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File No. 333-36529
File No. 811-3957
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. [_]
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Post-Effective Amendment No. 2 [X]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 3 [X]
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(Check appropriate box or boxes)
VARIFLEX SEPARATE ACCOUNT
(VARIFLEX ES)
(Exact Name of Registrant)
Security Benefit Life Insurance Company
(Name of Depositor)
700 Harrison Street, Topeka, Kansas 66636-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, Including Area Code:
(785) 431-3000
Name of Agent for Service for Process: Copies to:
Amy J. Lee, Associate General Counsel Jeffrey S. Puretz, Esq.
Security Benefit Group, Inc. Dechert, Price & Rhoads
700 Harrison Street 1500 K Street, N.W.
Topeka, KS 66636-0001 Washington, DC 20005
It is proposed that this filing will become effective:
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 30, 1999, pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on April 30, 1999, pursuant to paragraph (a)(1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_] on April 30, 1999, pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of securities being registered: Interests in a separate account under
group flexible premium deferred variable annuity contracts.
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VARIFLEX ES VARIABLE ANNUITY
GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY:
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
1-800-888-2461
MAILING ADDRESS:
SECURITY BENEFIT LIFE INSURANCE COMPANY
P.O. BOX 750497
TOPEKA, KANSAS 66675-0497
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This Prospectus describes the Variflex ES Variable Annuity Contract
("Variflex Contract" or the "Contract"), a flexible purchase payment deferred
variable annuity contract, offered by Security Benefit Life Insurance Company
("Security Benefit"). The Contract is available for groups in connection with a
retirement plan qualified under Section 401, 403(b) 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 the Variflex
Separate Account, or to the General 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
Mid Cap Subaccount was formerly known as Emerging Growth Subaccount, Global
Strategic Income Subaccount was formerly known as Global Aggressive Bond
Subaccount and Global Total Return Subaccount was formerly known as Specialized
Asset Allocation Subaccount.
Amounts allocated to the General Account will accrue interest at rates that
are paid by Security Benefit as described in "The Fixed Account," page 21.
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 20.
You may return the Contract according to the terms of its Free-Look Right.
See "Free-Look Right," page 5.
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 31 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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<PAGE>
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TABLE OF CONTENTS
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Page
DEFINITIONS............................................................... 4
SUMMARY................................................................... 4
PURPOSE OF THE CONTRACT................................................ 5
THE SEPARATE ACCOUNT AND SBL FUND...................................... 5
FIXED ACCOUNT.......................................................... 5
PURCHASE PAYMENTS...................................................... 5
CONTRACT BENEFITS...................................................... 5
FREE-LOOK RIGHT........................................................ 5
CHARGES AND DEDUCTIONS................................................. 5
Contingent Deferred Sales Charge..................................... 5
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....................................... 6
ANNUAL MUTUAL FUND EXPENSES............................................ 7
EXAMPLES............................................................... 7
CONDENSED FINANCIAL INFORMATION........................................... 8
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND SBL FUND.... 10
SECURITY BENEFIT LIFE INSURANCE COMPANY................................ 10
YEAR 2000 COMPLIANCE................................................... 10
PUBLISHED RATINGS...................................................... 10
SEPARATE ACCOUNT....................................................... 11
SBL FUND............................................................... 11
Series A (Growth Series)............................................. 11
Series B (Growth-Income Series)...................................... 11
Series C (Money Market Series)....................................... 12
Series D (Worldwide Equity Series)................................... 12
Series E (High Grade Income Series).................................. 12
Series H (Enhanced Index Series)..................................... 12
Series I (International Series)...................................... 12
Series J (Mid Cap Series)............................................ 12
Series K (Global Strategic Income Series)............................ 12
Series M (Global Total Return Series)................................ 12
Series N (Managed Asset Allocation Series)........................... 12
Series O (Equity Income Series)...................................... 12
Series P (High Yield Series)......................................... 12
Series S (Social Awareness Series)................................... 12
Series V (Value Series).............................................. 12
Series X (Small Cap Series).......................................... 12
Series Y (Select 25 Series).......................................... 12
The Investment Adviser............................................... 13
THE CONTRACT.............................................................. 13
GENERAL................................................................ 13
APPLICATION FOR A CONTRACT............................................. 13
PURCHASE PAYMENTS...................................................... 13
ALLOCATION OF PURCHASE PAYMENTS........................................ 13
DOLLAR COST AVERAGING OPTION........................................... 14
ASSET REALLOCATION OPTION.............................................. 14
TRANSFERS OF CONTRACT VALUE............................................ 15
CONTRACT VALUE......................................................... 15
DETERMINATION OF CONTRACT VALUE........................................ 15
FULL AND PARTIAL WITHDRAWALS........................................... 16
SYSTEMATIC WITHDRAWALS................................................. 16
FREE-LOOK RIGHT........................................................ 17
DEATH BENEFIT.......................................................... 17
CHARGES AND DEDUCTIONS.................................................... 17
CONTINGENT DEFERRED SALES CHARGE....................................... 17
MORTALITY AND EXPENSE RISK CHARGE...................................... 18
ADMINISTRATION CHARGE.................................................. 19
PREMIUM TAX CHARGE..................................................... 19
OTHER CHARGES.......................................................... 19
VARIATIONS IN CHARGES.................................................. 19
GUARANTEE OF CERTAIN CHARGES........................................... 19
SBL FUND EXPENSES...................................................... 19
ANNUITY PERIOD............................................................ 19
GENERAL................................................................ 19
ANNUITY OPTIONS........................................................ 20
Option 1--Life Income................................................ 20
Option 2--Life Income with Guaranteed Payments of 5,
10, 15 or 20 Years................................................. 20
Option 3--Life with Installment Refund Option........................ 20
Option 4--Joint and Last Survivor.................................... 20
Option 5--Payments for a Specified Period............................ 20
Option 6--Payments of a Specified Amount............................. 20
Option 7--Period Certain............................................. 20
Option 8--Joint and Contingent Survivor Option....................... 20
Value of Variable Annuity Payments: Assumed Interest Rate............ 21
SELECTION OF AN OPTION................................................. 21
THE FIXED ACCOUNT......................................................... 21
INTEREST............................................................... 21
DEATH BENEFIT.......................................................... 22
CONTRACT CHARGES....................................................... 22
TRADITIONAL GENERAL ACCOUNT OPTION..................................... 22
DCA PLUS ACCOUNT OPTION................................................ 22
PAYMENTS FROM THE FIXED ACCOUNT........................................ 23
MORE ABOUT THE CONTRACT................................................... 23
DESIGNATION AND CHANGE OF BENEFICIARY.................................. 23
DIVIDENDS.............................................................. 23
PAYMENTS FROM THE SEPARATE ACCOUNT..................................... 23
PROOF OF AGE AND SURVIVAL.............................................. 23
MISSTATEMENTS.......................................................... 23
LOANS.................................................................. 23
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS....................... 24
FEDERAL TAX MATTERS....................................................... 25
INTRODUCTION........................................................... 25
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT................ 25
General.............................................................. 25
Charge for Security Benefit Taxes.................................... 25
Diversification Standards............................................ 25
QUALIFIED PLANS........................................................ 26
Section 401.......................................................... 26
Section 403(b)....................................................... 27
Section 457.......................................................... 27
Rollovers............................................................ 28
Tax Penalties........................................................ 28
Withholding.......................................................... 28
OTHER INFORMATION......................................................... 28
VOTING OF SBL FUND SHARES.............................................. 28
SUBSTITUTION OF INVESTMENTS............................................ 29
CHANGES TO COMPLY WITH LAW AND AMENDMENTS.............................. 29
REPORTS TO OWNERS...................................................... 29
TELEPHONE TRANSFER PRIVILEGES.......................................... 30
LEGAL PROCEEDINGS...................................................... 30
LEGAL MATTERS.......................................................... 30
PERFORMANCE INFORMATION................................................... 30
ADDITIONAL INFORMATION.................................................... 31
REGISTRATION STATEMENT................................................. 31
FINANCIAL STATEMENTS................................................... 31
STATEMENT OF ADDITIONAL INFORMATION....................................... 31
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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 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 is made.
ANNUITY PERIOD -- The period beginning on the Annuity Commencement Date
during which annuity payments are made.
AUTOMATIC INVESTMENT PROGRAM -- A program pursuant to which purchase payments
are automatically paid from your bank account on a specified day of each month
or a salary reduction agreement.
CONTRACT -- A certificate is issued by Security Benefit to Participants under
a Group Allocated Contract as evidence of your benefits under the contract.
Certificates under Group Allocated Contracts are referred to herein as the
"Contract" or the "Contracts."
CONTRACT DATE -- The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually the
date that your initial purchase payment is credited to the Contract.
CONTRACT DEBT -- The unpaid loan balance including loan interest.
CONTRACTOWNER OR OWNER -- The person in whose name the Contract is issued.
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 person having the right to the death benefit,
if any, payable upon the death of the Participant 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 Participant: the Primary Beneficiary; the
Secondary Beneficiary; or if none of the above is alive, the Participant'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 ALLOCATED CONTRACT -- A master agreement between the Contractowner and
Security Benefit.
HOME OFFICE -- The Annuity Administration Department ofSecurity Benefit, P.O.
Box 750497, Topeka, Kansas 66675-0497.
PARTICIPANT -- A Participant under a Qualified Plan.
PLAN -- The document or agreement defining the retirement benefits and those
who are eligible to receive them. The Plan is not part of the Variflex Contract
and Security Benefit is not a party to the Plan.
PURCHASE PAYMENT -- An amount paid to Security Benefit as consideration for
the Contract.
SBL FUND -- A diversified, open-end management investment company commonly
referred to as a mutual fund.
SEPARATE ACCOUNT -- The Variflex Separate Account. 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.
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 charges, 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 21 and in the
Contract.
PURPOSE OF THE CONTRACT -- The group flexible purchase payment deferred variable
annuity contract ("Contract") described in this Prospectus is designed to give
you flexibility in planning for retirement and other financial goals.
You may purchase a Contract on a group basis in connection with a retirement
plan qualified under Section 401, 403(b) 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
11. 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 Series, Global Strategic Income
Series, Global Total Return 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 11.
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. See "The Fixed Account," page 21.
PURCHASE PAYMENTS -- The minimum purchase payment is $500, or if you elect an
Automatic Investment Program, is $25. See "Purchase Payments," page 13.
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 13 and "The Fixed Account," page 21.
At any time before the Annuity Commencement Date, you may surrender a
Contract for its Withdrawal Value, and may make partial withdrawals, including
systematic withdrawals, from Contract Value, subject to certain restrictions
described in "The Fixed Account," page 21 and any restrictions imposed by the
Plan. See "Full and Partial Withdrawals," page 16 and "Federal Tax Matters,"
page 25 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 Participant attaining age 59 1/2.
