does not apply to withdrawals of earnings. For the
purpose of determining any withdrawal charge, Security Benefit deems any
withdrawals that are subject to the withdrawal charge to be made first from
purchase payments and then from earnings. Free Withdrawal amounts do not reduce
purchase payments for the purpose of determining future withdrawal charges. The
amount of the charge will depend on the Contract Year in which the withdrawal is
made according to the following schedule:
--------------------------------------------------------
WITHDRAWAL CHARGE
-------------------------------------
THE VARIFLEX CONTRACT-
CONTRACT YEAR CONTRACT 401(k) AND 408(k)
--------------------------------------------------------
1 8% 8%
2 7% 8%
3 6% 8%
4 5% 8%
5 4% 7%
6 3% 6%
7 2% 5%
8 1% 4%
9 and later 0% 0%
--------------------------------------------------------
In no event will the amount of any withdrawal charge, when added to such
charge previously assessed against any amount withdrawn from the Contract,
exceed 8 percent of purchase payments paid under the Contract. In addition, no
withdrawal charge will be imposed upon: (1) payment of death benefit proceeds;
or (2) annuity options that provide for payments for life, or a period of at
least 7 years (5 years if you purchased your Contract prior to January 4, 1999).
Subject to insurance department approval, the withdrawal charge also will be
waived on a full or partial withdrawal if the Owner has been confined to a
hospital or qualified skilled nursing facility for 90 consecutive days or more.
See "Waiver of Withdrawal Charge," page 21. Security Benefit will assess the
withdrawal charge against the Subaccounts and the Fixed Account in the same
proportion as the withdrawal proceeds are allocated.
Security Benefit pays sales commissions to broker-dealers and other expenses
associated with the promotion and sales of the Contracts. The withdrawal charge
is designed to reimburse Security Benefit for these costs, although it is
expected that actual expenses will be greater than the amount of the charge. To
the extent that all sales expenses are not recovered from the charge, such
expenses may be recovered from other charges, including amounts derived
indirectly from the charge for mortality and expense risk. Broker-dealers may
receive aggregate commissions of up to 6 percent of aggregate purchase payments
and an annual trail commission of up to 0.25 percent of Contract Value. Security
Benefit also may pay override payments, expense allowances, bonuses, wholesaler
fees and training allowances. Registered representatives earn commissions from
the broker-dealers with which they are affiliated and such arrangements will
vary. In addition, registered representatives who meet specified production
levels may qualify, under sales incentive programs adopted by Security Benefit
to receive non-cash compensation such as expense-paid trips and educational
seminars and merchandise.
WAIVER OF WITHDRAWAL CHARGE -- Security Benefit will waive the withdrawal charge
in the event of confinement to a hospital or nursing facility, provided the
following conditions are met: (1) the Contractowner has been confined to a
"hospital" or "qualified skilled nursing facility" (as defined on page 4) for at
least 90 consecutive days prior to the date of the withdrawal; (2) the
Contractowner is so confined when Security Benefit receives the waiver request
and became so confined after the date the Contract was issued; and (3) the
request for waiver submitted to Security Benefit is accompanied by a properly
completed claim form which may be obtained from Security Benefit and a written
physician's statement acceptable to Security Benefit certifying that such
confinement is a medical necessity and is due to illness or infirmity.
Security Benefit reserves the right to have the Contractowner examined by a
physician of its choice and at its expense to determine if the Contractowner is
eligible for a waiver. The waiver is not available in certain states pending
department of insurance approval. If the waiver is later approved by the
insurance department of a state, Security Benefit intends to make the waiver
available to all Contractowners in that state at that time, but there can be no
assurance that the waiver will be approved. Prospective Contractowners should
contact their agent concerning availability of the waiver in their state.
MORTALITY AND EXPENSE RISK CHARGE -- Security Benefit deducts a daily charge
from the assets of each Subaccount for mortality and expense risks assumed by
Security Benefit under the Contract. The charge is equal to an annual rate of
1.2 percent of each Subaccount's average daily net assets. This amount is
intended to compensate Security Benefit for certain mortality and expense risks
Security Benefit assumes in offering and administering the Contract and in
operating the Subaccounts.
The expense risk is the risk that Security Benefit's actual expenses in
issuing and administering the Contract and operating the Subaccounts will be
more than the charges assessed for such expenses. The mortality risk borne by
Security Benefit is the risk that Annuitants, as a group, will live longer than
Security Benefit's actuarial tables predict. In this event, Security Benefit
guarantees that annuity payments will not be affected by a change in mortality
experience that results in the payment of greater annuity income than assumed
under the Annuity Options in the Contract. Security Benefit also assumes a
mortality risk in connection with the death benefit under the Contract.
Security Benefit may ultimately realize a profit from this charge to the
extent it is not needed to cover mortality and administrative expenses, but
Security Benefit may realize a loss to the extent the charge is not sufficient.
Security Benefit may use any profit derived from this charge for any lawful
purpose, including distribution expenses.
ADMINISTRATION CHARGE -- Security Benefit will deduct from your Contract Value
an administration charge of $30 (or if less, 2 percent of Contract Value for the
Variflex Contract - 401(k) and 408(k)). The administration charge is not
assessed against Contract Value that has been applied under Annuity Options 1
through 4, 9 and 10. Security Benefit deducts the administration charge at each
calendar year end, but will waive the charge if your Contract Value is $25,000
or more, and your Contract has been in force eight or more years, as of that
date. Security Benefit will deduct the administration charge from your Contract
Value in the Subaccounts and the Fixed Account in the following order:
-------------------------- -------------------------
1 Money Market 10 Growth
-------------------------- -------------------------
2 High Grade Income 11 Select 25
-------------------------- -------------------------
3 High Yield 12 Value
-------------------------- -------------------------
4 Global Strategic Income 13 Worldwide Equity
-------------------------- -------------------------
5 Growth-Income 14 International
-------------------------- -------------------------
6 Equity Income 15 Social Awareness
-------------------------- -------------------------
7 Managed Asset Allocation 16 Mid Cap
-------------------------- -------------------------
8 Global Total Return 17 Small Cap
-------------------------- -------------------------
9 Enhanced Index 18 Fixed Account
-------------------------- -------------------------
The value of each account will be depleted before the next account is charged.
Security Benefit will deduct a pro rata administration charge upon:
* A full withdrawal of Contract Value
* Payment of a death benefit
* The Annuity Commencement Date if one of Annuity Options 1 through 4, 9 or 10
is elected
* The first deduction of the administration charge if the Contract has been in
force for less than a full calendar year
The purpose of this charge is to reimburse Security Benefit for the expenses
associated with administration of the Contracts. Security Benefit does not
expect to profit from this charge.
PREMIUM TAX CHARGE -- Various states and municipalities impose a tax on premiums
received by insurance companies on annuity contracts. Whether or not a premium
tax is imposed will depend upon, among other things, the Owner's state of
residence, the Annuitant's state of residence, and the insurance tax laws and
Security Benefit's status in a particular state. Security Benefit assesses a
premium tax charge to reimburse itself for premium taxes that it incurs in
connection with a Contract. Security Benefit currently deducts this charge upon
the Annuity Commencement Date or upon full or partial withdrawal if a premium
tax was incurred and is not refundable. Security Benefit reserves the right to
deduct premium taxes when due or any time thereafter. Premium tax rates
currently range from 0 percent to 3.5 percent, but are subject to change by a
governmental entity.
OTHER CHARGES -- Security Benefit may charge the Separate Account or the
Subaccounts for the federal, state, or local taxes incurred by Security Benefit
that are attributable to the Separate Account or the Subaccounts, or to the
operations of Security Benefit with respect to the Contract, or that are
attributable to payment of premiums or acquisition costs under the Contract. No
such charge is currently assessed. See "Tax Status of Security Benefit and the
Separate Account," page 29 and "Charge for Security Benefit Taxes," page 29.
VARIATIONS IN CHARGES -- Security Benefit may reduce or waive the amount of the
contingent deferred sales charge and administration charge for a Contract where
the expenses associated with the sale of the Contract or the administrative and
maintenance costs associated with the Contract are reduced for reasons such as
the amount of the initial purchase payment or projected purchase payments or the
Contract is sold in connection with a group or sponsored arrangement. Security
Benefit may also reduce or waive the contingent deferred sales charge and
administration charge on Contracts sold to directors, officers and bona fide
full-time employees of Security Benefit and its affiliated companies; the
spouses, grandparents, parents, children, grandchildren and sibling of such
directors, officers and employees and their spouses; and salespersons (and their
spouses and minor children) who are licensed with Security Benefit to sell
variable annuities.
GUARANTEE OF CERTAIN CHARGES -- Security Benefit guarantees that the charge for
mortality and expense risks will not exceed an annual rate of 1.2 percent of
each Subaccount's average daily net assets and the administration charge will
not exceed $30 per year.
SBL FUND EXPENSES -- Each Subaccount of the Separate Account purchases shares at
the net asset value of the corresponding Series of SBL Fund. Each Series' net
asset value reflects the investment advisory fee and other expenses that are
deducted from the assets of the Series. These fees and expenses are not deducted
from the Subaccounts, but are paid from the assets of the corresponding Series.
As a result, the Owner indirectly bears a pro rata portion of such fees and
expenses. The advisory fees and other expenses, if any, which are more fully
described in SBL Fund's prospectus, are not specified or fixed under the terms
of the Contract.
ANNUITY PERIOD
GENERAL -- You select the Annuity Commencement Date at the time of application.
If you purchase a single purchase payment immediate annuity, your annuity
payments will commence immediately. Otherwise, your Annuity Commencement Date
may not be prior to the third annual Contract Anniversary and may not be
deferred beyond the Annuitant's 95th birthday (90th birthday for Contracts
issued prior to January 4, 1999). The terms of a Qualified Plan and the laws of
certain states may require that you start annuity payments at an earlier age. If
you do not select an Annuity Commencement Date, the Annuity Commencement Date
will be the later of the Annuitant's 65th birthday or the tenth annual Contract
Anniversary. See "Selection of an Option," page 25. If there are Joint
Annuitants, the birthdate of the older Annuitant will be used to determine the
latest Annuity Commencement Date.
On the Annuity Commencement Date, the proceeds under the Contract will be
applied to provide an annuity under one of the options described below. Each
option is available in two forms--either as a variable annuity for use with the
Subaccounts or as a fixed annuity for use with the Fixed Account. A combination
variable and fixed annuity is also available. Variable annuity payments will
fluctuate with the investment performance of the applicable Subaccounts while
fixed annuity payments will not. Unless you direct otherwise, proceeds derived
from Contract Value allocated to the Subaccounts will be applied to purchase a
variable annuity and proceeds derived from Contract Value allocated to the Fixed
Account will be applied to purchase a fixed annuity. The proceeds under the
Contract will be equal to your Contract Value in the Subaccounts and the Fixed
Account as of the Annuity Commencement Date, reduced by any applicable premium
taxes, any outstanding Contract Debt, and for Options 1 through 4, 9 and 10, a
pro rata administration charge.
The Contracts provide for several Annuity Options. Security Benefit may make
other Annuity Options available upon request. Although Options 1 through 10 may
not be described, or are numbered differently, in some Contracts, Security
Benefit makes these Options available to all Contractowners, except that Option
9 is not available under certain forms of the Contract. Annuity payments under
Annuity Options 1 through 4, 9 and 10 are based upon annuity rates that vary
with the Annuity Option selected. In the case of Options 1 through 4 and 10, the
annuity rates will vary based on the age and sex of the Annuitant, except that
unisex rates are available where required by law. The annuity rates reflect your
life expectancy based upon your age as of the Annuity Commencement Date and your
gender, unless unisex rates apply. The annuity rates are based upon the 1983(a)
mortality table and are adjusted to reflect an assumed interest rate of 3.5
percent, compounded annually. In the case of Options 5 through 8 as described
below, annuity payments are based upon Contract Value without regard to annuity
rates. If no Annuity Option has been selected, annuity payments will be made to
the Annuitant under an automatic option which shall be an annuity payable during
the lifetime of the Annuitant with payments guaranteed to be made for 10 years
under Option 2.
Annuity Options 1 through 4 and 10 provide for annuity payments to be made
during the lifetime of the Annuitant. Annuity payments under such options cease
in the event of the Annuitant's death, unless the option provides for a
guaranteed minimum number of payments, for example a life income with guaranteed
payments of 5, 10, 15 or 20 years. The level of annuity payments will be greater
for shorter guaranteed periods and less for longer guaranteed periods.
Similarly, payments will be greater for life annuities than for joint and
survivor annuities, because payments for life annuities are expected to be made
for a shorter period.
You may elect to receive annuity payments on a monthly, quarterly,
semiannual, or annual basis, although no payments will be made for less than $50
($25 for Contracts issued prior to January 4,1999). If the frequency of payments
selected would result in payments of less than $50 (or $25 if applicable),
Security Benefit reserves the right to change the frequency.
You may designate or change an Annuity Commencement Date, Annuity Option, or
Annuitant, provided proper written notice is received by Security Benefit at its
Home Office at least 30 days prior to the Annuity Commencement Date set forth in
the Contract. The date selected as the new Annuity Commencement Date must be at
least 30 days after the date written notice requesting a change of Annuity
Commencement Date is received at Security Benefit's Home Office.
Once annuity payments have commenced under Annuity Options 1 through 4 and
10, an Annuitant or Owner cannot change the Annuity Option and cannot surrender
his or her annuity and receive a lump-sum settlement in lieu thereof. Under
Annuity Options 5 through 8, full or partial withdrawals may be made after the
Annuity Commencement Date, subject to any applicable withdrawal charge. The
Contract specifies annuity tables for Annuity Options 1 through 4, 9 and 10,
described below. The tables contain the guaranteed minimum dollar amount (per
$1,000 applied) of the FIRST annuity payment for a variable annuity and each
annuity payment for a fixed annuity.
ANNUITY OPTIONS --
OPTION 1 -- LIFE INCOME. Periodic annuity payments will be made during the
lifetime of the Annuitant. It is possible under this Option for any Annuitant to
receive only one annuity payment if the Annuitant's death occurred prior to the
due date of the second annuity payment, two if death occurred prior to the due
date of the third annuity payment, etc. THERE IS NO MINIMUM NUMBER OF PAYMENTS
GUARANTEED UNDER THIS OPTION. PAYMENTS WILL CEASE UPON THE DEATH OF THE
ANNUITANT REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 2 -- LIFE INCOME WITH GUARANTEED PAYMENTS OF 5, 10, 15 OR 20 YEARS.
Periodic annuity payments will be made during the lifetime of the Annuitant with
the promise that if, at the death of the Annuitant, payments have been made for
less than a stated period, which may be five, ten, fifteen or twenty years, as
elected by the Owner, annuity payments will be continued during the remainder of
such period to the Designated Beneficiary.
OPTION 3 -- LIFE WITH INSTALLMENT REFUND OPTION. Periodic annuity payments
will be made during the lifetime of the Annuitant with the promise that, if at
the death of the Annuitant, the number of payments that has been made is less
than the number determined by dividing the amount applied under this Option by
the amount of the first annuity payment, annuity payments will continue to the
Designated Beneficiary until that number of payments has been made.
OPTION 4 -- JOINT AND LAST SURVIVOR. Periodic annuity payments will be made
during the lifetime of either Annuitant. It is possible under this Option for
only one annuity payment to be made if both Annuitants died prior to the second
annuity payment due date, two if both died prior to the third annuity payment
due date, etc. AS IN THE CASE OF OPTION 1, THERE IS NO MINIMUM NUMBER OF
PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE LAST
SURVIVING ANNUITANT, REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 5 -- PAYMENTS FOR SPECIFIED PERIOD. Periodic annuity payments will be
made for a fixed period, which may be from five to twenty years, as elected by
the Owner, with the guarantee that, if, at the death of all Annuitants, payments
have been made for less than the selected fixed period, the remaining unpaid
payments will be paid to the Designated Beneficiary.
OPTION 6 -- PAYMENTS OF A SPECIFIED AMOUNT. Periodic annuity payments of the
amount elected by the Owner will be made until Contract Value is exhausted, with
the guarantee that, if, at the death of all Annuitants, all guaranteed payments
have not yet been made, the remaining unpaid payments will be paid to the
Designated Beneficiary.
OPTION 7 -- DEPOSIT OPTION. The amount due under the Contract on the Annuity
Commencement Date may be left on deposit with Security Benefit in its General
Account with interest at the rate of not less than 2 percent per year. Interest
will be paid annually, semiannually, quarterly or monthly as you elect. This
Option is not available under Contracts used in connection with Qualified Plans.
OPTION 8 -- AGE RECALCULATION. Periodic annuity payments will be made based
upon the Annuitant's life expectancy, or the joint life expectancy 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. The payments
are computed by reference to government actuarial tables and are made until
Contract Value is exhausted. Upon the Annuitant's death, any Contract Value will
be paid to the Designated Beneficiary.
OPTION 9 -- PERIOD CERTAIN. Periodic annuity payments will be made for a
stated period which may be five, ten, fifteen or twenty years, as elected by the
Owner. If the Annuitant dies prior to the end of the period, the remaining
payments will be made to the Designated Beneficiary.
OPTION 10 -- JOINT AND CONTINGENT SURVIVOR OPTION. Periodic annuity payments
will be made during the life of the primary Annuitant. Upon the death of the
primary Annuitant, payments will be made to the contingent Annuitant during his
or her life. If the contingent Annuitant is not living upon the death of the
primary Annuitant, no payments will be made to the contingent Annuitant. It is
possible under this Option for only one annuity payment to be made if both
Annuitants died prior to the second annuity payment due date, two if both died
prior to the third annuity payment due date, etc. AS IN THE CASE OF OPTIONS 1
AND 4, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION.
PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT, REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
VALUE OF VARIABLE ANNUITY PAYMENTS: ASSUMED INTEREST RATE. The annuity tables
in the Contract which are used to calculate variable annuity payments for
Annuity Options 1 through 4, 9 and 10 are based on an "assumed interest rate" of
3 1/2 percent, compounded annually. Variable annuity payments generally increase
or decrease from one annuity payment date to the next based upon the performance
of the applicable Subaccounts during the interim period adjusted for the assumed
interest rate. If the performance of the Subaccount selected is equal to the
assumed interest rate, the annuity payments will remain constant. If the
performance of the Subaccounts is greater than the assumed interest rate, the
annuity payments will increase and if it is less than the assumed interest rate,
the annuity payments will decline. A higher assumed interest rate would mean a
higher initial annuity payment but the amount of the annuity payment would
increase more slowly in a rising market (or the amount of the annuity payment
would decline more rapidly in a declining market). A lower assumption would have
the opposite effect.
SELECTION OF AN OPTION -- You should carefully review the Annuity Options with
your financial or tax advisers. For Contracts used in connection with a
Qualified Plan, reference should be made to the terms of the particular plan and
the requirements of the Internal Revenue Code for pertinent limitations
respecting annuity payments and other matters. For instance, Qualified Plans
generally require that annuity payments begin no later than April 1 of the
calendar year following the year in which the Annuitant reaches age 70 1/2. In
addition, under Qualified Plans, the period elected for receipt of annuity
payments under Annuity Options (other than Life Income) generally may be no
longer than the joint life expectancy of the Annuitant and beneficiary in the
year that the Annuitant reaches age 70 1/2, and must be shorter than such joint
life expectancy if the beneficiary is not the Annuitant's spouse and is more
than ten years younger than the Annuitant. For Non-Qualified Plans, SBL does not
allow annuity payments to be deferred beyond the Annuitant's 95th birthday (90th
birthday for Contracts issued prior to January 4, 1999).
THE FIXED ACCOUNT
You may allocate all or a portion of your purchase payments and transfer
Contract Value to the Fixed Account. Amounts allocated to the Fixed Account
become part of Security Benefit's General Account, which supports Security
Benefit's insurance and annuity obligations. The General Account is subject to
regulation and supervision by the Kansas Department of Insurance and is also
subject to 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 Fixed Account have not been registered as
securities under the Securities Act of 1933 (the "1933 Act") and the Fixed
Account has not been registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, neither the Fixed Account nor
any interests therein are generally subject to the provisions of the 1933 Act or
the 1940 Act. Security Benefit has been advised that the staff of the SEC has
not reviewed the disclosure in this Prospectus relating to the Fixed 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 Fixed Account. For more information regarding the Fixed Account, see "The
Contract," page 15.
Amounts allocated to the Fixed Account become part of the General Account of
Security Benefit, which consists of all assets owned by Security Benefit other
than those in the Separate Account and other separate accounts of Security
Benefit. Subject to applicable law, Security Benefit has sole discretion over
investment of the assets of its General Account.
INTEREST -- Contract Value allocated to the Fixed Account earns interest at a
fixed rate or rates that are paid by Security Benefit. The Contract Value in the
Fixed Account earns interest at an interest rate that is guaranteed to be at
least an annual effective rate of 3 percent which will accrue daily ("Guaranteed
Rate"). Such interest will be paid regardless of the actual investment
experience of the Fixed Account. In addition, Security Benefit may in its
discretion pay interest at a rate ("Current Rate") that exceeds the Guaranteed
Rate. Security Benefit will determine the Current Rate, if any, from time to
time.
Contract Value allocated or transferred to the Fixed Account will earn
interest at the Current Rate, if any, in effect on the date such portion of
Contract Value is allocated or transferred to the Fixed Account. Contract Value
allocated or transferred to the Fixed Account at one point in time may be
credited with a different Current Rate than amounts allocated or transferred to
the Fixed Account at another point in time. For example, amounts allocated to
the Fixed Account in June may be credited with a different current rate than
amounts allocated to the Fixed Account in July. Therefore, at any time, various
portions of your Contract Value in the Fixed Account may be earning interest at
different Current Rates depending upon the point in time such portions were
allocated or transferred to the Fixed Account. Security Benefit bears the
investment risk for the Contract Value allocated to the Fixed Account and for
paying interest at the Guaranteed Rate on amounts allocated to the Fixed
Account.
For purposes of determining the interest rates to be credited on Contract
Value in the Fixed Account, withdrawals, loans or transfers from the Fixed
Account will be deemed to be taken from purchase payments and Contract Value
allocated to the Fixed Account on a first in, first out basis. Any interest
attributable to such amounts shall be deemed to be taken before the amount of
the purchase payment or other Contract Value allocated to the Fixed Account. For
more information about transfers and withdrawals from the Fixed Account, see the
discussion of the Fixed Account options below. For more information about
transfers and withdrawals from the Fixed Account, see "Transfers and Withdrawals
From the Fixed Account," below.
DEATH BENEFIT -- The death benefit under the Contract will be determined in the
same fashion for a Contract that has Contract Value allocated to the Fixed
Account as for a Contract that has Contract Value allocated to the Subaccounts.
See "Death Benefit," page 19.
CONTRACT CHARGES -- Premium taxes, withdrawal charges and the administration
charge will be the same for Contractowners who allocate purchase payments or
transfer Contract Value to the Fixed Account as for those who allocate purchase
payments or transfer Contract Value to the Subaccounts. The charge for mortality
and expense risks will not be assessed against the Fixed Account, and any
amounts that Security Benefit pays for income taxes allocable to the Subaccounts
will not be charged against the Fixed Account. In addition, you will not pay
directly or indirectly the investment advisory fees and operating expenses of
the SBL Fund to the extent Contract Value is allocated to the Fixed Account;
however, you also will not participate in the investment experience of the
Subaccounts.
TRANSFERS AND WITHDRAWALS FROM THE FIXED ACCOUNT -- You may transfer amounts
from the Subaccounts to the Fixed Account and from the Fixed Account to the
Subaccounts, subject to the following limitations. Transfers from the Fixed
Account are limited in a Contract Year to not more than the greatest of:
1. $5,000,
2. one-third of the Contract Value allocated to the Fixed Account at the time
of the first transfer from the Fixed Account in the Contract Year, or
3. 120 percent of the amount transferred from the Fixed Account during the
previous Contract Year.
Security Benefit reserves the right for a period of time to allow transfers from
the Fixed Account 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 Fixed Account is the greatest of: (1)
above; (2) above; or (3) 120 percent of the lesser of: (i) the dollar amount
transferred from the Fixed Account 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 minimum amount that you may transfer from the Fixed Account to the
Subaccounts is the lesser of (i) $500 or (ii) the amount of Contract Value
allocated to the Fixed Account. Transfer of Contract Value pursuant to the Asset
Reallocation Option is not currently subject to any minimums. The minimum
transfer under the Dollar Cost Averaging Option is $25. The Company reserves the
right to limit the number of transfers permitted each Contract Year to 14
transfers and to limit the amount that may be subject to transfer.
You may also make full or partial withdrawals to the same extent as if you
had allocated Contract Value to the Subaccounts. However, no partial withdrawal
request will be processed which would result in the withdrawal of Contract Value
from the Loan Account. See "Full and Partial Withdrawals," page 18 and
"Systematic Withdrawals," page 19. In addition, to the same extent as
Contractowners with Contract Value in the Subaccounts, the Owner of a Contract
used in connection with a Qualified Plan may obtain a loan if so permitted under
the terms of the Qualified Plan. See "Loans," page 27.
PAYMENTS FROM THE FIXED ACCOUNT -- Full and partial withdrawals, loans, and
transfers from the Fixed Account may be delayed for up to six months after a
written request in proper form is received by Security Benefit at 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 Fixed
Account. However, payment of any amounts will not be deferred if they are to be
used to pay premiums on any policies or contracts issued by Security Benefit.
MORE ABOUT THE CONTRACT
OWNERSHIP -- The Contractowner is the person named as such in the application or
in any later change shown in Security Benefit's records. While living, the
Contractowner alone has the right to receive all benefits and exercise all
rights that the Contract grants or Security Benefit allows, subject to any
limitations under your Qualified Plan. The Owner may be an entity that is not a
living person such as a trust or corporation referred to herein as "Non-natural
Persons." See "Federal Tax Matters," page 29.
JOINT OWNERS. The Joint Owners will be joint tenants with rights of
survivorship and upon the death of an Owner, the surviving Owner shall be the
sole Owner. Any Contract transaction requires the signature of all persons named
jointly.
DESIGNATION AND CHANGE OF BENEFICIARY -- The Designated Beneficiary is the
person having the right to the death benefit, if any, payable upon the death of
the Owner or Joint Owner (or if applicable, the Annuitant) during the
Accumulation Period. The Designated Beneficiary is the first person on the
following list who is alive on the date of death of the Owner or the Joint
Owner: the Owner; the Joint Owner; the Primary Beneficiary; the Secondary
Beneficiary; the Annuitant; or if none of the above are alive, the Owner's
estate. If you purchased your Contract prior to January 4, 1999, the Designated
Beneficiary is the first person on the following list who is alive on the date
of death of the Annuitant: the Primary Beneficiary, the Secondary Beneficiary or
if none of the above are alive, the Annuitant's estate. The Primary Beneficiary
is the individual named as such in the application or any later change shown in
Security Benefit's records. Careful consideration should be given to the manner
in which the Contract is registered, as well as the designation of the Primary
Beneficiary. The Contractowner may change the Primary Beneficiary at any time
while the Contract is in force by written request on forms provided by Security
Benefit and received by Security Benefit at its Home Office. The change will not
be binding on Security Benefit until it is received and recorded at its Home
Office. The change will be effective as of the date the form is signed subject
to any payments made or other actions taken by Security Benefit before the
change is received and recorded. A Secondary Beneficiary may be designated. The
Owner may designate a permanent Beneficiary whose rights under the Contract
cannot be changed without his or her consent.