The Contract provides for a death benefit upon the death of the Participant
prior to the Annuity Commencement Date. The death benefit will vary depending on
the Contract's investment results and the age of the Participant on the Contract
Date. Security Benefit will pay the death benefit proceeds to the beneficiary
upon receipt of due proof of the Participant's death and instructions regarding
payment.
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 19.
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 where it is required to do so.
CHARGES AND DEDUCTIONS -- Security Benefit does not deduct sales load from
purchase payments before allocating them to the Contract Value. Certain charges
will be deducted in connection with the Contract as described below.
CONTINGENT DEFERRED SALES CHARGE. If you withdraw Contract Value, Security
Benefit may deduct a contingent deferred sales charge (which may also be
referred to as a withdrawal charge). The withdrawal charge will be waived on
withdrawals to the extent that total withdrawals in a Contract Year, including
systematic withdrawals, do not exceed the Free Withdrawal amount defined as
follows. The Free Withdrawal amount is equal in the first Contract Year, to 10
percent of purchase payments made during the year and, in any subsequent
Contract Year, to 10 percent of Contract Value as of the first day of that
Contract Year. The withdrawal charge generally applies to the portion of
withdrawals in a Contract Year that exceed the Free Withdrawal amount for that
Contract Year. For the purpose of determining any withdrawal charge, Security
Benefit deems withdrawals to be made first from purchase payments and then from
earnings. The amount of the charge will depend on the number of years the
purchase payment has been credited under the Contract according to the following
schedule:
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AGE OF PURCHASE WITHDRAWAL CHARGE
PAYMENT IN YEARS
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1 5%
2 5%
3 5%
4 5%
5 5%
6 and later 0%
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The amount of the withdrawal charge assessed against your Contract will never
exceed 5 percent of purchase payments paid under the Contract. In addition, no
withdrawal charge will be assessed upon: (1) payment of death benefit proceeds;
or (2) annuity options that provide for payments for life, or a period of at
least 5 years. See "Contingent Deferred Sales Charge," page 17, for a discussion
of other circumstances under which Security Benefit waives the withdrawal
charge.
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 1.0 percent of each Subaccount's average daily net assets. See
"Mortality and Expense Risk Charge," page 18.
ADMINISTRATION CHARGE. Security Benefit deducts from Contract Value an
administration charge of $15 on each anniversary of the Contract Date. See
"Administration Charge," page 19.
PREMIUM TAX CHARGE. Security Benefit assesses a premium tax charge to
reimburse itself for any premium taxes that it incurs with respect to this
Contract. This charge will usually be deducted on annuitization 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 19.
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 19. 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 17. 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).................. 5%(1)
Transfer Fee (per transfer)............................ None
nnual Administration Charge............................ $15
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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............... 1.00
----
Total Separate Account Annual Expenses................. 1.00%
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ANNUAL MUTUAL FUND EXPENSES
(as a percentage of each Series' average daily net assets)
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TOTAL
ADVISORY OTHER MUTUAL FUND
FEE(2) EXPENSES(3) 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 (Series P).............. 0.75% 0.18% 0.93%
Social Awareness (Series S)............... 0.75% 0.07% 0.82%
Value Series (Series V)................... 0.75% 0.14% 0.89%
Small Cap Series (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 number of years the purchase payment has remained credited under the
Contract. A free withdrawal is available in each Contract Year equal to (1)
10 percent of purchase payments in the first Contract Year, and (2) 10
percent of Contract Value at the beginning of the Contract Year in each
subsequent Contract Year. See "Full and Partial Withdrawals," page 16 and
"Contingent Deferred Sales Charge," page 17 for more information.
2. 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.
3. Other Expenses for Series H, Series I and Series Y are based on estimated
amounts for the current fiscal year.
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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
the Contract at the end of the applicable time period:
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Growth Subaccount........................ $64 $102 $143 $215
Growth-Income Subaccount................. 64 103 145 218
Money Market Subaccount.................. 62 97 134 195
Worldwide Equity Subaccount.............. 68 116 166 261
High Grade Income Subaccount............. 65 105 149 225
Enhanced Index Subaccount................ 66 108 --- ---
International Subaccount................. 73 129 --- ---
Mid Cap Subaccount....................... 63 102 143 214
Global Strategic Income Subaccount....... 73 132 193 314
Global Total Return Subaccount........... 68 116 166 261
Managed Asset Allocation Subaccount...... 68 115 165 258
Equity Income Subaccount................. 67 112 159 247
High Yield Subaccount.................... 65 107 151 231
Social Awareness Subaccount.............. 64 103 144 216
Value Subaccount......................... 65 106 149 226
Small Cap Subaccount..................... 72 127 185 297
Select 25 Subaccount..................... 67 112 --- ---
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Example -- You would pay the expenses shown below assuming NO withdrawals:
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Growth Subaccount........................ $19 $58 $99 $215
Growth-Income Subaccount................. 19 58 101 218
Money Market Subaccount.................. 17 52 90 195
Worldwide Equity Subaccount.............. 23 71 122 261
High Grade Income Subaccount............. 20 61 104 225
Enhanced Index Subaccount................ 21 63 --- ---
International Subaccount................. 28 84 --- ---
Mid Cap Subaccount....................... 18 57 99 214
Global Strategic Income Subaccount....... 28 87 148 314
Global Total Return Subaccount........... 23 71 122 261
Managed Asset Allocation Subaccount...... 23 70 120 258
Equity Income Subaccount................. 22 67 115 247
High Yield Subaccount.................... 20 62 107 231
Social Awareness Subaccount.............. 19 58 100 216
Value Subaccount......................... 20 61 105 226
Small Cap Subaccount..................... 27 82 140 297
Select 25 Subaccount..................... 22 67 --- ---
- --------------------------------------------------------------------------------
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following condensed financial information presents accumulation unit
values for the period September 10, 1998 (date of inception) through December
31, 1998, as well as ending accumulation units outstanding under each
Subaccount.
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $21.03
End of period...................................................... 25.40
Accumulation units outstanding at the end of period................... 25
- --------------------------------------------------------------------------------
GROWTH-INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $17.73
End of period...................................................... 19.85
Accumulation units outstanding at the end of period................... 57
- --------------------------------------------------------------------------------
MONEY MARKET SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $11.55
End of period...................................................... 11.68
Accumulation units outstanding at the end of period................... 0
- --------------------------------------------------------------------------------
WORLDWIDE EQUITY SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $14.18
End of period...................................................... 16.98
Accumulation units outstanding at the end of period................... 0
- --------------------------------------------------------------------------------
HIGH GRADE INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $13.02
End of period...................................................... 13.25
Accumulation units outstanding at the end of period................... 7
- --------------------------------------------------------------------------------
MID CAP SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $14.79
End of period...................................................... 19.01
Accumulation units outstanding at the end of period................... 0
- --------------------------------------------------------------------------------
GLOBAL STRATEGIC INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $12.16
End of period...................................................... 13.39
Accumulation units outstanding at the end of period................... 0
- --------------------------------------------------------------------------------
GLOBAL TOTAL RETURN SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $12.53
End of period...................................................... 14.19
Accumulation units outstanding at the end of period................... 0
- --------------------------------------------------------------------------------
MANAGED ASSET ALLOCATION SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $14.60
End of period...................................................... 16.36
Accumulation units outstanding at the end of period................... 19
- --------------------------------------------------------------------------------
EQUITY INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $16.73
End of period...................................................... 18.95
Accumulation units outstanding at the end of period................... 4
- --------------------------------------------------------------------------------
HIGH YIELD SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $12.09
End of period...................................................... 12.48
Accumulation units outstanding at the end of period................... 4
- --------------------------------------------------------------------------------
SOCIAL AWARENESS SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $18.63
End of period...................................................... 23.37
Accumulation units outstanding at the end of period................... 10
- --------------------------------------------------------------------------------
VALUE SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $12.58
End of period...................................................... 14.94
Accumulation units outstanding at the end of period................... 0
- --------------------------------------------------------------------------------
SMALL CAP SUBACCOUNT
Accumulation unit value:
Beginning of period................................................ $8.63
End of period...................................................... 10.34
Accumulation units outstanding at the end of period................... 0
<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 its
internal systems as well as obtaining Year 2000 Compliant certifications from
its external vendors. Overall systems testing began in December 1998 and is
scheduled to 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 the 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 Participants, the ratings and
other information assigned to it by one or more independent rating organizations
such as A. M. Best Company and Standard & Poor's. The purpose of the ratings is
to reflect the financial strength and/or claims-paying ability of Security
Benefit and should not be considered as bearing on the investment performance of
assets held in the Separate Account. Each year A. M. Best Company reviews the
financial status of thousands of insurers, culminating in the assignment of
Best's Ratings. These ratings reflect their current opinion of the relative
financial strength and operating performance of an insurance company in
comparison to the norms of the life/health insurance industry. In addition, the
claims-paying ability of Security Benefit as measured by Standard & Poor's
Insurance Ratings Services may be referred to in advertisements or sales
literature or in reports to Participants. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance and annuity policies in accordance with their terms. Such ratings do
not reflect the investment performance of the Separate Account or the degree of
risk associated with an investment in the Separate Account.
SEPARATE ACCOUNT -- Security Benefit established the Separate Account under
Kansas law on 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 Participants 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 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 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 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. To the extent that you
allocate all or a portion of your purchase payments to the Subaccounts, the
Contract is significantly different from a fixed annuity contract in that it is
the Participant under a Contract who assumes the risk of investment gain or loss
rather than Security Benefit. When you are ready to begin receiving annuity
payments, the Contract provides several Annuity Options under which Security
Benefit will pay periodic annuity payments on a variable basis, a fixed basis or
both, beginning on the Annuity 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 eligible for purchase in connection with certain tax
qualified retirement plans that meet the requirements of Section 401, 403(b) 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, (3) annuity purchase plans of
public school systems and certain tax-exempt organizations under Section 403(b)
or (4) deferred compensation plans for employees established by a unit of a
state or local government or by a tax-exempt organization under Section 457.
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.
PURCHASE PAYMENTS -- The minimum initial purchase payment for the purchase of a
Contract is $500. Thereafter, you may choose the amount and frequency of
purchase payments, except that the minimum subsequent purchase payment is $500.
The minimum initial and subsequent purchase payment if you elect an Automatic
Investment Program is $25. Security Benefit may reduce the minimum purchase
payment requirement under certain circumstances. A purchase payment exceeding $1
million will not be accepted without prior approval of Security Benefit.
Security Benefit will apply the initial purchase payment not later than the
end of the 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 Participant is
living. Subsequent purchase payments 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 of any payment being allocated to any one Subaccount or the Fixed
Account. The allocations must be whole percentages and must total 100 percent.
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 15.
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. You must have Contract Value of at least $10,000 at the
time you elect this option.
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 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 included in
the 14 transfers per Contract Year that are allowed as discussed under
"Transfers of Contract Value," page 15.