Reference should be made to the terms of a particular Qualified Plan and any
applicable law for any restrictions or limitations on the designation of a
Beneficiary.
DIVIDENDS -- The Contract may share in the surplus earnings of Security Benefit.
However, the current dividend scale is zero and Security Benefit does not
anticipate that dividends will be paid. Certain states will not permit the
Contract to be issued as a dividend-paying policy.
PAYMENTS FROM THE SEPARATE ACCOUNT -- Security Benefit will pay any full or
partial withdrawal benefit or death benefit proceeds from Contract Value
allocated to the Subaccounts, and will effect a transfer between Subaccounts or
from a Subaccount to the Fixed Account on the Valuation Date a proper request is
received at Security Benefit's Home Office. However, Security Benefit can
postpone the calculation or payment of such a payment or transfer of amounts
from the Subaccounts to the extent permitted under applicable law, which is
currently permissible only for any period:
* During which the New York Stock Exchange is closed other than customary
weekend and holiday closings,
* During which trading on the New York Stock Exchange is restricted as
determined by the SEC,
* During which an emergency, as determined by the SEC, exists as a result of
which (i) disposal of securities held by the Separate Account is not
reasonably practicable, or (ii) it is not reasonably practicable to
determine the value of the assets of the Separate Account, or
* For such other periods as the SEC may by order permit for the protection of
investors.
PROOF OF AGE AND SURVIVAL -- Security Benefit may require proof of age or
survival of any person on whose life annuity payments depend.
MISSTATEMENTS -- If you misstate the age or sex of an Annuitant or age of an
Owner, the correct amount paid or payable by Security Benefit under the Contract
shall be such as the Contract Value would have provided for the correct age or
sex (unless unisex rates apply).
LOANS -- If you own a Contract issued in connection with a retirement plan that
is qualified under Section 403(b) of the Internal Revenue Code, you may borrow
money under your Contract using the Contract Value as the only security for the
loan. You may obtain a loan by submitting a proper written request to Security
Benefit. A loan must be taken prior to the Annuity Commencement Date. The
minimum loan that may be taken is $1,000 ($500 for Contracts issued in New
Jersey). The maximum loan that may 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. The
Internal Revenue Code requires aggregation of all loans made to an individual
employee under a single employer plan. However, since Security Benefit has no
information concerning outstanding loans with other providers, we will only use
information available under annuity contracts issued by us. Reference should be
made to the terms of your 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 from the Subaccounts and/or the Fixed
Account into an account called the "Loan Account." Amounts allocated to the Loan
Account earn 3 percent, the minimum rate of interest guaranteed under the Fixed
Account. In addition, ten percent of the loaned amount will be held in the Fixed
Account as security for the loan and will earn the Current Rate.
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 percent
(5.5 percent if your Contract was issued prior to January 4, 1999). Because the
Contract Value maintained in the Loan Account (which will earn 3 percent) 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 Security Benefit determines
that the loan is to be used to acquire your principal residence, in which case
the loan must be repaid within 30 years. You must make loan repayments on at
least a quarterly basis, and you may prepay your loan at any time. Upon receipt
of a loan payment, Security Benefit will transfer Contract Value from the Loan
Account to the Fixed Account and/or the Subaccounts according to your 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.
If you do not make any required loan payment 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, your total outstanding loan
balance will be deemed to be in default for tax reporting purposes. The entire
loan balance, with any accrued interest, will be reported as income to the
Internal Revenue Service ("IRS"). Once a loan has gone into default, regularly
scheduled payments will not be accepted. 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 31 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 attaining age 59
1/2. The Contract will be automatically terminated if the outstanding loan
balance on a loan in default equals or exceeds the Withdrawal Value. 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, you should carefully consider your ability to repay the
loan and should consult with a tax advisor before requesting a loan.
While the amount to secure the loan is held in the Loan Account, you forego
the investment experience of the Subaccounts and the Current Rate of interest on
the Fixed Account. Outstanding Contract Debt will reduce the amount of proceeds
paid upon full withdrawal, upon payment of the death benefit, and upon
annuitization. In addition, no partial withdrawal will be processed which would
result in the withdrawal of Contract Value from the Loan Account.
You should consult with your tax adviser on the effect of a loan.
Loans are not available in certain states pending department of insurance
approval. If loans are later approved by the insurance department of a state,
Security Benefit intends to make loans available to all Owners of 403(b)
contracts in that state at that time, but there can be no assurance that loans
will be approved. Prospective Contractowners should contact their agent
concerning availability of loans in their state.
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS -- Generally, a Qualified Plan
may not provide for the distribution or withdrawal of amounts accumulated under
the Plan until after a fixed number of years, the attainment of a stated age or
upon the occurrence of a specific event such as hardship, disability,
retirement, death or termination of employment. Therefore, if you own a Contract
purchased in connection with a Qualified Plan, you may not be entitled to make a
full or partial withdrawal, as described in this Prospectus, unless one of the
above-described conditions has been satisfied. For this reason, you should refer
to the terms of your particular Qualified Plan, the Internal Revenue Code and
other applicable law for any limitation or restriction on distributions and
withdrawals, including the 10 percent penalty tax that may be imposed in the
event of a distribution from a Qualified Plan before the participant reaches age
59 1/2. See the discussion under "Tax Penalties," page 35.
Section 403(b) imposes restrictions on certain distributions from
tax-sheltered annuity contracts meeting the requirements of Section 403(b). The
restrictions apply to tax years beginning on or after January 1, 1989. Section
403(b) requires that distributions from Section 403(b) tax-sheltered annuities
that are attributable to your contributions made after December 31, 1988 under a
salary reduction agreement begin only after you (i) reach age 59 1/2, (ii)
separate from service, (iii) die, (iv) become disabled, or (v) incur a hardship.
Furthermore, we may not distribute to you on account of hardship gains accrued
after December 31, 1988 attributable to such contributions. Hardship, for this
purpose, is generally defined as an immediate and heavy financial need, such as
paying for medical expenses, the purchase of a residence, or paying certain
tuition expenses, that may ONLY be met by the distribution.
If you own a Contract purchased as a Section 403(b) tax-sheltered annuity
contract, you will not be entitled to make a full or partial withdrawal, as
described in this Prospectus, in order to receive proceeds from the Contract
attributable to your contributions under a salary reduction agreement or any
gains credited to such Contract after December 31, 1988 unless one of the above
conditions has been satisfied. In the case of transfers of amounts accumulated
in a different Section 403(b) contract to this Contract under a Section 403(b)
program, the withdrawal constraints described above would not apply to the
amount transferred to the Contract attributable to your December 31, 1988
account balance under the old contract, provided the amounts transferred between
contracts qualified as a tax-free exchange under the Internal Revenue Code. You
may be able to transfer your Contract's Withdrawal Value to certain other
investment alternatives meeting the requirements of Section 403(b) that are
available under your employer's Section 403(b) arrangement.
The distribution or withdrawal of amounts under a Contract purchased in
connection with a Qualified Plan may result in the receipt of taxable income to
the Owner or Annuitant and in some instances may also result in a penalty tax.
Therefore, you should carefully consider the tax consequences of a distribution
or withdrawal under a Contract and you should consult a competent tax adviser.
See "Federal Tax Matters," below.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT -- If you are a Participant in
the Texas Optional Retirement Program, your Contract is subject to restrictions
required under the Texas Education Code. In accordance with those restrictions,
you will not be permitted to make withdrawals prior to your retirement, death or
termination of employment in a Texas public institution of higher education.
FEDERAL TAX MATTERS
INTRODUCTION -- The Contract described in this Prospectus is designed for use by
individuals and groups as a non-tax qualified retirement plan and for
individuals and groups 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, if any, for which the Contract is
purchased, the tax and employment status of the individuals involved and a
number of other factors. The discussion contained herein and in the Statement of
Additional Information is general in nature and is not intended to be an
exhaustive discussion of all questions that might arise in connection with a
Contract. It is based upon Security Benefit's understanding of the present
federal income tax laws as currently interpreted by the Internal Revenue Service
("IRS"), and is not intended as tax advice. No representation is made regarding
the likelihood of continuation of the present federal income tax laws or of the
current interpretations by the IRS or the courts. Future legislation may affect
annuity contracts adversely. Moreover, no attempt has been made to consider any
applicable state or other laws. Because of the inherent complexity of the tax
laws and the fact that tax results will vary according to the particular
circumstances of the individual involved and, if applicable, the Qualified Plan,
you should consult with a qualified tax adviser regarding the purchase of a
Contract, the selection of an Annuity Option under a Contract, the receipt of
annuity payments under a Contract or any other transaction involving a Contract.
SECURITY BENEFIT DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF, OR TAX
CONSEQUENCES ARISING FROM, ANY CONTRACT OR ANY TRANSACTION INVOLVING THE
CONTRACT.
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT --
GENERAL. Security Benefit intends to be taxed as a life insurance company
under Part I, Subchapter L of the Code. Because the operations of the Separate
Account form a part of Security Benefit, Security Benefit will be responsible
for any federal income taxes that become payable with respect to the income of
the Separate Account and its Subaccounts.
CHARGE FOR SECURITY BENEFIT TAXES. A charge may be made for any federal taxes
incurred by Security Benefit that are attributable to the Separate Account, the
Subaccounts or to the operations of Security Benefit with respect to the
Contracts or attributable to payments, premiums, or acquisition costs under the
Contracts. Security Benefit will review the question of a charge to the Separate
Account, the Subaccounts or the Contracts for Security Benefit's federal taxes
periodically. Charges may become necessary if, among other reasons, the tax
treatment of Security Benefit or of income and expenses under the Contracts is
ultimately determined to be other than what Security Benefit currently believes
it to be, if there are changes made in the federal income tax treatment of
variable annuities at the insurance company level, or if there is a change in
Security Benefit's tax status.
Under current laws, Security Benefit may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, Security Benefit reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS. Each Series of the SBL Fund will be required to
adhere to regulations adopted by the Treasury Department pursuant to Section
817(h) of the Code prescribing asset diversification requirements for investment
companies whose shares are sold to insurance company separate accounts funding
variable contracts. Pursuant to these regulations, on the last day of each
calendar quarter (or on any day within 30 days thereafter), no more than 55
percent of the total assets of a Series may be represented by any one
investment, no more than 70 percent may be represented by any two investments,
no more than 80 percent may be represented by any three investments, and no more
than 90 percent may be represented by any four investments. For purposes of
Section 817(h), securities of a single issuer generally are treated as one
investment but obligations of the U.S. Treasury and each U.S. Governmental
agency or instrumentality generally are treated as securities of separate
issuers. The Separate Account, through the Series, intends to comply with the
diversification requirements of Section 817(h).
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contractowner's gross income. The IRS has stated in published rulings that a
variable contractowner will be considered the owner of separate account assets
if the contractowner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the contractowner),
rather than the insurance company, to be treated as the owner of the assets in
the account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example, the Contractowner has additional flexibility in allocating purchase
payments and Contract Values. These differences could result in a Contractowner
being treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, Security Benefit does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Security Benefit therefore reserves the right to
modify the Contract, as it deems appropriate, to attempt to prevent a
Contractowner from being considered the owner of a pro rata share of the assets
of the Separate Account. Moreover, in the event that regulations or rulings are
adopted, there can be no assurance that the Subaccounts will be able to operate
as currently described in the Prospectus, or that the SBL Fund will not have to
change any Series' investment objective or investment policies.
INCOME TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS -- Section 72 of
the Code governs the taxation of annuities. In general, a Contractowner is not
taxed on increases in value under an annuity contract until some form of
distribution is made under the contract. However, the increase in value may be
subject to tax currently under certain circumstances. See "Contracts Owned by
Non-Natural Persons," page 31 and "Diversification Standards" above. Withholding
of federal income taxes on all distributions may be required unless a recipient
who is eligible elects not to have any amounts withheld and properly notifies
Security Benefit of that election.
SURRENDERS OR WITHDRAWALS PRIOR TO THE ANNUITY COMMENCEMENT DATE. Code
Section 72 provides that amounts received upon a total or partial withdrawal
(including systematic withdrawals) from a Contract prior to the Annuity
Commencement Date generally will be treated as gross income to the extent that
the cash value of the Contract immediately before the withdrawal (determined
without regard to any surrender charge in the case of a partial withdrawal)
exceeds the "investment in the contract." The "investment in the contract" is
that portion, if any, of purchase payments paid under a Contract less any
distributions received previously under the Contract that are excluded from the
recipient's gross income. The taxable portion is taxed at ordinary income tax
rates. For purposes of this rule, a pledge or assignment of a contract is
treated as a payment received on account of a partial withdrawal of a Contract.
SURRENDERS OR WITHDRAWALS ON OR AFTER THE ANNUITY COMMENCEMENT DATE. Upon a
complete surrender, the receipt is taxable to the extent that the cash value of
the Contract exceeds the investment in the Contract. The taxable portion of such
payments will be taxed at ordinary income tax rates.
For fixed annuity payments, the taxable portion of each payment generally is
determined by using a formula known as the "exclusion ratio," which establishes
the ratio that the investment in the Contract bears to the total expected amount
of annuity payments for the term of the Contract. That ratio is then applied to
each payment to determine the non-taxable portion of the payment. The remaining
portion of each payment is taxed at ordinary income rates. For variable annuity
payments, the taxable portion of each payment is determined by using a formula
known as the "excludable amount," which establishes the non-taxable portion of
each payment. The non-taxable portion is a fixed dollar amount for each payment,
determined by dividing the investment in the Contract by the number of payments
to be made. The remainder of each variable annuity payment is taxable. Once the
excludable portion of annuity payments to date equals the investment in the
Contract, the balance of the annuity payments will be fully taxable.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS. With respect to amounts
withdrawn or distributed before the taxpayer reaches age 59 1/2, a penalty tax
is imposed equal to 10 percent of the portion of such amount which is includable
in gross income. However, the penalty tax is not applicable to withdrawals: (i)
made on or after the death of the owner (or where the owner is not an
individual, the death of the "primary annuitant," who is defined as the
individual the events in whose life are of primary importance in affecting the
timing and amount of the payout under the Contract); (ii) attributable to the
taxpayer's becoming totally disabled within the meaning of Code Section
72(m)(7); (iii) which are part of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancy) of
the taxpayer and his or her beneficiary; (iv) from certain qualified plans; (v)
under a so-called qualified funding asset (as defined in Code Section 130(d));
(vi) under an immediate annuity contract; or (vii) which are purchased by an
employer on termination of certain types of qualified plans and which are held
by the employer until the employee separates from service.
If the penalty tax does not apply to a surrender or withdrawal as a result of
the application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the first
year in which the modification occurs will be increased by an amount (determined
by the regulations) equal to the tax that would have been imposed but for item
(iii) above, plus interest for the deferral period, if the modification takes
place (a) before the close of the period which is five years from the date of
the first payment and after the taxpayer attains age 59 1/2, or (b) before the
taxpayer reaches age 59 1/2.
ADDITIONAL CONSIDERATIONS --
DISTRIBUTION-AT-DEATH RULES. In order to be treated as an annuity contract, a
contract must provide the following two distribution rules: (a) if any owner
dies on or after the Annuity Commencement Date, and before the entire interest
in the Contract has been distributed, the remainder of the owner's interest will
be distributed at least as quickly as the method in effect on the owner's death;
and (b) if any owner dies before the Annuity Commencement Date, the entire
interest in the Contract must generally be distributed within five years after
the date of death, or, if payable to a designated beneficiary, must be
annuitized over the life of that designated beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, commencing within one
year after the date of death of the owner. If the sole designated beneficiary is
the spouse of the deceased owner, the Contract (together with the deferral of
tax on the accrued and future income thereunder) may be continued in the name of
the spouse as owner.
Generally, for purposes of determining when distributions must begin under
the foregoing rules, where an owner is not an individual, the primary annuitant
is considered the owner. In that case, a change in the primary annuitant will be
treated as the death of the owner. Finally, in the case of joint owners, the
distribution-at-death rules will be applied by treating the death of the first
owner as the one to be taken into account in determining generally when
distributions must commence, unless the sole Designated Beneficiary is the
deceased owner's spouse.
GIFT OF ANNUITY CONTRACTS. Generally, gifts of non-tax qualified Contracts
prior to the Annuity Commencement Date will trigger tax on the gain on the
Contract, with the donee getting a stepped-up basis for the amount included in
the donor's income. The 10 percent penalty tax and gift tax also may be
applicable. This provision does not apply to transfers between spouses or
incident to a divorce.
CONTRACTS OWNED BY NON-NATURAL PERSONS. If the Contract is held by a
non-natural person (for example, a corporation) the income on that Contract
(generally the increase in net surrender value less the purchase payments) is
includable in taxable income each year. The rule does not apply where the
Contract is acquired by the estate of a decedent, where the Contract is held by
certain types of retirement plans, where the Contract is a qualified funding
asset for structured settlements, where the Contract is purchased on behalf of
an employee upon termination of a qualified plan, and in the case of an
immediate annuity. An annuity contract held by a trust or other entity as agent
for a natural person is considered held by a natural person.
MULTIPLE CONTRACT RULE. For purposes of determining the amount of any
distribution under Code Section 72(e) (amounts not received as annuities) that
is includable in gross income, all Non-Qualified annuity contracts issued by the
same insurer to the same Contractowner during any calendar year are to be
aggregated and treated as one contract. Thus, any amount received under any such
contract prior to the contract's Annuity Commencement Date, such as a partial
surrender, dividend, or loan, will be taxable (and possibly subject to the 10
percent penalty tax) to the extent of the combined income in all such contracts.
In addition, the Treasury Department has broad regulatory authority in
applying this provision to prevent avoidance of the purposes of this rule. It is
possible that, under this authority, the Treasury Department may apply this rule
to amounts that are paid as annuities (on and after the Annuity Commencement
Date) under annuity contracts issued by the same company to the same owner
during any calendar year. In this case, annuity payments could be fully taxable
(and possibly subject to the 10 percent penalty tax) to the extent of the
combined income in all such contracts and regardless of whether any amount would
otherwise have been excluded from income because of the "exclusion ratio" under
the contract.
POSSIBLE TAX CHANGES. In recent years, legislation has been proposed that
would have adversely modified the federal taxation of certain annuities, and
President Clinton's fiscal-year 1999 Budget proposal includes a provision that,
if adopted, would impose new taxation on owners of variable annuities. There is
always the possibility that the tax treatment of annuities could change by
legislation or other means (such as IRS regulations, revenue rulings, and
judicial decisions). Moreover, although unlikely, it is also possible that any
legislative change could be retroactive (that is, effective prior to the date of
such change).
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT. A transfer of ownership of
a Contract, the designation of an Annuitant, payee or other beneficiary who is
not also the Owner, the selection of certain Annuity Commencement Dates or the
exchange of a Contract may result in certain tax consequences to the Owner that
are not discussed herein. An Owner contemplating any such transfer, assignment,
selection or exchange should contact a competent tax adviser with respect to the
potential effects of such a transaction.
QUALIFIED PLANS -- The Contract may be used with Qualified Plans that meet the
requirements of Section 401, 403(a), 403(b), 403(c), 408 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, Security Benefit may accept beneficiary designations and
payment instructions under the terms of the Contract without regard to any
spousal consents that may be required under the Employee Retirement Income
Security Act of 1974 (ERISA). Consequently, a Contractowner's beneficiary
designation or elected payment option may not be enforceable.
The amounts that may be contributed to Qualified Plans are subject to
limitations that vary depending on the type of Plan. In addition, early
distributions from most Qualified Plans may be subject to penalty taxes, or in
the case of distributions of amounts contributed under salary reduction
agreements, could cause the Plan to be disqualified. Furthermore, distributions
from most Qualified Plans are subject to certain minimum distribution rules.
Failure to comply with these rules could result in disqualification of the Plan
or subject the Owner or Annuitant to penalty taxes. As a result, the minimum
distribution rules may limit the availability of certain Annuity Options to
certain Annuitants and their beneficiaries. These requirements may not be
incorporated into Security Benefit's Contract administration procedures. Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law.
The following are brief descriptions of the various types of Qualified Plans
and the use of the Contract therewith:
SECTION 401. Code Section 401 permits employers to establish various types of
retirement plans (e.g., pension, profit sharing and 401(k) plans) for their
employees. For this purpose, self-employed individuals (proprietors or partners
operating a trade or business) are treated as employees and therefore eligible
to participate in such plans. Retirement plans established in accordance with
Section 401 may permit the purchase of Contracts to provide benefits thereunder.
In order for a retirement plan to be "qualified" under Code Section 401, it
must: (i) meet certain minimum standards with respect to participation, coverage
and vesting; (ii) not discriminate in favor of "highly compensated" employees;
(iii) provide contributions or benefits that do not exceed certain limitations;
(iv) prohibit the use of plan assets for purposes other than the exclusive
benefit of the employees and their beneficiaries covered by the plan; (v)
provide for distributions that comply with certain minimum distribution
requirements; (vi) provide for certain spousal survivor benefits; and (vii)
comply with numerous other qualification requirements.
A retirement plan qualified under Code Section 401 may be funded by employer
contributions, employee contributions or a combination of both. Plan
participants are not subject to tax on employer contributions until such amounts
are actually distributed from the plan. Depending upon the terms of the
particular plan, employee contributions may be made on a pre-tax or after-tax
basis. In addition, plan participants are not taxed on plan earnings derived
from either employer or employee contributions until such earnings are
distributed.
Each employee's interest in a retirement plan qualified under Code Section
401 must generally be distributed or begin to be distributed not later than
April 1 of the calendar year following the later of the calendar year in which
the employee reaches age 70 1/2 or retires ("required beginning date"). Periodic
distributions must not extend beyond the life of the employee or the lives of
the employee and a designated beneficiary (or over a period extending beyond the
life expectancy of the employee or the joint life expectancy of the employee and
a designated beneficiary).
If an employee dies before reaching his or her required beginning date, the
employee's entire interest in the plan must generally be distributed within five
years of the employee's death. However, the five-year rule will be deemed
satisfied, if distributions begin before the close of the calendar year
following the year of the employee's death to a designated beneficiary and are
made over the life of the beneficiary (or over a period not extending beyond the
life expectancy of the beneficiary). If the designated beneficiary is the
employee's surviving spouse, distributions may be delayed until the employee
would have reached age 70 1/2.
If an employee dies after reaching his or her required beginning date, the
employee's interest in the plan must generally be distributed at least as
rapidly as under the method of distribution in effect at the time of the
employee's death.
Annuity payments distributed from a retirement plan qualified under Code
Section 401 are taxable under Section 72 of the Code. Section 72 provides that
the portion of each payment attributable to contributions that were taxable to
the employee in the year made, if any, is excluded from gross income as a return
of the employee's investment. The portion so excluded is determined by dividing
the employee's investment in the plan by (1) the number of anticipated payments
determined under a table set forth in Section 72 of the Code or (2) in the case
of a contract calling for installment payments, the number of monthly annuity
payments under such contract. The portion of each payment in excess of the
exclusion amount is taxable as ordinary income. Once the employee's investment
has been recovered, the full annuity payment will be taxable. If the employee
should die prior to recovering his entire investment, the unrecovered investment
will be allowed as a deduction on his final return. If the employee made no
contributions that were taxable when made, the full amount of each annuity
payment is taxable to him as ordinary income.
A "lump-sum" distribution from a retirement plan qualified under Code Section
401 is eligible for favorable tax treatment. A "lump-sum" distribution means the
distribution within one taxable year of the balance to the credit of the
employee which becomes payable: (i) on account of the employee's death, (ii)
after the employee attains age 59 1/2, (iii) on account of the employee's
termination of employment (in the case of a common law employee only) or (iv)
after the employee has become disabled (in the case of a self-employed person
only).
As a general rule, a lump-sum distribution is fully taxable as ordinary
income except for an amount equal to the employee's investment, if any, which is
recovered tax-free. However, special five-year averaging may be available,
provided the employee has reached age 59 1/2 and has not previously elected to
use income averaging. (Special five-year averaging has been repealed for
distributions after 1999.) Special ten-year averaging and capital-gains
treatment may be available to an employee who reached age 50 before 1986.
Distributions from a retirement plan qualified under Code Section 401 may be
eligible for a tax-free rollover to either another qualified retirement plan or
to an individual retirement account or annuity (IRA). See "Rollovers" on page
34.
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," page 32.
A Section 403(b) annuity contract may be purchased with employer
contributions, employee contributions or a combination of both. An employee's
rights under a Section 403(b) contract must be nonforfeitable. Numerous
limitations apply to the amount of contributions that may be made to a Section
403(b) annuity contract. The applicable limit will depend upon, among other
things, whether the annuity contract is purchased with employer or employee
contributions.
Amounts used to purchase Section 403(b) annuities generally are excludable
from the taxable income of the employee. As a result, all distributions from
such annuities are normally taxable in full as ordinary income to the employee.
A Section 403(b) annuity contract must prohibit the distribution of employee
contributions (including earnings thereon) until the employee: (i) attains age
59 1/2, (ii) terminates employment; (iii) dies; (iv) becomes disabled; or (v)
incurs a financial hardship (earnings may not be distributed in the event of
hardship).
Distributions from a Section 403(b) annuity contract may be eligible for a
tax-free rollover to either another Section 403(b) annuity contract or to an
individual retirement account or annuity (IRA). See "Rollovers," page 34.
SECTIONS 408 AND 408A. INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the
Code permits eligible individuals to establish individual retirement programs
through the purchase of Individual Retirement Annuities ("traditional IRAs").
The Contract may be purchased as an IRA. The IRAs described in this paragraph
are called "traditional IRAs" to distinguish them from the new "Roth IRAs" which
became available in 1998. (Roth IRAs are described below.)
IRAs are subject to limitations on the amount that may be contributed, the
persons who may be eligible and on the time when distributions must commence.
Depending upon the circumstances of the individual, contributions to a
traditional IRA may be made on a deductible or non-deductible basis. IRAs may
not be transferred, sold, assigned, discounted or pledged as collateral for a
loan or other obligation. The annual premium for an IRA may not be fixed and may
not exceed $2,000 (except in the case of a rollover contribution). Any refund of
premium must be applied to the payment of future premiums or the purchase of
additional benefits.
Sale of the Contract for use with IRAs may be subject to special requirements
imposed by the Internal Revenue Service. Purchasers of the Contract for such
purposes will be provided with such supplementary information as may be required
by the Internal Revenue Service or other appropriate agency, and will have the
right to revoke the Contract under certain circumstances. See the IRA Disclosure
Statement that accompanies this Prospectus.
In general, traditional IRAs are subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code; however, the required beginning date for traditional IRAs is generally
the date that the Contractowner reaches age 70 1/2--the Contractowner's
retirement date, if any, will not affect his or her required beginning date. See
"Section 401," page 32. Distributions from IRAs are generally taxed under Code
Section 72. Under these rules, a portion of each distribution may be excludable
from income. The amount excludable from the individual's income is the amount of
the distribution which bears the same ratio as the individual's nondeductible
contributions bears to the expected return under the IRA.
Distributions from a traditional IRA may be eligible for a tax-free rollover
to another traditional IRA. In certain cases, a distribution from a traditional
IRA may be eligible to be rolled over to a retirement plan qualified under Code
Section 401(a) or a Section 403(b) annuity contract. See "Rollovers," page 34.
SIMPLE INDIVIDUAL RETIREMENT ANNUITIES. The Small Business Job Protection Act
of 1996 created a new retirement plan, the Savings Incentive Match Plan for
Employees of Small Employers (SIMPLE plans). Depending upon the type of SIMPLE
plan, employers may deposit the plan contributions into a single trust or into
SIMPLE Individual Retirement Annuities ("SIMPLE IRA") established by each
participant.