You may instruct Security Benefit at any time to terminate the option by
written request to Security Benefit's Home Office. In that event, the Contract
Value in the Subaccount from which transfers were being made that has not been
transferred will remain in that Subaccount unless you instruct us otherwise. If
you wish to continue transferring on a dollar cost averaging basis after the
expiration of the applicable period, the total amount elected has been
transferred, or the Subaccount has been depleted, or after the Dollar Cost
Averaging Option has been canceled, a new Dollar Cost Averaging Request must be
completed and sent to the Home Office. You must have Contract Value of at least
$10,000 at the time you elect to reinstate the option. 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. The Dollar Cost Averaging Option
is not available while you have Contract Value allocated to the DCA Plus
Account.
You may also dollar cost average Contract Value to or from the Fixed Account,
subject to certain restrictions described under "The Fixed Account," page 21.
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, and Asset Reallocation automatically reallocates the Contract Value in
the Subaccounts to the allocation you selected on a quarterly, semiannual or
annual basis, as you select. Asset Reallocation is intended to transfer Contract
Value from those Subaccounts that have increased in value to those Subaccounts
that have declined in value. Over time, this method of investing may help you
buy low and sell high. This investment method does not guarantee profits, nor
does it assure that you will not have losses.
To elect this option an Asset Reallocation Request in proper form must be
received by Security Benefit at its Home Office, and you must have Contract
Value of at least $10,000 at the time you elect this option. An Asset
Reallocation Request form is available upon request. On the form, you must
indicate the applicable Subaccounts, the applicable time period and the
percentage of Contract Value to be allocated to each Subaccount.
Upon receipt of the Asset Reallocation Request, Security Benefit will effect
a transfer or, in the case of a new Contract, will allocate the initial purchase
payment, among the Subaccounts based upon the percentages that you selected.
Thereafter, Security Benefit will transfer Contract Value to maintain that
allocation on each quarterly, semiannual or annual anniversary, as applicable,
of the date of Security Benefit's receipt of the Asset Reallocation Request in
proper form. The amounts transferred will be credited at the price of the
Subaccount as of the end of the Valuation Date on which the transfer is
effected. Amounts periodically transferred under this option are not included in
the 14 transfers per Contract Year that are allowed as discussed under
"Transfers of Contract Value," below.
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. You must have Contract Value of at least $10,000
at the time you elect to reinstate the option. Security Benefit may discontinue,
modify, or suspend, and reserves the right to charge a fee for the Asset
Reallocation Option at any time. The Asset Reallocation Option is not available
while you have Contract Value allocated to the DCA Plus Account.
Contract Value allocated to the Fixed Account may be included in the Asset
Reallocation option, subject to certain restrictions described in "The Fixed
Account," page 21.
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
$100, or the amount remaining in a given Subaccount. The minimum transfer amount
does not apply to transfers under the Dollar Cost Averaging or Asset
Reallocation Options.
You may also transfer Contract Value from the Subaccounts to the Fixed
Account; however, transfers from the Fixed Account to the Subaccounts are
restricted as described in "The Fixed Account," page 21.
Security Benefit generally does not limit the frequency of transfers,
although Security Benefit reserves the right at a future date to limit the
number of transfers to 14 in a Contract Year. Security Benefit also reserves the
right to limit the size and frequency of such transfers, and to discontinue
telephone transfers.
CONTRACT VALUE -- The Contract Value is the sum of the amounts under 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," below. No minimum amount
of Contract Value is guaranteed. You bear the entire investment risk relating to
the investment performance of Contract Value allocated to the Subaccounts.
DETERMINATION OF CONTRACT VALUE -- The 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 your interest in a
Subaccount. When you allocate purchase payments to a Subaccount, your Contract
is credited with Accumulation Units. The number of Accumulation Units to be
credited is determined by dividing the dollar amount allocated to the particular
Subaccount by the price for the Subaccount as of the end of the Valuation Period
in which the purchase payment is credited. In addition, other transactions
including 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 -- You may make a partial withdrawal of Contract
Value, or surrender the Contract for its Withdrawal Value. A full or partial
withdrawal, including a systematic withdrawal, may be taken from Contract Value
at any time while the Participant is living and before the Annuity Commencement
Date, subject to limitations under the Plan 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 charges, a pro rata administration charge, and any
uncollected premium taxes.
Security Benefit requires the signature of the Participant on any request for
withdrawal, and a guarantee of such signature to effect the transfer or exchange
of all or part of the Contract for another investment. The signature guarantee
must be provided by an eligible guarantor, such as a bank, broker, credit union,
national securities exchange or savings association. Security Benefit further
requires that any request to transfer or exchange all or part of the Contract
for another investment be made upon a transfer form provided by Security Benefit
which is available upon request.
A partial withdrawal may be requested for a specified percentage or dollar
amount of Contract Value. Each partial withdrawal must be at least $100. 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.
Security Benefit will deduct the amount of a partial withdrawal from the
Contract Value in the Subaccounts and the Fixed Account, according to your
instructions to Security Benefit. If you do not specify the allocation, Security
Benefit will deduct the withdrawal from the Contract Value in the Subaccounts
and the Fixed Account in the following order: 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, and a premium tax charge to reimburse Security
Benefit for any tax on premiums on a Contract that may be imposed by various
states and municipalities. See "Contingent Deferred Sales Charge," page 17, and
"Premium Tax Charge," page 19.
A full or partial withdrawal, including a systematic withdrawal, may result
in receipt of taxable income to the Participant and, if made prior to the
Participant attaining age 59 1/2, may be subject to a 10 percent penalty tax. In
the case of Contracts issued in connection with retirement plans that meet the
requirements of Section 401(a), 403(b) or 457 of the Internal Revenue Code,
reference should be made to the terms of the particular Plan for any limitations
or restrictions on withdrawals. For more information, see "Restrictions on
Withdrawals from Qualified Plans," page 24. The tax consequences of a withdrawal
under the Contract should be carefully considered. See "Federal Tax Matters,"
page 25.
SYSTEMATIC WITHDRAWALS -- Security Benefit currently offers a feature under
which you may select systematic withdrawals. Under this feature, you may elect
to receive systematic withdrawals 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. You may
designate the systematic withdrawal amount as a percentage of Contract Value
allocated to the Subaccounts and/or Fixed Account, as a fixed period, as a
specified dollar amount, as all earnings in the Contract, or based upon your
life expectancy or that of you and a beneficiary. You also may designate the
desired frequency of the systematic withdrawals, which may be monthly,
quarterly, semiannually or annually. You may stop or modify systematic
withdrawals upon proper written request received by Security Benefit at its Home
Office at least 30 days in advance of the requested date of termination or
modification. A proper request must include the written consent of any effective
assignee or irrevocable beneficiary, if applicable.
Each systematic withdrawal must be at least $100. Upon payment, your Contract
Value will be reduced by an amount equal to the payment proceeds plus any
applicable withdrawal charge and premium tax. 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 your Contract Value in the Subaccounts and the Fixed Account,
as you direct. If you do not specify the allocation, the systematic withdrawal
will be deducted from the Contract Value in the Subaccounts and the Fixed
Account in the following order: 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.
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 Participant attaining age 59 1/2. See "Federal Tax
Matters," page 25.
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
that require it to do so.
DEATH BENEFIT -- If the Participant 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 Participant's death and
instructions regarding payment to the Designated Beneficiary. (If the death of
the Participant 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 20.)
The death benefit proceeds will be the death benefit reduced by any
outstanding Contract Debt, any pro rata administration charge and any
uncollected premium tax. If the Participant dies during the Accumulation Period
and the age of the Participant 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 both an exact
multiple of five and occurs prior to the Participant attaining age 76, plus
* Any Purchase Payments made since the applicable Contract anniversary, less
* Any withdrawals since the applicable anniversary.
If the Participant dies during the Accumulation Period and the age of the
Participant was 76 or greater on the date the Contract was issued, or if due
proof of death (regardless of the age of the Participant on the date the
Contract was issued) and instructions regarding payment are not received by
Security Benefit at its Home Office within six months of the date of the
Participant's death, the death benefit will be the Contract Value on the date
due proof of death and instructions regarding payment are received by Security
Benefit at its Home Office.
The death benefit proceeds will be paid to the Designated Beneficiary in a
single sum or under one of the Annuity Options, as elected by the Designated
Beneficiary. If the Designated Beneficiary is to receive annuity payments under
an Annuity Option, there 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 25 for a discussion of the tax
consequences in the event of death.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE -- Security Benefit does not deduct sales
charges from purchase payments before allocating them to Contract Value.
However, except as set forth below, Security Benefit may assess a contingent
deferred sales charge (which may also be referred to as a withdrawal charge) on
a full or partial withdrawal, including systematic withdrawals, depending upon
the number of years the purchase payment withdrawn has been credited under the
Contract.
Security Benefit will waive the withdrawal charge on withdrawals to the
extent that total withdrawals in a Contract Year, including systematic
withdrawals, do not exceed the Free Withdrawal amount. The Free Withdrawal
amount is equal in the first Contract Year, to 10 percent of purchase payments
made during the year and for any subsequent Contract Year, to 10 percent of
Contract Value as of the first day of that Contract Year. The withdrawal charge
generally applies to the amount of withdrawals in a Contract Year that exceed
the Free Withdrawal amount for that Contract Year. The withdrawal charge does
not apply, however, 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 number of years the purchase payment has been credited under the
Contract, according to the following schedule:
-------------------------------
AGE OF PURCHASE WITHDRAWAL
PAYMENT IN YEARS CHARGE
-------------------------------
1 5%
2 5%
3 5%
4 5%
5 5%
6 and later 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 5 percent of purchase payments paid under the Contract. 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 5
years. In addition, if you are not making the withdrawal for the purpose of
exchanging your Contract for another investment available under your Plan,
Security Benefit will waive the withdrawal charge under the following
circumstances:
* Your Contract has been in force for 15 Contract Years or longer
* You are totally and permanently disabled as defined under section 72(m)(7)
of the Internal Revenue Code
* The withdrawal is made to satisfy the minimum distribution requirements of
the Code and regulations thereunder
* You are age 55 or older and your Contract has been in force for five
Contract Years or longer
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 7 percent of aggregate purchase payments
and an annual trail commission of up to 0.75 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.
MORTALITY AND EXPENSE RISK CHARGE -- Security Benefit deducts a daily charge
from the assets of each Subaccount for mortality and expense risks assumed by
Security Benefit under the Contracts. The charge is equal to an annual rate of
1.00 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 Contracts and in
operating the Subaccounts.
The expense risk is the risk that Security Benefit's actual expenses in
issuing and administering the Contracts and operating the Subaccounts will be
more than the charges assessed for such expenses. The mortality risk borne by
Security Benefit is the risk that Annuitants, as a group, will live longer than
Security Benefit's actuarial tables predict. In this event, Security Benefit
guarantees that annuity payments will not be affected by a change in mortality
experience that results in the payment of greater annuity income than assumed
under the Annuity Options in the Contract. Security Benefit also assumes a
mortality risk in connection with the death benefit under the Contract.
Security Benefit may ultimately realize a profit from this charge to the
extent it is not needed to cover mortality and administrative expenses, but
Security Benefit may realize a loss to the extent the charge is not sufficient.
Security Benefit may use any profit derived from this charge for any lawful
purpose, including distribution expenses.
ADMINISTRATION CHARGE -- Security Benefit will deduct from your Contract Value
an administration charge of $15. The administration charge is not assessed
against Contract Value which has been applied under Annuity Options 1 through 4,
and 8. Security Benefit deducts the administration charge on each Contract
Anniversary, but will waive the charge if your Contract Value is $10,000 or more
on the applicable Contract Anniversary. 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 or 8 is
elected
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
on annuity contracts received by insurance companies. Whether or not a premium
tax is imposed will depend upon, among other things, the Participant'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 Contracts, or that are
attributable to payment of premiums or acquisition costs under the Contracts. No
such charge is currently assessed. See "Tax Status of Security Benefit and the
Separate Account,"page 25 and "Charge for Security Benefit Taxes," page 25.
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 administrative and maintenance costs associated with the Contract are
reduced for reasons such as the amount of the initial purchase payment or
projected purchase payments or the Contract is sold in connection with a group
or sponsored arrangement.
GUARANTEE OF CERTAIN CHARGES -- Security Benefit guarantees that the charge for
mortality and expense risks will not exceed an annual rate of 1.00 percent of
each Subaccount's average daily net assets and the administration charge will
not exceed $15 per Contract 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, you indirectly bear a pro rata portion of such fees and expenses.
The advisory fees and other expenses, if any, which are more fully described in
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.
The Annuity Commencement Date may not be prior to the third annual Contract
anniversary and may not be deferred beyond your 85th birthday, although the
terms of the 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 70th
birthday or the tenth annual Contract Anniversary. See "Selection of an Option,"
page 21. 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 and withdrawal charges and any outstanding Contract Debt. If you elected
one of Annuity Options 1 through 4 or 8, Security Benefit will also deduct a pro
rata administration charge.
The Contracts provide for eight Annuity Options. Security Benefit may make
other Annuity Options available upon request. Annuity payments under Annuity
Options 1 through 4, 7 and 8 are based upon annuity rates that vary with the
Annuity Option selected. In the case of Options 1 through 4 and 8, the annuity
rates will vary based on the age and sex of the Annuitant, except that unisex
rates are available where required by law. The annuity rates reflect your life
expectancy based upon your age as of the Annuity 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 and 6 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 8 provide for payments to be made during the
lifetime of the Annuitant. Annuity payments under such options cease in the
event of the Annuitant's death, unless the option provides for a guaranteed
minimum number of payments, for example a life income with guaranteed payments
of 5, 10, 15 or 20 years. The level of annuity payments will be greater for
shorter guaranteed periods and less for longer guaranteed periods. Similarly,
payments will be greater for life annuities than for joint and survivor
annuities, because payments for life annuities are expected to be made for a
shorter period.
You may elect to receive annuity payments on a monthly, quarterly,
semiannual, or annual basis, although no payments will be made for less than
$100. If the frequency of payments selected would result in payments of less
than $100, Security Benefit reserves the right to change the frequency.
You may designate or change an Annuity Commencement Date or Annuity Option
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 8,
an Annuitant or Participant cannot change the Annuity Option and cannot
surrender his or her annuity and receive a lump-sum settlement in lieu thereof.
Under Annuity Options 5 through 7, full or partial withdrawals may be made after
the Annuity Commencement Date, subject to any applicable withdrawal charge. The
Contract specifies annuity tables for Annuity Options 1 through 4, 7 and 8,
described below. The tables contain the guaranteed minimum dollar amount (per
$1,000 applied) of the FIRST annuity payment for a variable annuity and each
annuity payment for a fixed annuity.
ANNUITY OPTIONS --
OPTION 1 -- LIFE INCOME. Periodic annuity payments will be made during the
lifetime of the Annuitant. It is possible under this Option for any Annuitant to
receive only one annuity payment if the Annuitant's death occurred prior to the
due date of the second annuity payment, two if death occurred prior to the due
date of the third annuity payment, etc. THERE IS NO MINIMUM NUMBER OF PAYMENTS
GUARANTEED UNDER THIS OPTION. PAYMENTS WILL CEASE UPON THE DEATH OF THE
ANNUITANT REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 2 -- LIFE INCOME WITH GUARANTEED PAYMENTS OF 5, 10, 15 OR 20 YEARS.
Periodic annuity payments will be made during the lifetime of the Annuitant with
the promise that if, at the death of the Annuitant, payments have been made for
less than a stated period, which may be five, ten, fifteen or twenty years, as
elected by the Owner, annuity payments will be continued during the remainder of
such period to the Designated Beneficiary.
OPTION 3 -- LIFE WITH INSTALLMENT REFUND OPTION. Periodic annuity payments
will be made during the lifetime of the Annuitant with the promise that, if at
the death of the Annuitant, the number of payments that has been made is less
than the number determined by dividing the amount applied under this Option by
the amount of the first payment, annuity payments will be continued to the
Designated Beneficiary until that number of payments has been made.
OPTION 4 -- JOINT AND LAST SURVIVOR. Periodic annuity payments will be made
during the lifetime of either Annuitant. It is possible under this Option for
only one annuity payment to be made if both Annuitants died prior to the second
annuity payment due date, two if both died prior to the third annuity payment
due date, etc. AS IN THE CASE OF OPTION 1, THERE IS NO MINIMUM NUMBER OF
PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE LAST
SURVIVING ANNUITANT, REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 5 -- 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 the amount applied and interest
thereon are exhausted, with the guarantee that, if, at the death of all
Annuitants, all guaranteed payments have not yet been made, the remaining unpaid
payments will be paid to the Designated Beneficiary.
OPTION 7 -- PERIOD CERTAIN. Periodic annuity payments will be made for a
stated period which may be 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 8 -- JOINT AND CONTINGENT SURVIVOR OPTION. Periodic annuity payments
will be made during the life of the primary Annuitant. Upon the death of the
primary Annuitant, payments will be made to the contingent Annuitant during his
or her life. If the contingent Annuitant is not living upon the death of the
Primary Annuitant, no payments will be made to the contingent Annuitant. It is
possible under this Option for only one annuity payment to be made if both
Annuitants died prior to the second annuity payment due date, two if both died
prior to the third annuity payment due date, etc. AS IN THE CASE OF OPTIONS 1
AND 4, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION.
PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT, REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
VALUE OF VARIABLE ANNUITY PAYMENTS: ASSUMED INTEREST RATE. The annuity tables
in the Contract which are used to calculate variable annuity payments for
Annuity Options 1 through 4, 7 and 8 are based on an "assumed interest rate" of
3 1/2 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.
THE FIXED ACCOUNT
You may allocate all or a portion of your purchase payments and transfer
Contract Value to the Fixed Account. There are two Fixed Account options, the
Traditional General Account and the DCA Plus Account, as discussed on page 22.
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 13.
Amounts allocated to the Fixed Account options 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. In addition, Security Benefit
may credit interest at different Current Rate on the Traditional General Account
and DCA Plus Account options. 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 and the Fixed Account option selected. 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.
DEATH BENEFIT -- The death benefit under the Contract will be determined in the
same fashion for a Contract that has Contract Value in the Fixed Account as for
a Contract that has Contract Value allocated to the Subaccounts. See "Death
Benefit," page 17.
CONTRACT CHARGES -- Premium taxes 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 charges for mortality and expense risks and the administration
charge will not be assessed against the Fixed Account, and any amounts that
Security Benefit pays for income taxes allocable to the Subaccounts will not be
charged against the Fixed Account. In addition, you will not pay directly or
indirectly the investment advisory fees and operating expenses of the 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.
TRADITIONAL GENERAL ACCOUNT OPTION -- You may allocate purchase payments to this
option and may transfer Contract Value from the Subaccounts to this option.
Security Benefit limits transfer from this option to the Subaccounts as
discussed below.
Prior to the Annuity Commencement Date, you may transfer from the Traditional
General Account option to the Subaccounts in a Contract Year not more than the
greatest of (1) $5,000, (2) one-third of the Contract Value allocated to the
option at the time of the first transfer in the Contract Year, or (3) 120
percent of the amount transferred from the Traditional General Account option
during the previous Contract Year. Security Benefit reserves the right for a
period of time to allow transfers from this option in amounts that exceed the
limits set forth above ("Waiver Period"). In any Contract Year following such a
Waiver Period, the total dollar amount that may be transferred from the
Traditional General Account option is the greatest of: (1) above; (2) above; or
(3) 120 percent of the lesser of: (i) the dollar amount transferred from the
Traditional General Account option in the previous Contract Year; or (ii) the
maximum dollar amount that would have been allowed in the previous Contract Year
under the transfer provisions above absent the Waiver Period.
You may 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 16 and
"Systematic Withdrawals," page 16. 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 Plan. See "Loans," page 23.
DCA PLUS ACCOUNT OPTION -- This option is available ONLY for purchase payments
allocated to a Contract during the first two Contract Years.
Your purchase payments allocated to this option will be transferred monthly
to one or more of the Subaccounts over a period of one year (the "Transfer
Year"). The Transfer Year begins on the date a Purchase Payment is first
allocated to this option and the first monthly transfer is made on the same date
in the following month. When you first allocate a purchase payment to this
option, you must submit to Security Benefit written instruction specifying the
Subaccounts to which such transfers should be made. (The transfers may not be
made to the Traditional General Account option.) The monthly transfers from the
DCA Plus Account to the Subaccounts will be made in amounts determined by
dividing the Contract Value allocated to the DCA Plus Account by the number of
months remaining in the Transfer Year. If subsequent purchase payments are
allocated to the DCA Plus Account during a Transfer Year, they will be
transferred to the Subaccounts you select over the balance of the Transfer Year.
As a result, any subsequent purchase payments may be allocated to the DCA Plus
Account for less than a year. You should consider whether allocating a
subsequent purchase payment to the DCA Plus Account is appropriate in light of
the amount of time remaining in the Transfer Year. If a purchase payment is
allocated to the DCA Plus Account after the initial Transfer Year has ended, a
new Transfer Year will begin with respect to that purchase payment.
You may not transfer Contract Value from the Subaccounts or the Traditional
General Account option to this option. Full and partial withdrawals are allowed
as discussed under "Full and Partial Withdrawals," page 16.
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
DESIGNATION AND CHANGE OF BENEFICIARY -- The Designated Beneficiary is the
person having the right to the death benefit, if any, payable upon the death of
the Participant 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
Participant: the Primary Beneficiary; the Secondary Beneficiary; or if none of
the above are alive, the Participant's estate. The Primary Beneficiary is the
individual named as such in the application or any later change shown in
Security Benefit's records. The Primary Beneficiary will receive the death
benefit of the Contract only if he or she is alive on the date of death of the
Participant during the Accumulation Period. Because the death benefit of the
Contract goes to the first person on the above list who is alive on the date of
death of the Participant, careful consideration should be given the designation
of the Primary Beneficiary. The Participant may change the Primary Beneficiary
at any time while the Contract is in force by written request on forms provided
by Security Benefit and received by Security Benefit at its Home Office. The
change will not be binding on Security Benefit until it is received and recorded
at its Home Office. The change will be effective as of the date this form is
signed subject to any payments made or other actions taken by Security Benefit
before the change is received and recorded. A Secondary Beneficiary may be
designated.