Information on eligibility to participate in an employer's SIMPLE Plan will
be included in the summary description of the plan furnished to the participants
by their employer. Contributions to a SIMPLE IRA may be either salary deferral
contributions or employer contributions. On a pre-tax basis, participants may
elect to contribute (through salary deferrals up to $6,000 of their compensation
to a SIMPLE IRA. In addition, employers are required to make either (1) a
dollar-for-dollar matching contribution or (2) a nonelective contribution to
their account each year. Finally, participants may roll over or transfer
contributions to their SIMPLE IRA from another SIMPLE IRA.
In general, SIMPLE IRAs are subject to a minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code; however, the required beginning date for SIMPLE IRAs is generally the
date that the contractowner reaches age 70 1/2--the Contractowner's retirement
date will not affect his or her required beginning date. Amounts used to
purchase SIMPLE IRAs generally are excludable from the taxable income of the
participant. As a result, all distributions from such annuities are normally
taxable in full as ordinary income to the participant.
Distributions from a SIMPLE IRA may be eligible for a tax-free rollover or
transfer to another SIMPLE IRA. However, a distribution from a SIMPLE IRA is
NEVER eligible to be rolled over to a retirement plan qualified under Code
Section 401(a) or a Section 403(b) annuity contract. The Internal Revenue
Service has not reviewed the Contract for qualification as a SIMPLE IRA, and has
not addressed in a ruling of general applicability whether the death benefit
provision such as the provision in the Contract comports with SIMPLE IRA
qualification requirements.
ROTH IRAS. Section 408A of the Code permits eligible individuals to establish
a Roth IRA, a new type of IRA which became available in 1998. The Contract may
be purchased as a Roth IRA. Contributions to a Roth IRA are not deductible, but
withdrawals that meet certain requirements are not subject to federal income
tax. Sale of the Contract for use with Roth IRAs may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the Contract
for such purposes will be provided with such supplementary information as may be
required by the Internal Revenue Service or other appropriate agency, and will
have the right to revoke the Contract under certain requirements. Unlike a
traditional IRA, Roth IRAs are not subject to minimum required distribution
rules during the Contractowner's lifetime. Generally, however, the amount in a
remaining Roth IRA must be distributed by the end of the fifth year after the
death of the Contractowner.
The Internal Revenue Service has not reviewed the Contract for qualification
as a Roth IRA and has not addressed in a ruling of general applicability whether
a death benefit provision such as the provision in the Contract comports with
Roth IRA qualification requirements.
SECTION 457. Section 457 of the Code permits employees of state and local
governments and units and agencies of state and local governments as well as
tax-exempt organizations described in Section 501(c)(3) of the Code to defer a
portion of their compensation without paying current taxes if those employees
are participants in an eligible deferred compensation plan. A Section 457 plan
may permit the purchase of Contracts to provide benefits thereunder.
Although a participant under a Section 457 plan may be permitted to direct or
choose methods of investment in the case of a tax-exempt employer sponsor, all
amounts deferred under the plan, and any income thereon, remain solely the
property of the employer and subject to the claims of its general creditors,
until paid to the participant. The assets of a Section 457 plan maintained by a
state or local government employer must be held in trust (or custodial account
or an annuity contract) for the exclusive benefit of plan participants, who will
be responsible for taxes upon distribution. A Section 457 plan must not permit
the distribution of a participant's benefits until the participant attains age
70 1/2, terminates employment or incurs an "unforeseeable emergency."
Section 457 plans are generally subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code. See "Section 401," page 32. Since under a Section 457 plan,
contributions are generally excludable from the taxable income of the employee,
the full amount received will usually be taxable as ordinary income when annuity
payments commence or other distributions are made. Distributions from a Section
457 plan are not eligible for tax-free rollovers.
ROLLOVERS. A "rollover" is the tax-free transfer of a distribution from one
Qualified Plan to another. Distributions which are rolled over are not included
in the employee's gross income until some future time.
If any portion of the balance to the credit of an employee in a Section 401
plan or Section 403(b) plan is paid to the employee in an "eligible rollover
distribution" and the employee transfers any portion of the amount received to
an "eligible retirement plan," then the amount so transferred is not includable
in income. An "eligible rollover distribution" generally means any distribution
that is not one of a series of periodic payments made for the life of the
distributee or for a specified period of at least ten years. In addition, a
required minimum distribution will not qualify as an eligible rollover
distribution. A rollover must be completed within 60 days after receipt of the
distribution.
In the case of a Section 401 plan, an "eligible retirement plan" will be
another retirement plan qualified under Code Section 401 or an individual
retirement account or annuity under Code Section 408. With respect to a Section
403(b) plan, an "eligible retirement plan" will be another Section 403(b) plan
or an individual retirement account or annuity described in Code Section 408.
A Section 401 plan and a Section 403(b) plan must generally provide a
participant receiving an eligible rollover distribution, the option to have the
distribution transferred directly to another eligible retirement plan.
The owner of an IRA may make a tax-free rollover of any portion of the IRA.
The rollover must be completed within 60 days of the distribution and generally
may only be made to another IRA. However, an individual may receive a
distribution from his or her IRA and within 60 days roll it over into a
retirement plan qualified under Code Section 401(a) if all of the funds in the
IRA are attributable to a rollover from a Section 401(a) plan. Similarly, a
distribution from an IRA may be rolled over to a Section 403(b) plan only if all
of the funds in the IRA are attributable to a rollover from a Section 403(b)
annuity.
TAX PENALTIES. PREMATURE DISTRIBUTION TAX. Distributions from a Qualified
Plan before the participant reaches age 59 1/2 are generally subject to an
additional tax equal to 10 percent of the taxable portion of the distribution.
The 10 percent penalty tax does not apply to distributions: (i) made on or after
the death of the employee; (ii) attributable to the employee's disability; (iii)
which are part of a series of substantially equal periodic payments made (at
least annually) for the life (or life expectancy) of the employee or the joint
lives (or joint life expectancy) of the employee and a designated beneficiary
and which begin after the employee terminates employment; (iv) made to an
employee after termination of employment after reaching age 55; (v) made to pay
for certain medical expenses; (vi) that are exempt withdrawals of an excess
contribution; (vii) that is rolled over or transferred in accordance with Code
requirements; or (viii) that is transferred pursuant to a decree of divorce or
separate maintenance or written instrument incident to such a decree.
The exception to the 10 percent penalty tax described in item (iv) above is
not applicable to IRAs. However, distributions from an IRA to unemployed
individuals can be made without application of the 10 percent penalty tax to pay
health insurance premiums in certain cases. In addition, the 10 percent penalty
tax is generally not applicable to distributions from a Section 457 plan.
Starting January 1, 1998, there are two additional exceptions to the 10 percent
penalty tax on withdrawals from IRAs before age 59 1/2: withdrawals made to pay
"qualified" higher education expenses and withdrawals made to pay certain
"eligible first-time home buyer expenses."
MINIMUM DISTRIBUTION TAX. If the amount distributed from a Qualified Plan is
less than the minimum required distribution for the year, the participant is
subject to a 50 percent tax on the amount that was not properly distributed.
EXCESS DISTRIBUTION/ACCUMULATION TAX. The penalty tax of 15 percent which was
imposed (in addition to any ordinary income tax) on large plan distributions and
the "excess retirement accumulations" of an individual has been repealed,
effective January 1, 1997.
WITHHOLDING. Periodic distributions (e.g., annuities and installment
payments) from a Qualified Plan that will last for a period of ten or more years
are generally subject to voluntary income tax withholding. The amount withheld
on such periodic distributions is determined at the rate applicable to wages.
The recipient of a periodic distribution may generally elect not to have
withholding apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than ten years) from a Qualified Plan (other than IRA and
Section 457 plans) are generally subject to mandatory 20 percent income tax
withholding. However, no withholding is imposed if the distribution is
transferred directly to another eligible Qualified Plan. Nonperiodic
distributions from an IRA are subject to income tax withholding at a flat 10
percent rate. The recipient of such a distribution may elect not to have
withholding apply.
The above description of the federal income tax consequences of the different
types of Qualified Plans which may be funded by the Contract offered by this
Prospectus is only a brief summary and is not intended as tax advice. The rules
governing the provisions of Qualified Plans are extremely complex and often
difficult to comprehend. Anything less than full compliance with the applicable
rules, all of which are subject to change, may have adverse tax consequences. A
prospective Contractowner considering adoption of a Qualified Plan and purchase
of a Contract in connection therewith should first consult a qualified and
competent tax adviser, with regard to the suitability of the Contract as an
investment vehicle for the Qualified Plan.
OTHER INFORMATION
VOTING OF SBL FUND SHARES -- You indirectly (through the Separate Account)
purchase shares of the Series of SBL Fund when you allocate purchase payments to
the Subaccounts. The Company owns shares of the Fund in the Separate Account for
your benefit. Under current law, the Company will vote shares of the Fund held
in the Subaccounts in accordance with voting instructions received from Owners
having the right to give such instructions. You will have the right to give
voting instructions to the extent that you have Account Value allocated to the
particular Subaccount. The Company will vote all shares it owns through the
Subaccount in the same proportion as the shares for which it receives voting
instructions from Owners. The Company votes shares in accordance with its
current understanding of the federal securities laws. If the Company later
determines that it may vote shares of the Fund in its own right, it may elect to
do so.
Unless otherwise required by applicable law, the number of shares of a
particular Series as to which you may give voting instructions to the Company is
determined by dividing your Account Value in the corresponding Subaccount on a
particular date by the net asset value per share of that Series as of the same
date. Fractional votes will be counted. The number of votes as to which voting
instructions may be given will be determined as of the date established by the
Fund for determining shareholders eligible to vote at the meeting of the Fund.
If required by the SEC, the Company reserves the right to determine in a
different fashion the voting rights attributable to the shares of the Fund.
Voting instructions may be cast in person or by proxy.
SUBSTITUTION OF INVESTMENTS -- Security Benefit reserves the right, subject to
compliance with the law as then in effect, to make additions to, deletions from,
substitutions for, or combinations of the securities that are held by the
Separate Account or any Subaccount or that the Separate Account or any
Subaccount may purchase. If shares of any or all of the Series of SBL Fund
should no longer be available for investment, or if Security Benefit management
believes further investment in shares of any or all of the Series of SBL Fund
should become inappropriate in view of the purposes of the Contract, Security
Benefit may substitute shares of another Series of SBL Fund or of a different
fund for shares already purchased, or to be purchased in the future under the
Contract. Security Benefit may also purchase, through the Subaccount, other
securities for other classes or contracts, or permit a conversion between
classes of contracts on the basis of requests made by Owners.
In connection with a substitution of any shares attributable to an Owner's
interest in a Subaccount or the Separate Account, Security Benefit will, to the
extent required under applicable law, provide notice, seek Owner approval, seek
prior approval of the SEC, and comply with the filing or other procedures
established by applicable state insurance regulators.
Security Benefit also reserves the right to establish additional Subaccounts
of the Separate Account that would invest in a new Series of SBL Fund or in
shares of another investment company, a series thereof, or other suitable
investment vehicle. Security Benefit may establish new Subaccounts in its sole
discretion, and will determine whether to make any new Subaccount available to
existing Owners. Security Benefit may also eliminate or combine one or more
Subaccounts if, in its sole discretion, marketing, tax, or investment conditions
so warrant.
Subject to compliance with applicable law, Security Benefit may transfer
assets to the General Account. Security Benefit also reserves the right, subject
to any required regulatory approvals, to transfer assets of any Subaccount to
another separate account or Subaccount.
In the event of any such substitution or change, Security Benefit may, by
appropriate endorsement, make such changes in these and other contracts as may
be necessary or appropriate to reflect such substitution or change. If Security
Benefit believes it to be in the best interests of persons having voting rights
under the Contracts, the Separate Account may be operated as a management
investment company under the 1940 Act or any other form permitted by law. The
Separate Account may be deregistered under that Act in the event such
registration is no longer required, or it may be combined with other separate
accounts of Security Benefit or an affiliate thereof. Subject to compliance with
applicable law, Security Benefit also may combine one or more Subaccounts and
may establish a committee, board, or other group to manage one or more aspects
of the operation of the Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS -- Security Benefit reserves the
right, without the consent of Owners, to suspend sales of the Contract as
presently offered and to make any change to the provisions of the Contracts to
comply with, or give Owners the benefit of, any federal or state statute, rule,
or regulation, including but not limited to requirements for annuity contracts
and retirement plans under the Internal Revenue Code and regulations thereunder
or any state statute or regulation. In addition, upon 30 days notice to the
holder of a Group Contract, Security Benefit may make other changes to a Group
Contract that will apply only to individuals who become participants after the
effective date of the change.
REPORTS TO OWNERS -- Security Benefit will send you annually a statement setting
forth a summary of the transactions that occurred during the year, and
indicating the Contract Value as of the end of each year. In addition, the
statement will indicate the allocation of Contract Value among the Fixed Account
and the Subaccounts and any other information required by law. Security Benefit
will also send confirmations upon purchase payments, transfers, loans, loan
repayments, and full and partial withdrawals. Security Benefit may confirm
certain transactions on a quarterly basis. These transactions include purchases
made automatically from your bank account or pursuant to a salary reduction
arrangement, transfers under the Dollar Cost Averaging and Asset Reallocation
Options, systematic withdrawals and annuity payments.
You will also receive an annual and semiannual report containing financial
statements for SBL Fund, which will include a list of the portfolio securities
of each Series, as required by the 1940 Act, and/or such other reports as may be
required by federal securities laws.