Reference should be made to the terms of a the Plan and any applicable law
for any restrictions or limitations on the designation of a Beneficiary.
DIVIDENDS -- The Contract is participating and will 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 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 Participant,
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. The maximum loan that can be taken is
generally equal to the lesser of: (1) $50,000 reduced by the excess of: (a) the
highest outstanding loan balance within the preceding 12-month period ending on
the day before the date the loan is made; over (b) the outstanding loan balance
on the date the loan is made; or (2) 50 percent of the Contract Value or
$10,000, whichever is greater. 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 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 5.0 percent.
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 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 28.
Section 403(b) imposes restrictions on certain distributions from
tax-sheltered annuity contracts meeting the requirements of Section 403(b). The
restrictions apply to tax years beginning on or after January 1, 1989. Section
403(b) requires that distributions from Section 403(b) tax-sheltered annuities
that are attributable to employee contributions made after December 31, 1988
under a salary reduction agreement begin only after the employee (i) reaches age
59 1/2, (ii) separates from service, (iii) dies, (iv) becomes disabled, or (v)
incurs a hardship. Furthermore, distributions of gains attributable to such
contributions accrued after December 31, 1988 may not be made on account of
hardship. Hardship, for this purpose, is generally defined as an immediate and
heavy financial need, such as paying for medical expenses, the purchase of a
residence, or paying certain tuition expenses, that may ONLY be met by the
distribution.
If you own a Contract purchased as a tax-sheltered Section 403(b) annuity
contract, you will not, therefore, be entitled to make a full or partial
withdrawal, as described in this Prospectus, in order to receive proceeds from
the Contract attributable to contributions under a salary reduction agreement or
any gains credited to such Contract after December 31, 1988 unless one of the
above-described conditions has been satisfied. In the case of transfers of
amounts accumulated in a different Section 403(b) contract to this Contract
under a Section 403(b) program, the withdrawal constraints described above would
not apply to the amount transferred to the Contract attributable to the Owner's
December 31, 1988 account balance under the old contract, provided the amounts
transferred between contracts qualified as a tax-free exchange under the
Internal Revenue Code. An Owner of a Contract may be able to transfer the
Contract's Withdrawal Value to certain other investment alternatives meeting the
requirements of Section 403(b) that are available under an employer's Section
403(b) arrangement.
The distribution or withdrawal of amounts under a Contract purchased in
connection with a Qualified Plan may result in the receipt of taxable income to
the Participant and in some instances may also result in a penalty tax.
Therefore, you should carefully consider the tax consequences of a distribution
or withdrawal under a Contract and you should consult a competent tax adviser.
See "Federal Tax Matters," below.
FEDERAL TAX MATTERS
INTRODUCTION -- The Contract described in this Prospectus is designed for use by
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
Participant, 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 the Qualified Plan, a person should
consult with a qualified tax adviser regarding the purchase of a Contract, the
selection of an Annuity Option under a Contract, the receipt of annuity payments
under a Contract or any other transaction involving a Contract. SECURITY BENEFIT
DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF, OR TAX CONSEQUENCES
ARISING FROM, ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACT.
TAX STATUS OF SECURITY BENEFIT
AND THE SEPARATE ACCOUNT --
GENERAL. Security Benefit intends to be taxed as a life insurance company
under Part I, Subchapter L of the Code. Because the operations of the Separate
Account form a part of Security Benefit, Security Benefit will be responsible
for any federal income taxes that become payable with respect to the income of
the Separate Account and its Subaccounts.
CHARGE FOR SECURITY BENEFIT TAXES. A charge may be made for any federal taxes
incurred by Security Benefit that are attributable to the Separate Account, the
Subaccounts or to the operations of Security Benefit with respect to the
Contracts or attributable to payments, premiums, or acquisition costs under the
Contracts. Security Benefit will review the question of a charge to the Separate
Account, the Subaccounts or the Contracts for Security Benefit's federal taxes
periodically. Charges may become necessary if, among other reasons, the tax
treatment of Security Benefit or of income and expenses under the Contracts is
ultimately determined to be other than what Security Benefit currently believes
it to be, if there are changes made in the federal income tax treatment of
variable annuities at the insurance company level, or if there is a change in
Security Benefit's tax status.
Under current laws, Security Benefit may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, Security Benefit reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS. Each 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 Participant), 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
Participant from being considered the owner of a pro rata share of the assets of
the Separate Account. Moreover, in the event that regulations or rulings are
adopted, there can be no assurance that the Series will be able to operate as
currently described in the Prospectus, or that the SBL Fund will not have to
change any Series' investment objective or investment policies.
QUALIFIED PLANS -- The Contract may be used with Qualified Plans that meet the
requirements of Section 401, 403(b), or 457 of the Code. The tax rules
applicable to participants in such Qualified Plans vary according to the type of
plan and the terms and conditions of the plan itself. No attempt is made herein
to provide more than general information about the use of the Contract with the
various types of Qualified Plans. These Qualified Plans may permit the purchase
of the Contracts to accumulate retirement savings under the plans. Adverse tax
or other legal consequences to the Plan, to the Participant or to both may
result if this Contract is assigned or transferred to any individual as a means
to provide benefit payments, unless the Plan complies with all legal
requirements applicable to such benefits prior to transfer of the Contract.
Participants, 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 Participant'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 Participant 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," page 28.
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 26.
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 28.
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 26. 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.
TAX PENALTIES. PREMATURE DISTRIBUTION TAX. Distributions from a Qualified
Plan before the participant reaches age 59 1/2 are generally subject to an
additional tax equal to 10 percent of the taxable portion of the distribution.
The 10 percent penalty tax does not apply to distributions: (i) made on or after
the death of the employee; (ii) attributable to the employee's disability; (iii)
which are part of a series of substantially equal periodic payments made (at
least annually) for the life (or life expectancy) of the employee or the joint
lives (or joint life expectancies) of the employee and a designated beneficiary
and which begin after the employee terminates employment; (iv) made to an
employee after termination of employment after reaching age 55; (v) made to pay
for certain medical expenses; (vi) that are exempt withdrawals of an excess
contribution; (vii) that 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 10
percent penalty tax is generally not applicable to distributions from a Section
457 plan.
MINIMUM DISTRIBUTION TAX. If the amount distributed from a Qualified Plan is
less than the minimum required distribution for the year, the participant is
subject to a 50 percent tax on the amount that was not properly distributed.
EXCESS DISTRIBUTION/ACCUMULATION TAX. 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 a Section 457
plan) 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.
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 Participant considering purchase of a Contract in
connection with a Qualified Plan 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 -- Security Benefit is the legal owner of the shares
of SBL Fund held by the Subaccounts. Security Benefit will exercise voting
rights attributable to the shares of each Series of the Fund held in the
Subaccounts at any regular and special meetings of the shareholders of the Fund
on matters requiring shareholder voting under the 1940 Act. In accordance with
its view of presently applicable law, Security Benefit will exercise its voting
rights based on instructions received from persons having the voting interest in
corresponding Subaccounts. However, if the 1940 Act or any regulations
thereunder should be amended, or if the present interpretation thereof should
change, and as a result Security Benefit determines that it is permitted to vote
the shares of the SBL Fund in its own right, it may elect to do so.
The person having the voting interest under a Contract is the Owner. Unless
otherwise required by applicable law, the number of shares of a particular
Series as to which voting instructions may be given to Security Benefit is
determined by dividing your Contract Value in the corresponding Subaccount on a
particular date by the net asset value per share of the Series as of the same
date. Fractional votes will be counted. The number of votes as to which voting
instructions may be given will be determined as of the same date established by
SBL Fund for determining shareholders eligible to vote at the meeting of the
Fund. If required by the SEC, Security Benefit reserves the right to determine
in a different fashion the voting rights attributable to the shares of SBL Fund.
Voting instructions may be cast in person or by proxy.
Voting rights attributable to your Contract Value in a Subaccount for which
no timely voting instructions are received will be voted by Security Benefit in
the same proportion as the voting instructions that are received in a timely
manner for all Contracts participating in that Subaccount. Security Benefit will
also exercise the voting rights from assets in each Subaccount that are not
otherwise attributable to Contractowners, if any, in the same proportion as the
voting instructions that are received in a timely manner for all Contracts
participating in that Subaccount. Security Benefit generally will exercise
voting rights attributable to shares of the Series of SBL Fund held in its
General Account, if any, in the same proportion as votes cast with respect to
shares of the Series of the Fund held by the Separate Account and other separate
accounts of Security Benefit, in the aggregate.
SUBSTITUTION OF INVESTMENTS -- Security Benefit reserves the right, subject to
compliance with the law as then in effect, to make additions to, deletions from,
substitutions for, or combinations of the securities that are held by the
Separate Account or any Subaccount or that the Separate Account or any
Subaccount may purchase. If shares of any or all of the Series of 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 Fixed Account. Security Benefit also reserves the right, subject
to any required regulatory approvals, to transfer assets of any Subaccount to
another separate account or Subaccount.
In the event of any such substitution or change, Security Benefit may, by
appropriate endorsement, make such changes in these and other contracts as may
be necessary or appropriate to reflect such substitution or change. If Security
Benefit believes it to be in the best interests of persons having voting rights
under the Contracts, the Separate Account may be operated as a management
investment company under the 1940 Act or any other form permitted by law. The
Separate Account may be deregistered under that Act in the event such
registration is no longer required, or it may be combined with other separate
accounts of Security Benefit or an affiliate thereof. Subject to compliance with
applicable law, Security Benefit also may combine one or more Subaccounts and
may establish a committee, board, or other group to manage one or more aspects
of the operation of the Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS -- Security Benefit reserves the
right, without the consent of the Owner or Participant, 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 Participants the benefit of, any federal or
state statute, rule, or regulation, including but not limited to requirements
for annuity contracts and retirement plans under the Internal Revenue Code and
regulations thereunder or any state statute or regulation. In addition, upon 30
days notice to the Owner, Security Benefit may make other changes to the
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
under an Automatic Investment Program, 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 Participant's tax identification number and
such instructions must be received on a recorded line. Security Benefit reserves
the right to deny any telephone transfer request. If all telephone lines are
busy (which might occur, for example, during periods of substantial market
fluctuations), you may not be able to request transfers by telephone and would
have to submit written requests.
By authorizing telephone transfers, you authorize Security Benefit to accept
and act upon telephonic instructions for transfers involving your Contract. 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
Participants.