TELEPHONE TRANSFER PRIVILEGES -- You may request a transfer of Contract Value
and may make changes to an existing Dollar Cost Averaging or Asset Reallocation
option by telephone if the Telephone Transfer section of the application or an
Authorization for Telephone Requests form ("Telephone Authorization") has been
completed, signed, and filed at Security Benefit's Home Office. Security Benefit
has established procedures to confirm that instructions communicated by
telephone are genuine and will not be liable for any losses due to fraudulent or
unauthorized instructions provided it complies with its procedures. Security
Benefit's procedures require that any person requesting a transfer by telephone
provide the account number and the Owner's tax identification number and such
instructions must be received on a recorded line. Security Benefit reserves the
right to deny any telephone transfer request. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), you may not be able to request transfers by telephone and would
have to submit written requests.
By authorizing telephone transfers, you authorize Security Benefit to accept
and act upon telephonic instructions for transfers involving your Contract. You
agree that neither Security Benefit, any of its affiliates, nor SBL Fund, will
be liable for any loss, damages, cost, or expense (including attorneys' fees)
arising out of any telephone requests; provided that Security Benefit effects
such request in accordance with its procedures. As a result of this policy on
telephone requests, you bear the risk of loss arising from the telephone
transfer privilege. Security Benefit may discontinue, modify, or suspend the
telephone transfer privilege at any time.
LEGAL PROCEEDINGS -- There are no legal proceedings pending to which the
Separate Account is a party, or which would materially affect the Separate
Account.
LEGAL MATTERS -- Amy J. Lee, Esq., Associate General Counsel, Security Benefit,
has passed upon legal matters in connection with the issue and sale of the
Contracts described in this Prospectus, Security Benefit's authority to issue
the Contracts under Kansas law, and the validity of the forms of the Contracts
under Kansas law.
PERFORMANCE INFORMATION
Performance information for the Subaccounts, including the yield and
effective yield of the Money Market Subaccount, the yield of the remaining
Subaccounts, and the total return of all Subaccounts may appear in
advertisements, reports, and promotional literature to current or prospective
Owners.
Current yield for the Money Market Subaccount will be based on income
received by a hypothetical investment over a given 7-day period (less expenses
accrued during the period), and then "annualized" (i.e., assuming that the 7-day
yield would be received for 52 weeks, stated in terms of an annual percentage
return on the investment). "Effective yield" for the Money Market Subaccount is
calculated in a manner similar to that used to calculate yield, but reflects the
compounding effect of earnings.
For the remaining Subaccounts, quotations of yield will be based on all
investment income per Accumulation Unit earned during a given 30-day period,
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of an Accumulation Unit
on the last day of the period. Quotations of average annual total return for any
Subaccount will be expressed in terms of the average annual compounded rate of
return on a hypothetical investment in a Contract over a period of one, five,
and ten years (or, if less, up to the life of the Subaccount), and will reflect
the deduction of the administration charge, mortality and expense risk charge
and contingent deferred sales charge and may simultaneously be shown for other
periods.
Quotations of yield and effective yield do not reflect deduction of the
contingent deferred sales charge, and total return figures may be quoted that do
not reflect deduction of the charge. If reflected, the performance figures
quoted would be lower. Such performance information will be accompanied by total
return figures that reflect deduction of the contingent deferred sales charge
that would be imposed if Contract Value were withdrawn at the end of the period
for which total return is quoted.
Although the Contracts were not available for purchase until June 8, 1984,
the underlying investment vehicle of the Separate Account, SBL Fund, has been in
existence since May 26, 1977. Performance information for the Subaccounts may
also include quotations of total return for periods beginning prior to the
availability of the Contracts that incorporate the performance of SBL Fund.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donaghue Money Market
Institutional Averages, the Lehman Brothers Government Corporate Index, the
Morgan Stanley Capital International's EAFE Index or other indices measuring
performance of a pertinent group of securities so that investors may compare a
Subaccount's results with those of a group of securities widely regarded by
investors as representative of the securities markets in general or
representative of a particular type of security: (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Contract Value is allocated to a Subaccount
during a particular time period on which the calculations are based. Performance
information should be considered in light of the investment objectives and
policies, characteristics, and quality of the Series in which the Subaccount
invests, and the market conditions during the given time period, and should not
be considered as a representation of what may be achieved in the future. For a
description of the methods used to determine yield and total return for the
Subaccounts, see the Statement of Additional Information.
Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on overall
performance or other criteria, (ii) the effect of tax-deferred compounding on a
Subaccount's investment returns, or returns in general, which may be illustrated
by graphs, charts, or otherwise, and which may include a comparison, at various
points in time, of the return from an investment in a Contract (or returns in
general) on a tax-deferred basis (assuming one or more tax rates) with the
return on a taxable basis, and (iii) Security Benefit's rating or a rating of
Security Benefit's claim-paying ability as determined by firms that analyze and
rate insurance companies and by nationally recognized statistical rating
organizations.
ADDITIONAL INFORMATION
REGISTRATION STATEMENT -- A Registration Statement under the 1933 Act has been
filed with the SEC relating to the offering described in this Prospectus. This
Prospectus does not include all the information included in the Registration
Statement, certain portions of which, including the Statement of Additional
Information, have been omitted pursuant to the rules and regulations of the SEC.
The omitted information may be obtained at the SEC's principal office in
Washington, DC, upon payment of the SEC's prescribed fees and may also be
obtained from the SEC's web site (http://www.sec.gov).
FINANCIAL STATEMENTS -- Consolidated financial statements of Security Benefit
Life Insurance Company and subsidiaries at December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998, and the financial
statements of the Separate Account at December 31, 1998 and for each of the two
years in the period ended December 31, 1998 are contained in the Statement of
Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to Security Benefit Life Insurance Company and
subsidiaries. The Table of Contents of the Statement of Additional Information
is set forth below:
TABLE OF CONTENTS --
Page
THE CONTRACT............................................................... 3
Valuation of Accumulation Units......................................... 3
Computation of Variable Annuity Payments................................ 3
Illustration............................................................ 3
Variations in Charges................................................... 4
Termination of Contract................................................. 4
Group Contracts......................................................... 4
PERFORMANCE INFORMATION.................................................... 4
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX QUALIFIED RETIREMENT PLANS...... 6
Section 401............................................................. 6
Section 403(b).......................................................... 7
Section 408............................................................. 7
Section 457............................................................. 7
ASSIGNMENT................................................................. 8
DISTRIBUTION OF THE CONTRACTS.............................................. 8
SAFEKEEPING OF VARIFLEX ACCOUNT ASSETS..................................... 8
STATE REGULATION........................................................... 8
EXPERTS.................................................................... 8
FINANCIAL STATEMENTS....................................................... 8
<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
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
RELATING TO THE PROSPECTUS DATED May 1, 1999,
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
STATEMENT OF
ADDITIONAL INFORMATION
May 1, 1999
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Variflex Variable Annuity Contracts (the "Contract")
offered by Security Benefit Life Insurance Company ("Security Benefit"). You may
obtain a copy of the Prospectus dated May 1, 1999, 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............................................................... 3
Valuation of Accumulation Units......................................... 3
Computation of Variable Annuity Payments................................ 3
Illustration............................................................ 3
Variations in Charges................................................... 4
Termination of Contract................................................. 4
Group Contracts......................................................... 4
Performance Information.................................................... 4
Limits on Purchase Payments Paid Under Tax-Qualified Retirement Plans...... 6
Section 401............................................................. 6
Section 403(b).......................................................... 7
Section 408............................................................. 7
Section 457............................................................. 7
Assignment................................................................. 8
Distribution of the Contracts.............................................. 8
Safekeeping of Variflex Account Assets..................................... 8
State Regulation........................................................... 8
Experts.................................................................... 8
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 Subaccount on any day is equal to (a) divided
by (b), where (a) is the net asset value of the underlying Fund shares of the
Subaccount less the mortality and expense risk charge and any deduction for
provision for federal income taxes and (b) is the number of Accumulation Units
of that Subaccount at the beginning of that day.
The value of a Contract on any Valuation Date during the Accumulation Period can
be determined by subtracting (b) from (a), where (a) is determined by
multiplying the total number of Accumulation Units of each Subaccount within
Variflex credited to the Contract by the applicable Accumulation Unit value of
each such Subaccount, and (b) is any pro rata administration charge. During the
Accumulation Period, all cash dividends and other cash distributions made to
each Subaccount will be reinvested in additional shares of the corresponding
Series of SBL Fund.
COMPUTATION OF VARIABLE ANNUITY PAYMENTS --
DETERMINATION OF AMOUNT OF FIRST ANNUITY PAYMENT. For Annuities under options 1
through 4, 9 and 10, the Contracts specify 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 your Contract (expressed in thousands of dollars) by the amount of
the first monthly payment per $1,000 of value, in accordance with the tables
specified in your Contract. The value of your Contract 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 as of
the close of the Annuity Commencement Date (or for Contracts issued prior to
January 4, 1999, as of the end of the second day preceding the Annuity
Commencement Date). For Annuities under these options, any pro rata
administration charge is assessed prior to the first annuity payment under such
option. For Annuities under options 5 through 8 or other mutually agreed upon
non-life contingent payment option, the value of your Contract for the purpose
of the first and subsequent periodic payments is based on the Accumulation Unit
value as of the end of the day the annuity payment is made.
AMOUNT OF THE SECOND AND SUBSEQUENT ANNUITY PAYMENTS. For Variable Annuities
under options 1 through 4, 9 and 10, 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) as of the close of the Annuity Commencement Date
to determine the number of Annuity Units represented by the first payment. This
number of Annuity Units remains fixed during the Annuity Period, unless Annuity
Units are transferred among Subaccounts. 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.
ANNUITY UNIT. The value of an Annuity Unit originally was set at $1.00. 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 interest rate of 3 1/2% built into the annuity rates specified in the
Contract). The Net Investment Factor of any Subaccount is determined by
subtracting 0.00003307502, the mortality and expense risk charge, 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 attributable to such share during a day and minus any applicable
income tax liabilities as determined by Security Benefit, and (b) is the value
of a share of the underlying Series of SBL Fund at the end of the previous day.
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 or her Contract 4,000 Accumulation Units
and that the value of an Accumulation Unit 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 specified 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 Subaccount 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 interest 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 1.0639727137 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
$1.0639727137 which produces a current monthly payment of $131.96.
VARIATIONS IN CHARGES -- The contingent deferred sales charges or other charges
or deductions 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. Security Benefit 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, Security Benefit Life Insurance Company, Security Benefit Group,
Inc., SBL Fund, or Security Distributors, Inc.; the spouses, grandparents,
parents, children, 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 Security Benefit to sell variable annuities are permitted to purchase
contracts with substantial reduction of the contingent deferred sales charges or
other administrative charges or deductions. Contracts so purchased are for
investment purposes only and may not be resold except to Security Benefit. No
sales commission will be paid on such contracts.
TERMINATION OF CONTRACT -- Security Benefit reserves the right to terminate any
Group Unallocated Contract under the following circumstances: (1) the Contract
Value is less than $10,000 after the end of the first Contract Year, or $20,000
after the end of the third Contract Year; (2) the Qualified Plan pursuant to
which the Contract is issued is terminated for any reason or becomes
disqualified under Section 401 or 403 of the Internal Revenue Code; or (3) for
any reason after the eighth Contract Year. For Contracts issued on or after
January 4, 1999, Security Benefit also reserves the right to terminate a
Contract if Account Value is less then $2,000 at any time after the first
Contract Year and prior to the Annuity Commencement Date. For Contracts issued
prior to January 4, 1999, Security Benefit may terminate a Contract if the
following conditions exist during the Accumulation Period: (1) no purchase
payments have been received by Security Benefit for the Contract for two full
years; (2) the combined value of the Contract in the Separate and Fixed Accounts
is less than $2,000; and (3) the value of the Contract which is allocated to the
Fixed Account, projected to the maturity date, would produce installments of
less than $20 per month using contractual guarantees. Termination of a Contract
may have adverse tax consequences. (See the Prospectus at "Full and Partial
Withdrawals," page 18, "Distribution Requirements," page 20, and "Federal Tax
Matters," page 29.)
GROUP CONTRACTS -- In the case of Group Allocated Contract, 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 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. A Group
Unallocated Contract is a contract between the Contractowner and the insurance
company and individual accounts are not established for Participants.
PERFORMANCE INFORMATION
Performance information for the Subaccounts 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
Subaccount, and yield, average annual total return and total return of all
Subaccounts except the Money Market Subaccount. Current yield for the Money
Market Subaccount will be based on the change in the value of a hypothetical
investment (exclusive of capital changes and income other than investment
income) 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 Subaccount
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, 1998, the yield of the Money Market
Subaccount was 2.52% and the effective yield of the Subaccount was 2.55%.
Quotations of yield for the Subaccounts, other than the Money Market Subaccount,
will be based on all investment income per Accumulation Unit earned during a
particular 30-day period, less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income by
the value of the Accumulation Unit on the last day of the period, according to
the following formula:
YIELD = 2[(a-b + 1)^6 - 1]
----
cd
where a = net investment income earned during the period by the Series of
the Fund attributable to shares owned by the Subaccount,
b = expenses accrued for the period (net of any reimbursements),
c = the average daily number of Accumulation Units outstanding
during the period that were entitled to receive dividends, and
d = the maximum offering price per Accumulation Unit on the last day
of the period.
For the 30-day period ended December 31, 1998, the yield for the High Grade
Income Subaccount was 6.65%.
Quotations of average annual total return for any Subaccount of the Separate
Account will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Subaccount over certain periods that
will include periods of 1, 5 and 10 years (up to the life of the Subaccount),
calculated pursuant to the following formula:
P(1 + T)^n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). 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 mortality and expense risk and the annual administration
charge, 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 or the annual administration charge.
For the 1-, 5- and 10-year periods ended December 31, 1998, the average annual
total return for the Subaccounts was the following:
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURN AVERAGE ANNUAL RETURN (WITHOUT
(WITH CONTINGENT DEFERRED SALES CONTINGENT DEFERRED SALES
CHARGE AND ADMINISTRATION CHARGE) CHARGE AND ADMINISTRATION CHARGE)
------------------------------------------ ------------------------------------------
1 YEAR 5 YEARS 10 YEARS 1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Subaccount.................... 12.92% 17.28% 15.44% 23.92% 20.19% 17.33%
Growth-Income Subaccount............. (4.75)% 10.70% 11.53% 6.25% 13.83% 13.49%
Worldwide Equity Subaccount.......... 7.68% 6.59% 0.57% 18.68% 9.99% 4.43%
High Grade Income Subaccount......... (4.30)% 0.34% 4.34% 6.70% 4.16% 6.91%
Mid Cap Subaccount................... 5.57% 8.90% 13.29%(1) 16.57% 12.26% 15.72%(1)
Global Strategic Income Subaccount... (4.79)% 4.88%(2) --- 5.60% 8.06%(2) ---
Global Total Return Subaccount....... 0.48% 7.08%(2) --- 11.28% 9.87%(2) ---
Managed Asset Allocation Subaccount.. 6.06% 11.42%(2) --- 17.06% 14.53%(2) ---
Equity Income Subaccount............. (2.87)% 16.56%(2) --- 7.66% 19.32%(2) ---
High Yield Subaccount(7)............. --- --- --- 4.63% 9.45%(3) ---
Social Awareness Subaccount.......... 18.84% 14.11% 12.64%(4) 29.84% 17.25% 15.15%(4)
Value Subaccount(7)................. --- --- --- 15.21% 27.48(5) ---
Small Cap Subaccount(7).............. --- --- --- 10.15% 4.36%(6) ---
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. From October 1, 1992 (Subaccount date of inception) to December 31, 1998.
2. From June 1, 1995 (Subaccount date of inception) to December 31, 1998.
3. From August 5, 1996 (underlying Series date of inception) to December
31,1998.
4. From May 1, 1991 (Subaccount date of inception) to December 31, 1998.
5. From May 1, 1997 (underlying Series date of inception) to December 31, 1998.
6. From October 15, 1997 (underlying Series date of inception) to December 31,
1998.
7. High Yield Subaccount, Value Subaccount and Small Cap Subaccount were not
offered under the Contract until January 4, 1999.
- --------------------------------------------------------------------------------
Quotations of total return for any Subaccount of the Separate Account will be
based on a hypothetical investment in an Account over a certain period and will
be computed by subtracting the initial value of the investment from the ending
value and dividing the remainder by the initial value of the investment. Such
quotations of total return will reflect the deduction of all applicable charges
to the contract and the separate account (on an annual basis) except the
administration charge and the applicable contingent deferred sales charge.
For the fiscal years ended 1998 through 1989, the total return for each Series
was the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Series.................... 23.92% 27.16% 21.22% 35.11% (2.82)% 12.35% 9.83% 34.45% (10.90)% 33.31%
Growth-Income Series............. 6.25% 24.99% 16.80% 28.52% (4.14)% 8.30% 4.99% 36.16% (5.60)% 26.86%
Worldwide Equity Series.......... 18.68% 5.17% 15.99% 9.55% 1.51% 30.06% (3.78)% 3.01%(1) --- ---
High Grade Income Series......... 6.70% 8.71% (1.90)% 17.17% (8.04)% 11.28% 6.16% 15.57% 5.40% 10.54%
Mid Cap Series................... 16.57% 18.52% 16.62% 18.02% (6.23)% 12.30% 24.40%(2) --- --- ---
Global Strategic Income Series... 5.60% 4.17% 12.25% 6.90%(3) --- --- --- --- --- ---
Global Total Return Series....... 11.28% 4.83% 12.88% 6.40%(3) --- --- --- --- --- ---
Managed Asset Allocation Series.. 17.06% 17.02% 11.35% 6.60%(3) --- --- --- --- --- ---
Equity Income Series............. 7.66% 26.92% 18.59% 16.20%(3) --- --- --- --- --- ---
High Yield Series................ 4.63% 11.88% 6.10%(4) --- --- --- --- --- --- ---
Social Awareness Series.......... 29.84% 21.17% 17.41% 26.25% (4.96)% 10.55% 15.00% 4.70%(5) --- ---
Value Series..................... 15.21% 29.29%(6) --- --- --- --- --- --- --- ---
Small Cap Series................. 10.15% (4.40)%(7) --- --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. On May 1, 1991 the Worldwide Equity Series changed its investment objective
from high current income to long-term capital growth through investment in
common stocks and equivalents of companies domiciled in foreign countries
and the United States. The performance information set forth above reflects
performance after the change in investment objective.
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.
5. From May 1, 1991 to December 31, 1991.
6. From May 1, 1997 to December 31, 1997.
7. From October 15, 1997 to December 31, 1997.
- --------------------------------------------------------------------------------
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 the Contract, that incorporate the
performance of the SBL Fund. Any quotation of performance that pre-dates the
date of inception of the Variflex Separate Account (or a Subaccount thereof as
applicable) will be accompanied by average annual total return reflecting the
deduction of the applicable contingent deferred sales charge and other Variflex
fees and charges since the date of inception of the Subaccount.
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 Subaccount's 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 Subaccount reflects only the performance of a
hypothetical investment in the Subaccount 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 Subaccount 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 subject to additional annual limits. Contributions to a defined
benefit pension plan are actuarially determined based upon the amount of
benefits the participants will receive under the plan formula. The maximum
annual benefit any individual may receive under an employer's defined benefit
plan is limited under Section 415(b) of the Internal Revenue Code. The limits
determined under Section 415(b) and (c) of the Internal Revenue Code are further
reduced for an individual who participates in a defined contribution plan and a
defined benefit plan maintained by the same employer. Rollover contributions are
not subject to the annual limitations described above.
SECTION 403(B) -- Contributions to 403(b) annuities are excludable from an
employee's gross income if they do not exceed the smallest of the limits
calculated under Sections 402(g), 403(b)(2), and 415 of the Code. The applicable
limit will depend upon whether the annuities are purchased with employer or
employee contributions. Rollover contributions are not subject to these annual
limits.
Section 402(g) generally limits an employee's salary reduction contributions to
a 403(b) annuity to $10,000 a year. The $10,000 limit will be reduced by salary
reduction contributions to other types of retirement plans. An employee with at
least 15 years of service for a "qualified employer" (i.e., an educational
organization, hospital, home health service agency, health and welfare service
agency, church or convention or association of churches) generally may exceed
the $10,000 limit by $3,000 per year, subject to an aggregate limit of $15,000
for all years.
Section 403(b)(2) provides an overall limit on employer and employee salary
reduction contributions that may be made to a 403(b) annuity. Section 403(b)(2)
generally provides that the maximum amount of contributions an employee may
exclude from his or her gross income in any taxable year is equal to the excess,
if any, of:
(i) the amount determined by multiplying 20% of the employee's includable
compensation by the number of his or her years of service with the
employer, over
(ii) the total amount contributed to retirement plans sponsored by the
employer, that were excludable from his gross income in prior years.
Section 415(c) also provides an overall limit on the amount of employer and
employee salary reduction contributions to a Section 403(b) annuity that will be
excludable from an employee's gross income in a given year. The Section 415(c)
limit is the lesser of (i) $30,000, or (ii) 25% of the employee's annual
compensation.
SECTION 408 -- Premiums (other than rollover contributions) paid under a
Contract used in connection with an individual retirement annuity (IRA) that is
described in Section 408 of the Internal Revenue Code are subject to the limits
on contributions to IRA's under Section 219(b) of the Internal Revenue Code.
Under Section 219(b) of the Code, contributions (other than rollover
contributions) to an IRA are limited to the lesser of $2,000 per year or the
Owner's annual compensation. Spousal IRAs allow an Owner and his or her spouse
to contribute up to $2,000 to their respective IRAs so long as a joint tax
return is filed and joint income is $4,000 or more. The maximum amount the
higher compensated spouse may contribute for the year is the lesser of $2,000 or
100% of that spouse's compensation. The maximum the lower compensated spouse may
contribute is the lesser of (i) $2,000 or (ii) 100% of that spouse's
compensation plus the amount by which the higher compensated spouse's
compensation exceeds the amount the higher compensated spouse contributes to his
or her IRA. The extent to which an Owner may deduct contributions to an IRA
depends on the gross income of the Owner and his or her spouse for the year and
whether either participate in an employer-sponsored retirement plan.
Premiums under a Contract used in connection with a simplified employee pension
plan described in Section 408 of the Internal Revenue Code are subject to limits
under Section 402(h) of the Internal Revenue Code. Section 402(h) currently
limits employer contributions and salary reduction contributions (if permitted)
under a simplified employee pension plan to the lesser of (a) 15% of the
compensation of the participant in the Plan, or (b) $30,000. Salary reduction
contributions, if any, are subject to additional annual limits.
SECTION 457 -- Contributions on behalf of an employee to a Section 457 plan
generally are limited to the lesser of (i) $8,000 or (ii) 33 1/3% of the
employee's includable compensation. The $8,000 limit is indexed for inflation
(in $500 increments) for tax years beginning after December 31, 1996; thus the
dollar limit is adjusted only when the sum of the inflation adjustments equals
or exceeds $500. If the employee participates in more than one Section 457 plan,
the $8,000 limit applies to contributions to all such programs. The $8,000 limit
is reduced by the amount of any salary reduction contribution the employee makes
to a 403(b) annuity, an IRA or a retirement plan qualified under Section 401.
The Section 457 limit may be increased during the last three years ending before
the employee reaches his or her normal retirement age. In each of these last
three years, the plan may permit a "catch-up" amount in addition to the regular
amount to be deferred. The maximum combined amount which may be deferred in each
of these three years is $15,000 reduced by any amount excluded from the
employee's income for the taxable year as a contribution to another plan.
ASSIGNMENT
Variflex Contracts may be assigned by the Contractowner except when issued to
plans or trusts qualified under Section 401, 403, 408, 408A or 457 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 Security Benefit, 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
Security Benefit and by national banks. Security Distributors, Inc., acts as the
principal underwriter on behalf of Security Benefit for the distribution of the
Variflex contracts.
The Variflex offering is continuous. During the years ended December 31, 1998,
1997 and 1996, Security Benefit received contingent deferred sales charges from
Variflex as follows: $1,870,879, $1,653,942, and $1,285,380, respectively.
SAFEKEEPING OF VARIFLEX ACCOUNT ASSETS
All assets of Variflex are held in the custody and safekeeping of Security
Benefit. Additional protection for such assets is offered by Security Benefit's
blanket fidelity bond presently covering all officers and employees for a total
of $5,000,000 per loss.
STATE REGULATION
As a life insurance company organized under the laws of Kansas, Security Benefit
(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 Security Benefit for the prior year and its financial condition on December
31 of that year. Security Benefit is subject to a complete examination of its
operations, including an examination of the liabilities and reserves of Security
Benefit 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, Security Benefit 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.
EXPERTS
The consolidated financial statements of Security Benefit Life Insurance Company
and subsidiaries at December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998 and the financial statements of Variflex
at December 31, 1998, and for each of the two years in the period ended December
31, 1998, included in this Statement of Additional Information have been audited
by Ernst & Young LLP, independent auditors, for the periods indicated in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
FINANCIAL STATEMENTS
The consolidated financial statements of Security Benefit Life Insurance Company
and subsidiaries at December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998, and the financial statements of Variflex
at December 31, 1998, and for each of the two years in the period ended December
31, 1998, are set forth herein, starting on page 9.
The consolidated financial statements of Security Benefit Life Insurance Company
and subsidiaries, which are included in this Statement of Additional
Information, should be considered only as bearing on the ability of the Company
to meet its obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets held in the Separate
Account.