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 July 1, 1997,
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
Variation in Charges.................................................... 4
Termination of Contract................................................. 4
Group Contracts......................................................... 4
Performance Information.................................................... 4
Limits on Purchase Payments Paid Under Tax-Qualified Retirements Plans..... 7
Section 401............................................................. 7
Section 403(b).......................................................... 7
Section 457............................................................. 7
Assignment................................................................. 7
Distribution of Contracts.................................................. 7
Safekeeping of Variflex Account Assets..................................... 8
State Regulation........................................................... 8
Records and Reports........................................................ 8
Legal Matters.............................................................. 8
Experts.................................................................... 8
Other Information.......................................................... 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 ES
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 ES
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 ES 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...... 7
Section 401............................................................. 7
Section 403(b).......................................................... 7
Section 457............................................................. 7
Assignment................................................................. 7
Distribution of the Contracts.............................................. 7
Safekeeping of Variflex Account Assets..................................... 8
State Regulation........................................................... 8
Records and Reports........................................................ 8
Legal Matters.............................................................. 8
Experts.................................................................... 8
Other Information.......................................................... 8
Financial Statements....................................................... 8
<PAGE>
THE CONTRACT
The following provides additional information about the Contract 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 Fee 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 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. During the Accumulation Period,
all cash dividends and other cash distributions made to each Variflex Subaccount
will be reinvested in additional shares of the appropriate series of SBL Fund.
COMPUTATION OF VARIABLE ANNUITY PAYMENTS --
DETERMINATION OF AMOUNT OF FIRST ANNUITY PAYMENT. For Annuities under options 1,
2, 3, and 4, 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 the Contract or Participant's Individual Account (expressed in
thousands of dollars) by the amount of the first monthly payment per $1,000 of
value, in accordance with the tables specified in the Contract. The value of the
Contract or Participant's Individual Account for the purpose of establishing the
first periodic payment under options 1, 2, 3, 4 or similar life contingent
payment options mutually agreed upon is equal to the number of Accumulation
Units applied to the option times the Accumulation Unit value at the end of the
date the first annuity payment is made. For Annuities under options 5, 6, 7, 8
or other mutually agreed upon non-life contingent payment option, the value of
the Contract or Participant's Individual Account for the purpose of the first
and subsequent periodic payments is based on the Accumulation Unit value at the
end of the day the annuity payment is made.
AMOUNT OF THE SECOND AND SUBSEQUENT ANNUITY PAYMENTS. For Variable Annuities
under options 1, 2, 3 and 4, the amount of the first monthly annuity payment
determined as described above is divided by the applicable value of an Annuity
Unit (see "(c)" below) for the day in which the payment is due in order to
determine the number of Annuity Units represented by the first payment. This
number of Annuity Units remains fixed during the Annuity period and each
subsequent payment period. The dollar amount of the annuity payment is
determined by multiplying the fixed number of Annuity Units by the Annuity Unit
value for the day the payment is due.
ANNUITY UNIT. The value of an Annuity Unit of each Subaccount 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 investment rate of 3 1/2% built into the annuity rates
contained in the Contract). The Net Investment Factor of any Subaccount is
determined by subtracting 0.00003307502, the Mortality and Expense Risk Fee,
from the ratio of (a) to (b) where (a) is the value of a share of the underlying
series of SBL Fund at the end of the day plus the value of any dividends or
other distributions 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.
The formula for daily valuation of annuity units is set forth below:
Dollar Amount of
First Monthly Payment
Number of Annuity Units = ----------------------------
Annuity Unit Value for Day
on Which First Payment is Due
Value of Net Investment
Annuity = Annuity Unit for x Factor for the x 0.9999057540
Unit Value Preceding Day Day
Value of a Dividends or Other
Series Share* Distributions During
Net At End of Day + Day Per Share
Investment = --------------------------------------- - 0.00003307502
Factor Value of a Series Share*
at End of the Previous Day
Dollar Amount of Annuity Unit Value
Second and Subsequent = Number of for Day on Which
Annuity Payments Annuity Units x Payment is Due
*A share of the underlying series of SBL Fund.
ILLUSTRATION -- The Annuity Unit and the Annuity payment may be illustrated by
the following hypothetical example: Assume an annuitant at the Annuity
Commencement Date has credited to his Contract 4,000 Accumulation Units and that
the value of an Accumulation Unit at the end of the Annuity Commencement Date
was $5.13, producing a total value for the contract of $20,520. Any premium
taxes due would reduce the total value of the Contract that could be applied
towards the Annuity; however, in this illustration it is assumed no premium
taxes are applicable. Assume also the Annuitant elects an option for which the
annuity table in the Contract indicates the first monthly payment is $6.40 per
$1,000 of value applied; the resulting first monthly payment would be 20.520
multiplied by $6.40 or $131.33.
Assume the Annuity Unit value for the day on which the first payment was due was
$1.0589108749. When this is divided into the first monthly payment the number of
Annuity Units represented by that payment is 124.0236578101. The value of the
same number of Annuity Units will be paid in each subsequent month.
Assume further the value of a 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 investment rate (the 3 1/2% per
annum built into the number of Annuity Units as determined above) produces a
result of 1.0037558112. The Annuity Unit value for the valuation period is
therefore $1.0639727127 which is 1.0037558112 x $1.0599915854 (the value at the
beginning of the day).
The current monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value or 124.0236578101 times
$1.0639727127 which produces a current monthly payment of $131.96.
VARIATIONS IN CHARGES -- The contingent deferred sales charges and Mortality and
Expense Risk Fee may be reduced or waived for sales of Variflex Contracts where
the expenses associated with the sale of the Contract or the administrative and
maintenance costs associated with the Contract are reduced for reasons such as
the amount of the initial purchase payment, the amounts of projected purchase
payments, or that the Contract is sold in connection with a group or sponsored
arrangement. 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.
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 your
Contract during the accumulation period if Contract Value is less than $2,000.
Termination of a Variflex Contract may have adverse tax consequences. (See the
Prospectus at "Full and Partial Withdrawals," page 16, and "Federal Tax
Matters," page 25.)
GROUP CONTRACTS -- In the case of Group Allocated Variflex Contracts, a master
group contract is issued to the employer or other organization, or to the
trustee, who is the Contractowner. The master group contract covers all
Participants. Where funds are allocated to a Participant's Individual Account,
each participant receives a certificate which summarizes the provisions of the
master group contract and evidences participation in the Plan established by the
organization.
PERFORMANCE INFORMATION
Performance information for the Subaccount 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 average annual total return and total return of all Subaccounts.
Current yield for the Money Market Subaccount will be based on the change in the
value of a hypothetical investment (exclusive of capital changes) over a
particular seven-day period, less a hypothetical charge reflecting deductions
from Contractowner accounts during the period (the "base period"), and stated as
a percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of 1%.
"Effective yield" for the Money Market 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 2.79% and the effective yield of the Subaccount was 2.83%.
Quotations of yield for the Subaccount, 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 6.64%.
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 Fee of the account and the
annual administrative fee, 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 and the annual administrative fee.
For the 1-, 5- and 10-year periods ended December 31, 1998, the average annual
total return for each Subaccount was the following:
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURN AVERAGE ANNUAL RETURN (WITHOUT
(WITH CONTINGENT DEFERRED SALES CONTINGENT DEFERRED SALES
CHARGE AND ADMINISTRATIVE FEE) CHARGE AND ADMINISTRATIVE FEE)
------------------------------------------ ------------------------------------------
1 YEAR 5 YEARS 10 YEARS 1 YEAR 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Subaccount..................... 71.12%(1) --- --- 24.15% 20.37% 17.53%
Growth-Income Subaccount.............. 32.36%(1) --- --- 6.49% 14.02% 13.69%
Worldwide Equity Subaccount........... 47.93%(1) --- --- 18.92% 10.16% 4.63%
High Grade Income Subaccount.......... (11.22)%(1) --- --- 6.94% 4.33% 7.10%
Mid Cap Subaccount.................... 126.48%(1) --- --- 16.76% 12.44% 15.91%(2)
Global Strategic Income Subaccount.... 9.59%(1) --- --- 5.82% 8.25%(3) ---
Global Total Return Subaccount........ 27.41%(1) --- --- 11.55% 10.07%(3) ---
Managed Asset Allocation Subaccount... 29.92%(1) --- --- 17.28% 14.74%(3) ---
Equity Income Subaccount.............. 37.91%(1) --- --- 7.98% 19.55%(3) ---
High Yield Subaccount................. (5.61)%(1) --- --- 4.79% 9.63%(4) ---
Social Awareness Subaccount........... 98.90%(1) --- --- 30.12% 17.44% 15.34%(5)
Value Subaccount...................... 72.25%(1) --- --- 15.41% 17.73%(6) ---
Small Cap Subaccount.................. 81.36%(1) --- --- 10.46% 4.61%(7) ---
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. From September 10, 1998 (date of inception) to December 31, 1998.
2. From October 1, 1992 (date of inception) to December 31, 1998.
3. From June 1, 199(date of inception) to December 31, 1998.
4. From August 5, 1996 (date ofinception) to December 31, 1998.
5. From May 1, 1991 (date of inception) to December 31, 1998.
6. From May 1, 1997 (date of inception) to December 31, 1998.
7. From October 15, 1997 (date of inception) to December 31, 1998.
- --------------------------------------------------------------------------------
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 annual
administrative fee and the applicable contingent deferred sales charge. The
total return figures set forth below would be lower if the annual administrative
fee and contingent deferred sales charge were deducted.
For the fiscal years ended 1998 through 1989, the total return for each
Subaccount 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 Subaccount................... 24.15% 27.43% 21.45% 35.13% (2.62)% 12.57% 10.05% 34.72% (10.72)% 33.57%
Growth-Income Subaccount............ 6.49% 25.23% 17.06% 28.48% (3.95)% 8.52% 5.18% 36.42% (5.41)% 27.11%
Worldwide Equity Subaccount......... 18.92% 5.39% 16.29% 9.53% 1.72% 30.32% (3.59)% 3.24%(1) --- ---
High Grade Income Subaccount........ 6.94% 8.93% (1.72)% 17.12% (7.85)% 11.50% 6.37% 15.80% 5.61% 10.76%
Mid Cap Subaccount.................. 16.76% 18.75% 16.86% 18.02% (6.04)% 12.52% 24.46%(2) --- --- ---
Global Strategic Income Subaccount.. 5.82% 4.32% 12.55% 6.88%(3) --- --- --- --- --- ---
Global Total Return Subaccount...... 11.55% 5.10% 13.09% 6.37%(3) --- --- --- --- --- ---
Managed Asset Allocation Subaccount. 17.28% 17.25% 11.66% 6.57%(3) --- --- --- --- --- ---
Equity Income Subaccount............ 7.98% 27.12% 18.83% 16.21%(3) --- --- --- --- --- ---
High Yield Subaccount............... 4.79% 12.16% 6.17%(4) --- --- --- --- --- --- ---
Social Awareness Subaccount......... 30.12% 21.43% 17.63% 26.24% (4.77)% 10.77% 15.23% 4.84%(5) --- ---
Value Subaccount.................... 15.41% 30.42%(6) --- --- --- --- --- --- --- ---
Small Cap Subaccount................ 10.46% (4.40)%(7) --- --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. On May 1, 1991 the Worldwide Equity Subaccount 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 December31, 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 Variflex contracts, 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 separate account or
Subaccount as applicable.