<PAGE>
Variflex
Financial Statements
Years ended December 31, 1998 and 1997
CONTENTS
PAGE
Report of Independent Auditors........................................... 10
Audited Financial Statements
Balance Sheet.......................................................... 11
Statements of Operations and Changes in Net Assets..................... 13
Notes to Financial Statements.......................................... 15
<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 Account)
(comprised of the individual series indicated therein) as of December 31, 1998,
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 Account'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, 1998, by correspondence
with the transfer agent. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our
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 the individual series of
Variflex at December 31, 1998, and the results of their operations and changes
in their net assets for each of the two years in the period then ended in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 5, 1999
<PAGE>
Variflex
Balance Sheet
December 31, 1998
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) -
30,949,747 shares at net asset value
of $34.27 per share (cost, $855,261).................... $1,060,649
Series B (Growth-Income Series) -
27,183,841 shares at net asset value
of $39.68 per share (cost, $993,684).................... 1,078,657
Series C (Money Market Series) -
6,930,057 shares at net asset value
of $12.53 per share (cost, $86,005)..................... 86,834
Series D (Worldwide Equity Series) -
44,633,381 shares at net asset value
of $6.74 per share (cost, $282,120)..................... 300,829
Series E (High-Grade Income Series) -
9,664,090 shares at net asset value
of $12.42 per share (cost, $117,048).................... 120,028
Series J (Emerging Growth Series) -
9,955,342 shares at net asset value
of $22.51 per share (cost, $196,035).................... 224,096
Series K (Global Aggressive Bond Series) -
799,113 shares at net asset value
of $9.56 per share (cost, $8,306)....................... 7,638
Series M (Specialized Asset Allocation Series) -
2,324,547 shares at net asset value
of $12.87 per share (cost, $28,647)..................... 29,917
Series N (Managed Asset Allocation Series) -
2,759,166 shares at net asset value
of $16.01 per share (cost, $38,780)..................... 44,175
Series O (Equity Income Series) -
6,995,662 shares at net asset value
of $18.35 per share (cost, $118,124).................... 128,370
Series S (Social Awareness Series) -
4,373,709 shares at net asset value
of $28.40 per share (cost, $92,169)..................... 124,214
Mortality guarantee receivable................................. 24
----------
Total assets................................................... $3,205,431
==========
<PAGE>
NET ASSETS
Net assets are represented by (NOTE 3):
<TABLE>
<CAPTION>
NUMBER OF UNITS UNIT VALUE AMOUNT
-----------------------------------------------------
<S> <C> <C> <C> <C>
Growth Series:
Accumulation units........................................... 14,662,538 $72.10 $1,057,188
Annuity reserves............................................. 48,182 72.10 3,474 $1,060,662
-----------
Growth-Income Series:
Accumulation units........................................... 17,378,878 61.86 1,074,978
Annuity reserves............................................. 59,500 61.86 3,680 1,078,658
-----------
Money Market Series:
Accumulation units........................................... 4,383,329 19.72 86,421
Annuity reserves............................................. 20,961 19.72 413 86,834
-----------
Worldwide Equity Series:
Accumulation units........................................... 16,573,512 18.11 300,118
Annuity reserves............................................. 39,280 18.11 711 300,829
-----------
High-Grade Income Series:
Accumulation units........................................... 4,741,368 25.16 119,278
Annuity reserves............................................. 29,983 25.16 754 120,032
-----------
Emerging Growth Series:
Accumulation units........................................... 8,921,797 24.90 222,174
Annuity reserves............................................. 77,163 24.90 1,922 224,096
-----------
Global Aggressive Bond Series:
Accumulation units........................................... 578,471 13.20 7,633
Annuity reserves............................................. 373 13.20 5 7,638
-----------
Specialized Asset Allocation Series:
Accumulation units........................................... 2,130,273 14.01 29,848
Annuity reserves............................................. 4,936 14.01 69 29,917
-----------
Managed Asset Allocation Series:
Accumulation units........................................... 2,690,168 16.26 43,735
Annuity reserves............................................. 27,061 16.26 440 44,175
-----------
Equity Income Series:
Accumulation units........................................... 6,797,102 18.83 128,011
Annuity reserves............................................. 19,179 18.83 361 128,372
-----------
Social Awareness Series:
Accumulation units........................................... 4,189,028 29.50 123,597
Annuity reserves............................................. 21,032 29.50 621 124,218
--------------------------
Total net assets................................................ $3,205,431
===========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Variflex
Statement of Operations and Changes in Net Assets
Year ended December 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH-
GRADE EMERGING
GROWTH-INCOME MONEY MARKET WORLDWIDE INCOME GROWTH
GROWTH SERIES SERIES SERIES EQUITY SERIES SERIES SERIES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dividend distributions............................ $ 4,720 $ 18,521 $ 4,372 $ 3,672 $ 7,002 $ 1,189
Expenses (NOTE 2):
Mortality and expense risk fee................. (10,942) (13,400) (1,198) (3,345) (1,389) (2,359)
Administrative fee............................. (447) (1,321) (122) (48) (245) (20)
--------------------------------------------------------------------------------
Net investment income (loss)...................... (6,669) 3,800 3,052 279 5,368 (1,190)
Capital gains distributions....................... 60,247 117,649 --- 21,009 1 19,867
Realized gain (loss) on investments............... 94,021 77,787 (206) 14,535 (978) 11,657
Unrealized appreciation
(depreciation) on investments.................. 53,960 (134,976) 845 11,453 2,512 3,171
--------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments..................... 208,228 60,460 639 46,997 1,535 34,695
--------------------------------------------------------------------------------
Net increase in net assets
resulting from operations...................... 201,559 64,260 3,691 47,276 6,903 33,505
Net assets at beginning of year................... 814,195 1,093,948 67,920 252,695 117,810 187,774
Variable annuity deposits (NOTES 2 AND 3)......... 282,099 169,655 254,348 96,362 77,634 69,168
Terminations and withdrawals (NOTES 2 AND 3)...... (235,347) (248,805) (237,571) (95,281) (81,192) (65,788)
Annuity payments (NOTES 2 AND 3).................. (1,852) (419) (1,547) (223) (1,124) (563)
Net mortality guarantee transfer.................. 8 19 (7) --- 1 ---
--------------------------------------------------------------------------------
Net assets at end of year......................... $1,060,662 $1,078,658 $ 86,834 $300,829 $120,032 $224,096
================================================================================
</TABLE>
<TABLE>
<CAPTION>
GLOBAL SPECIALIZED MANAGED
AGGRESSIVE ASSET ASSET SOCIAL
BOND ALLOCATION ALLOCATION EQUITY AWARENESS
SERIES SERIES SERIES INCOME SERIES SERIES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend distributions............................ $ 730 $ 624 $ 407 $ 1,512 $ 218
Expenses (NOTE 2):
Mortality and expense risk fee................. (100) (363) (364) (1,401) (1,138)
Administrative fee............................. (24) (20) (22) (138) (41)
--------------------------------------------------------------------------------
Net investment income (loss)...................... 606 241 21 (27) (961)
Capital gains distributions....................... 134 1,558 254 3,658 2,392
Realized gain (loss) on investments............... (273) 1,071 1,615 8,677 8,159
Unrealized appreciation
(depreciation) on investments.................. (74) 261 3,274 (4,469) 16,195
--------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments..................... (213) 2,890 5,143 7,866 26,746
--------------------------------------------------------------------------------
Net increase in net assets resulting from
operations..................................... 393 3,131 5,164 7,839 25,785
Net assets at beginning of year................... 7,991 29,765 21,161 94,439 78,416
Variable annuity deposits (NOTES 2 AND 3)......... 3,744 6,604 23,468 55,344 35,747
Terminations and withdrawals (NOTES 2 AND 3)...... (2,830) (9,504) (5,597) (29,182) (15,692)
Annuity payments (NOTES 2 AND 3).................. (1,660) (79) (19) (70) (38)
Net mortality guarantee transfer.................. --- --- (2) 2 ---
--------------------------------------------------------------------------------
Net assets at end of year......................... $ 7,638 $29,917 $44,175 $128,372 $124,218
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Variflex
Statement of Operations and Changes in Net Assets
Year ended December 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH
GROWTH MONEY WORLDWIDE GRADE EMERGING
INCOME MARKET EQUITY INCOME GROWTH
GROWTH SERIES SERIES SERIES SERIES SERIES SERIES
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dividend distributions............................. $ 4,540 $ 21,188 $ 5,040 $ 5,166 $ 7,354 $ 464
Expenses (NOTE 2):
Mortality and expense risk fee.................. (8,484) (12,034) (1,111) (3,086) (1,274) (1,958)
Administrative fee.............................. (438) (1,387) (118) (64) (249) (22)
-------------------------------------------------------------------------------
Net investment income (loss)....................... (4,382) 7,767 3,811 2,016 5,831 (1,516)
Capital gains distributions........................ 42,445 52,576 --- 11,148 --- 3,999
Realized gain (loss) on investments................ 71,222 51,243 (219) 13,977 (219) 16,556
Unrealized appreciation
(depreciation) on investments................... 51,354 106,904 (165) (15,631) 2,886 10,679
-------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments...................... 165,021 210,723 (384) 9,494 2,667 31,234
-------------------------------------------------------------------------------
Net increase in net assets
resulting from operations....................... 160,639 218,490 3,427 11,510 8,498 29,718
Net assets at beginning of year.................... 591,591 886,931 90,466 223,249 109,990 128,768
Variable annuity deposits (NOTES 2 AND 3).......... 249,960 162,219 229,892 79,090 46,747 89,302
Terminations and withdrawals (NOTES 2 AND 3)....... (187,265) (173,157) (255,042) (60,994) (47,233) (59,424)
Annuity payments (NOTES 2 AND 3)................... (705) (501) (828) (160) (191) (590)
Net mortality guarantee transfer................... (25) (34) 5 --- (1) ---
-------------------------------------------------------------------------------
Net assets at end of year.......................... $ 814,195 $1,093,948 $ 67,920 $252,695 $117,810 $187,774
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
GLOBAL SPECIALIZED MANAGED
AGGRESSIVE ASSET ASSET EQUITY SOCIAL
BOND ALLOCATION ALLOCATION INCOME AWARENESS
SERIES SERIES SERIES SERIES SERIES
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend distributions............................. $ 650 $ 600 $ 263 $ 658 $ 125
Expenses (NOTE 2):
Mortality and expense risk fee.................. (92) (332) (184) (794) (769)
Administrative fee.............................. (21) (21) (15) (93) (36)
-------------------------------------------------------------------------------
Net investment income (loss)....................... 537 247 64 (229) (680)
Capital gains distributions........................ 196 577 171 938 3,402
Realized gain (loss) on investments................ 130 1,077 1,042 3,898 4,159
Unrealized appreciation
(depreciation) on investments................... (543) (756) 953 10,793 5,871
-------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments...................... (217) 898 2,166 15,629 13,432
-------------------------------------------------------------------------------
Net increase in net assets
resulting from operations....................... 320 1,145 2,230 15,400 12,752
Net assets at beginning of year.................... 5,829 21,737 11,959 37,606 53,324
Variable annuity deposits (NOTES 2 AND 3).......... 6,637 12,513 11,907 54,189 22,273
Terminations and withdrawals (NOTES 2 AND 3)....... (4,783) (5,572) (4,928) (12,735) (9,858)
Annuity payments (NOTES 2 AND 3)................... (12) (58) (6) (13) (31)
Net mortality guarantee transfer................... --- --- (1) (8) (44)
-------------------------------------------------------------------------------
Net assets at end of year.......................... $ 7,991 $29,765 $21,161 $ 94,439 $78,416
===============================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Variflex
Notes to Financial Statements
December 31, 1998 and 1997
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 capital
appreciation).
Under the terms of the investment advisory contracts, portfolio investments
of the underlying mutual fund are made by Security Management Company, LLC
(SMC), a limited liability company controlled by its members, SBL and
Security Benefit Group, Inc., a wholly-owned subsidiary of SBL. SMC has
engaged T. Rowe Price Associates, Inc. to provide subadvisory services for
the Managed Asset Allocation Series and the Equity Income Series; Meridian
Investment Management Corporation to provide subadvisory services for the
Specialized Asset Allocation Series and Strong Capital Management, Inc. to
provide subadvisory services to the Small Cap Series. Lexington Management
Corporation (LMC) served as subadvisor for the Worldwide Equity Series until
November 1, 1998, when LMC was replaced by OppenheimerFunds, Inc. Effective
December 31, 1998, LMC resigned as subadvisor for Global Aggressive Bond
Series, which will be advised by SMC.
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 realized
gains and losses. Security transactions are accounted for on the trade date.
The cost of investments purchased and proceeds from investments sold for the
year ended December 31 was as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------
COST OF PROCEEDS FROM COST OF PROCEEDS FROM
PURCHASES SALES PURCHASES SALES
----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Growth Series....................................... 363,460 $264,990 $307,630 $207,603
Growth-Income Series................................ 318,360 276,473 244,789 195,902
Money Market Series................................. 268,091 249,812 242,657 264,823
Worldwide Equity Series............................. 124,902 102,757 98,268 67,168
High-Grade Income Series............................ 86,856 86,174 56,168 51,013
Emerging Growth Series.............................. 94,457 72,964 96,572 64,801
Global Aggressive Bond Series....................... 4,906 4,912 7,766 5,191
Specialized Asset Allocation Series................. 9,268 10,447 14,348 6,641
Managed Asset Allocation Series..................... 24,619 6,494 12,903 5,696
Equity Income Series................................ 63,108 33,384 57,331 15,190
Social Awareness Series............................. 39,811 18,373 26,829 11,798
</TABLE>
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.
REINVESTMENT OF DIVIDENDS -- Dividend and capital gains distributions paid by
the mutual fund to the Account are reinvested in additional shares of each
respective series. Dividend income and capital gains distributions are
recorded as income on the ex-dividend date.
FEDERAL INCOME TAXES -- The operations of the Account are a part of the
operations of SBL. Under current law, no federal income taxes are allocated
by SBL to the operations of the Account.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with 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 net
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 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 charges and other contract charges
totaled $1,870,879 and $1,653,942 during 1998 and 1997, respectively.
3. SUMMARY OF UNIT TRANSACTIONS
<TABLE>
<CAPTION>
UNITS
-------------------------------
YEAR ENDED DECEMBER 31
1998 1997
-------------------------------
(IN THOUSANDS)
<S> <C> <C>
Growth Series:
Variable annuity deposits................................................................. 4,411 4,775
Terminations, withdrawals, annuity payments and expense charges........................... 3,692 3,713
Growth-Income Series:
Variable annuity deposits................................................................. 2,809 3,118
Terminations, withdrawals, annuity payments and expense charges........................... 4,163 3,368
Money Market Series:
Variable annuity deposits................................................................. 13,168 12,375
Terminations, withdrawals, annuity payments and expense charges........................... 12,343 13,751
Worldwide Equity Series:
Variable annuity deposits................................................................. 5,811 5,104
Terminations, withdrawals, annuity payments and expense charges........................... 5,755 3,932
High-Grade Income Series:
Variable annuity deposits................................................................. 3,175 2,073
Terminations, withdrawals, annuity payments and expense charges........................... 3,401 2,147
Emerging Growth Series:
Variable annuity deposits................................................................. 3,201 4,688
Terminations, withdrawals, annuity payments and expense charges........................... 2,989 3,042
Global Aggressive Bond Series:
Variable annuity deposits................................................................. 300 548
Terminations, withdrawals, annuity payments and expense charges........................... 361 394
Specialized Asset Allocation Series:
Variable annuity deposits................................................................. 502 1,003
Terminations, withdrawals, annuity payments and expense charges........................... 731 450
Managed Asset Allocation Series:
Variable annuity deposits................................................................. 1,574 915
Terminations, withdrawals, annuity payments and expense charges........................... 379 399
Equity Income Series:
Variable annuity deposits................................................................. 3,055 3,498
Terminations, withdrawals, annuity payments and expense charges........................... 1,640 825
Social Awareness Series:
Variable annuity deposits................................................................. 1,397 1,099
Terminations, withdrawals, annuity payments and expense charges........................... 638 493
</TABLE>