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"), or other unmanaged indices so that
investors may compare a Subaccount 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 Subaccount 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 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 current $8,000 limit will be 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 adjustment
equals to 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 403(b) or 408 of the Internal Revenue
Code or the plans of self-employed individuals (either under the HR-10 Act or
later acts).
DISTRIBUTION OF THE CONTRACTS
Subject to arrangements with 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.
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.
RECORDS AND REPORTS
Reports concerning each Contract will be sent annually to each Contractowner.
Contractowners will additionally receive annual and semiannual reports
concerning SBL Fund and annual reports concerning Variflex. Contractowners will
also receive confirmations of receipt of payments, changes in allocation of
payments and conversion of variable Accumulation Units and variable Annuity
Units.
LEGAL MATTERS
Matters of Kansas law pertaining to the validity of the Contracts, including
Security Benefit's right to issue the Contracts under Kansas insurance law and
its qualification to do so under applicable regulations issued thereunder, have
been passed upon by Amy J. Lee, Associate General Counsel of Security Benefit.
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 report given upon the authority of such firm as experts in accounting and
auditing.
OTHER INFORMATION
There has been filed with the Securities and Exchange Commission ("SEC"),
Washington, DC, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Variflex Contracts and under the Investment Company
Act of 1940, with respect to Variflex. Statements in this Prospectus relating to
Variflex and the Variflex Contracts are summaries only. For further information,
reference is made to the Registration Statements and the exhibits filed as parts
thereof. Copies of the Variflex Contracts also will be on file with the
Insurance Commissioner of each state in which Security Benefit is authorized to
issue such Contracts.
There has also been filed with the SEC a Registration Statement with respect to
SBL Fund. Further information about the Fund may be obtained from such
Registration Statement.
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 the
Separate Account 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 10.
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>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
The consolidated financial statements of Security Benefit Life
Insurance Company and Subsidiaries at December 31, 1998 and 1997,
and for each of the three years in the period ended December 31,
1998 are incorporated herein by reference to the financial
statements filed with the T. Rowe Price Variable Annuity Account's
Post-Effective Amendment No. 9 under the Securities Act of 1933
and Amendment No. 10 under the Investment Company Act of 1940 to
Registration Statement No. 33-83238 (April 23, 1999).
The financial statements for the Variflex Separate Account at
December 31, 1998 and for each of the two years in the period
ended December 31, 1998 are incorporated herein by reference to
the financial statements filed with the Variflex Separate
Account's (Variflex) Post-Effective Amendment No. 22 under the
Securities Act of 1933 and Amendment No. 21 under the Investment
Company Act of 1940 to Registration Statement No. 2-89328 (April
30, 1999).
b. Exhibits
(1) Resolution of the Board of Directors of Security Benefit
Life Insurance Company authorizing establishment of the
Separate Account(a)
(2) Not Applicable
(3) (a) Service Facilities Agreement(a)
(b) SBL Variable Products Broker/Dealer Sales Agreement and
SBL Variable Products Commission Schedule
(c) Marketing Organization Agreement and Commission Schedule
(4) (a) Group Allocated Contract (GV6322 8-98)(b)
(b) Group Allocated Contract-Unisex (GV6322 8-98U)(b)
(c) Group Certificate (GVC6322 8-98)(b)
(d) Group Certificate-Unisex (GVC6322 8-98U)(b)
(e) Loan Provision Certificate (Form GV6821 L-4 1-97)(a)
(f) Tax-Sheltered Annuity Endorsement (Form 6832A R9-96)(a)
(g) Roth IRA Endorsement (V6851 10-97)(b)
(h) Section 457 Endorsement (V6054 1-98)(b)
(5) Form of Application (Form GV7592 9-98)(b)
(6) (a) Composite of Articles of Incorporation of SBL(c)
(b) Bylaws of SBL(c)
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) Not Applicable
(12) Not Applicable
(13) Schedules of Computation of Performance
(14) Powers of Attorney of Howard R. Fricke, Thomas R. Clevenger,
Sister Loretto Marie Colwell, John C. Dicus, William W.
Hanna, Laird G. Noller, Robert C. Wheeler, and Frank C.
Sabatini
(a) Incorporated herein by reference to the exhibits filed with the
Registrant's Initial Registration Statement No. 333-36529 (September 26,
1997).
(b) Incorporated herein by reference to the exhibits filed with the
Registrant's Post-Effective Amendment No. 1 under the Securities Act of
1933 and Amendment No. 2 under the Investment Company Act of 1940 to
Registration Statement No. 333-36529 (August 31, 1998).
(c) Incorporated herein by reference to the exhibits filed with the Variflex
Separate Account Post-Effective Amendment No. 20 under the Securities Act
of 1933 and Amendment No. 19 under the Investment Company Act of 1940 to
Registration Statement No. 2-89328 (November 1, 1998).
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR
Howard R. Fricke* Chairman of the Board, Chief
Executive Officer and Director
Thomas R. Clevenger Director
P.O. Box 8514
Wichita, Kansas 67208
Sister Loretto Marie Colwell Director
1700 SW 7th Street
Topeka, Kansas 66606
John C. Dicus Director
700 Kansas Avenue
Topeka, Kansas 66603
Steven J. Douglass Director
3231 East 6th Street
Topeka, Kansas 66607
William W. Hanna Director
P.O. Box 2256
Wichita, Kansas 67201
John E. Hayes, Jr. Director
200 Gulf Blvd.
Belleair Shore, FL 33786
Laird G. Noller Director
2245 Topeka Avenue
Topeka, Kansas 66611
Frank C. Sabatini Director
120 SW 6th Street
Topeka, Kansas 66603
Robert C. Wheeler Director
P.O. Box 148
Topeka, Kansas 66601
Kris A. Robbins* President and Chief Operating Officer
Donald J. Schepker* Senior Vice President, Chief
Financial Officer and Treasurer
Roger K. Viola* Senior Vice President, General
Counsel and Secretary
Malcolm E. Robinson* Senior Vice President and Assistant
to the Chairman and CEO
Richard K Ryan* Senior Vice President
John D. Cleland* Senior Vice President
Terry A. Milberger* Senior Vice President
Venette K. Davis* Senior Vice President
J. Craig Anderson* Senior Vice President
Gregory Garvin* Senior Vice President
James R. Schmank* Senior Vice President
Amy J. Lee* Associate General Counsel, Vice
President and Assistant Secretary
Tom Swank* Vice President and Chief Investment
Officer
*Located at 700 Harrison Street, Topeka, Kansas 66636.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Depositor, Security Benefit Life Insurance Company ("SBL"), is
owned by Security Benefit Corp. through the ownership of 700,000 of
SBL's 700,010 issued and outstanding shares of common stock. One share
of SBL's issued and outstanding common stock is owned by each director
of SBL, in accordance with the requirements of Kansas law. Security
Benefit Corp. is wholly-owned by Security Benefit Mutual Holding
Company ("SBMHC"), which in turn is controlled by SBL policyholders.
No one person holds more than approximately 0.0004% of the voting
power of SBMHC. The Registrant is a segregated asset account of SBL.
The following chart indicates the persons controlled by or under
common control with Variflex Separate Account or SBL:
<TABLE>
<CAPTION>
PERCENT OF VOTING
JURISDICTION OF SECURITIES OWNED
NAME INCORPORATION BY SBMHC
(directly or
indirectly)
<S> <C> <C>
Security Benefit Mutual Holding Company
(Holding Company) Kansas ---
Security Benefit Corp. (Holding Company) Kansas 100%
Security Benefit Life Insurance Company (Stock Life
Insurance Company) Kansas 100%
Security Benefit Group, Inc. (Holding Company) Kansas 100%
Security Management Company, LLC
(Mutual Funds Management Company) Kansas 100%
Security Distributors, Inc. (Broker/Dealer, Principal
Underwriter of Mutual Funds) Kansas 100%
First Advantage Insurance Agency, Inc.
(Insurance Agency) Kansas 100%
Security Benefit Academy, Inc. (Daycare Company) Kansas 100%
Creative Impressions, Inc. (Advertising Agency) Kansas 100%
First Security Benefit Life Insurance and Annuity
Company of New York New York 100%
</TABLE>
SBL is also the depositor of the following separate accounts: SBL
Variable Annuity Accounts I, III, IV and X, SBL Variable Life
Insurance Account Varilife, Security Varilife Separate Account, SBL
Variable Annuity Account VIII (Variflex LS), SBL Variable Annuity
Account VIII (Variflex Signature), T. Rowe Price Variable Annuity
Account and Parkstone Variable Annuity Separate Account.
Through the above-referenced separate accounts, SBL might be deemed to
control the open-end management investment companies listed below. The
approximate percentage of ownership by the separate accounts for each
company is as follows:
Security Growth and Income Fund............................ 39.4%
SBL Fund................................................... 100%
Security Ultra Fund........................................ 32.0%
ITEM 27. NUMBER OF CONTRACTOWNERS
As of April 1, 1999, there were 29 owners of Variflex ES Contracts.
ITEM 28. INDEMNIFICATION
The bylaws of Security Benefit Life Insurance Company provide that the
Company shall, to the extent authorized by the laws of the State of
Kansas, indemnify officers and directors for certain liabilities
threatened or incurred in connection with such person's capacity as
director or officer.
The Articles of Incorporation include the following provision:
(a) No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach
of his or her fiduciary duty as a director, PROVIDED that nothing
contained in this Article shall eliminate or limit the liability
of a director (a) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) under the
provisions of K.S.A. 17-6424 and amendments thereto, or (d) for
any transaction from which the director derived an improper
personal benefit. If the General Corporation Code of the State of
Kansas is amended after the filing of these Articles of
Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the General
Corporation Code of the State of Kansas, as so amended.
(b) Any repeal or modification of the foregoing paragraph by
the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing
at the time of such repeal or modification.
Insofar as indemnification for a liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Depositor has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses
incurred or paid by a director, officer or controlling person of the
Depositor in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the Securities being registered, the Depositor will,
unless in the opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Security Distributors, Inc. ("SDI"), a subsidiary of SBL, acts as
distributor of the Variflex Separate Account contracts. SDI
receives no compensation for its distribution function in excess
of the commissions it pays to selling broker/dealers. SDI
performs similar functions for SBL Variable Annuity Accounts I,
III, IV and X, SBL Variable Life Insurance Account Varilife,
Security Varilife Separate Account, SBL Variable Annuity Account
VIII (Variflex LS and Variflex Signature), and Parkstone Variable
Annuity Separate Account. SDI also acts as principal underwriter
for the following management investment companies for which
Security Management Company, LLC, an affiliate of SBL, acts as
investment adviser: Security Equity Fund, Security Income Fund,
Security Growth and Income Fund, Security Municipal Bond Fund and
Security Ultra Fund.
(b) NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
------------------ ------------------
Richard K Ryan President and Director
John D. Cleland Vice President and Director
James R. Schmank Vice President and Director
Mark E. Young Vice President and Director
Amy J. Lee Secretary
Brenda M. Harwood Treasurer and Director
William G. Mancuso Regional Vice President
*700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by Section 31(a) of
the 1940 Act and the rules under it are maintained by SBL at its
administrative offices--700 Harrison, Topeka, Kansas 66636-0001.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a post-effective
amendment to this Registration Statement as frequently as
necessary to ensure that the audited financial statements in the
Registration Statement are never more than sixteen (16) months
old for so long as payments under the Variable Annuity contracts
may be accepted.
(b) Registrant undertakes that it will include as part of the
Variflex Separate Account contract application a space that an
applicant can check to request a Statement of Additional
Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form promptly upon written or oral request
to SBL at the address or phone number listed in the prospectus.
(d) Depositor represents that the fees and charges deducted under the
Contract, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the
risks assumed by the Depositor.
(e) SBL, sponsor of the unit investment trust, Variflex Separate
Account, hereby represents that it is relying upon American
Council of Life Insurance, SEC No-Action Letter, [1988-1989
Transfer Binder] Fed. Sec. L. Rep. (CCH) paragraph 78,904 (Nov.
28, 1988), and that it has complied with the provisions of
paragraphs (1)-(4) of such no-action letter which are
incorporated herein by reference.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has caused this
Registration Statement to be signed on its behalf in the City of Topeka, and
State of Kansas on this 23rd day of April, 1999.
SIGNATURES AND TITLES
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of (The Depositor)
the Board and Chief
Executive Officer
By: ROGER K. VIOLA
---------------------------------------
Thomas R. Clevenger Roger K. Viola, Senior Vice President,
Director General Counsel and Secretary as
Attorney-In-Fact for the Officers
and Directors Whose Names Appear
Sister Loretto Marie Colwell Opposite
Director
VARIFLEX SEPARATE ACCOUNT
John C. Dicus (Variflex Educator Series)(The Registrant)
Director
By: SECURITY BENEFIT LIFE INSURANCE COMPANY
Steven J. Douglass (The Depositor)
Director
By: HOWARD R. FRICKE
William W. Hanna ---------------------------------------
Director Howard R. Fricke, Chairman of the
Board and Chief Executive Officer
Laird G. Noller
Director By: DONALD J. SCHEPKER
---------------------------------------
Donald J. Schepker, Senior Vice
Frank C. Sabatini President, Chief Financial Officer
Director and Treasurer
Robert C. Wheeler (ATTEST): ROGER K. VIOLA
Director ---------------------------------
Roger K. Viola, Senior Vice
President, General Counsel
and Secretary
Date: April 23, 1999
<PAGE>
EXHIBIT INDEX
(1) None
(2) None
(3) (a) None
(b) SBL Variable Products Broker/Dealer Sales Agreement and SBL Variable
Products Commission Schedule
(c) Marketing Organization Agreement and Commission Schedule
(4) (a) None
(b) None
(c) None
(d) None
(e) None
(f) None
(g) None
(h) None
(5) None
(6) (a) None
(b) None
(7) None
(8) None
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) None
(12) None
(13) Schedules of Computation of Performance
(14) Powers of Attorney
<PAGE>
[SBL LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
A Member of The Security 700 SW Harrison St.
Benefit Group of Companies Topeka, Kansas 66636-0001
(785) 431-3000
SBL VARIABLE PRODUCTS
BROKER/DEALER
SALES AGREEMENT
BROKER/DEALER:
EFFECTIVE DATE:
1. Security Benefit Life Insurance Company, of Topeka, Kansas, and its
affiliated company, Security Distributors, Inc., hereinafter jointly called
"SBL", hereby authorize the above-designated Broker/Dealer to solicit and
service (1) variable annuities issued under Security Benefit Life Insurance
Company's several Variable Annuity Accounts and (2) variable life insurance
policies issued under Security Benefit Life Insurance Company's variable
life accounts, each of which has been registered as securities under the
Securities Act of 1933 with Security Distributors, Inc. (a member of the
National Association of Securities Dealers, Inc.) having been designated
Principal Underwriter thereof. Said variable annuity contracts and variable
life insurance policies are referred to herein as "Variable products."
2. Broker/Dealer hereby accepts such authorization to solicit and service such
SBL variable products and confirms that it is properly licensed to solicit
and service such variable products for SBL and is a member in good standing
of the National Association of Securities Dealers, Inc., hereinafter called
"NASD", and further agrees to notify SBL if it ceases to be a member of
NASD.
3. Broker/Dealer shall have the authority to recruit, train and supervise
registered representatives for the sale of variable products of SBL.
Appointment of any registered representative shall be subject to prior
approval of SBL. SBL reserves the right to require termination of any
registered representative's right to sell SBL variable products.
Broker/Dealer shall be responsible for any registered representative
appointed hereunder complying with the terms, conditions and limitations as
set forth in this Agreement. All registered representatives recruited by
Broker/Dealer to sell SBL's variable products shall be duly licensed as
annuity producers and/or insurance producers pursuant to applicable state
laws and regulations. Broker/Dealer shall be responsible for any registered
representative becoming so licensed.
4. Commissions on stipulated payments or premiums accepted by SBL on behalf of
an annuitant, participant, or policyholder of a variable product covered by
this Agreement will be in accordance with the Schedule of Commissions made
part of this Agreement, and are in full consideration of all services
rendered and expenses incurred hereunder by the Broker/Dealer or its
representatives. First year commissions are payable when an individual
variable annuity contract, group variable annuity certificate or variable
life insurance policy is issued and paid for upon an application submitted
through Broker/Dealer and accepted by the applicant thereof. Broker/Dealer
is not authorized to deduct commissions prior to forwarding any remittance
received to SBL. All checks or drafts received by the Broker/Dealer in
regards to any variable product shall be made payable to Security Benefit
Life Insurance Company. All compensation payable hereunder shall be subject
to a first lien and may be reduced or set off as to any indebtedness owed
by the Broker/Dealer to SBL. Any commissions paid to a third party at the
request of the Broker/Dealer shall be deducted from the commissions payable
hereunder.
5. Broker/Dealer agrees to be bound by the terms, conditions and limitations
set forth in this Agreement and the rules and practices of SBL that are now
and hereafter in force. Broker/Dealer agrees not to solicit or submit
applications for variable products to SBL unless it and its registered
representatives are properly licensed, and further agrees that it will
conform to all applicable state, federal and local laws and regulations in
conducting business under this Agreement. Both parties hereby agree to
abide by the applicable Rules of Fair Practice of the NASD which Rules are
incorporated herein as if set forth in full. The signing of this Agreement
and the purchase of variable products pursuant thereto is a representation
of SBL that Broker/Dealer is a properly registered Broker/Dealer under the
Securities and Exchange Act of 1934.
6. Neither the Broker/Dealer nor its representatives are authorized to make
any representations concerning the variable products, its sponsor (SBL),
the principal underwriter (Security Distributors, Inc.) or the underlying
mutual funds except those contained in the applicable current prospectuses
and in the printed information furnished by SBL. Broker/Dealer agrees not
to use any other advertising or sales material relating to the variable
products unless specifically approved in writing by SBL.
7. Broker/Dealer is not authorized and has no authority (a) to make, alter or
discharge any contract for or on behalf of SBL, (b) endorse any check or
draft payable to SBL, (c) to accept any variable product consideration
after the initial remittance, (d) to waive or modify any prospectus,
contract, policy or application provision, condition or obligation, and (e)
to extend the time for payment of any variable product consideration or
accept payment of any past due variable product consideration.
8. This Agreement shall not create or be construed as creating an
Employer-Employee or Master-Servant relationship between Broker/Dealer and
SBL.
9. Broker/Dealer agrees to keep accurate records on all business written and
moneys received under this Agreement. Such records may be examined by SBL
or its representatives at any reasonable time. All moneys and documents
belonging to SBL in possession of Broker/Dealer shall be held in trust and
shall not be used or commingled with funds or property belonging to
Broker/Dealer and shall be promptly remitted to SBL. Broker/Dealer agrees
to be responsible for any county or municipal occupational or privilege
fee, tax or license which may be required of Broker/Dealer or its
representatives as a result of business submitted under this Agreement.
10. Neither this Agreement nor the compensation payable hereunder shall be
assigned or pledged without the written consent of SBL. SBL reserves the
right to reject any assignment or pledge.
11. No consent or change in this agreement shall be binding upon SBL unless in
writing and signed by the president, a vice president, secretary or an
assistant secretary of SBL. Any failure of SBL to insist upon strict
compliance with the provisions of this Agreement shall not constitute or be
construed as a waiver thereof.
12. SBL shall have the right to decline or modify any application or to refund
any variable product consideration or any portion thereof, and
Broker/Dealer shall refund immediately upon request any commissions
received in connection therewith. All applications for variable products
are subject to acceptance by SBL and become effective only upon
confirmation by SBL. Broker/Dealer agrees to return to SBL without delay
any commissions received on a variable product, contract or policy if such
contract or policy is tendered for redemption within seven (7) business
days after acceptance of the application by SBL.
13. Variable products, contracts and policies will be offered to the public at
the price as outlined in the applicable variable product's current
prospectus. All cash surrenders require the written request and consent of
the contract or policy owner and such surrenders will conform to the
provisions set forth in the applicable contract or policy.
14. SBL has been and is designated Administrative Agent of Security
Distributors, Inc. to perform duties, including recordkeeping and payment
of commissions, necessary under this Agreement in connection with the
solicitation, sales and servicing of variable annuity contracts sold and
solicited hereunder.
15. SBL reserves the right to amend or terminate this Agreement at any time. In
the event Broker/Dealer ceases to be a member in good standing of the NASD,
this Agreement shall terminate automatically without notice. After
termination Broker/Dealer upon request, shall without delay pay in full any
indebtedness owed to SBL and return all SBL property to their home office.
In the event Broker/Dealer ceases doing business in such manner that
servicing would be impossible, SBL reserves the right to reassign the
business and service fees to another Broker/Dealer. Should Broker/Dealer
fail to comply with any of the terms of this Agreement, SBL reserves the
right to terminate this Agreement and terminate vesting as to all
commissions payable thereunder.
16. This Agreement is effective as of the Effective Date set forth above and
replaces any previous agreement between the parties relating to variable
products of SBL except as to any commissions payable thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date set forth above.
SECURITY DISTRIBUTORS, INC. BROKER/DEALER
By RICHARD K RYAN
----------------------------------- ------------------------------------
Title: President (Signature of Principal)
------------------------------------
SECURITY BENEFIT LIFE INSURANCE COMPANY (Name of Principal)
By RICHARD K RYAN
----------------------------------- ------------------------------------
Title: Senior Vice President Title:
|_| Individual |_| Corporation
|_| Partnership
Tax Identification No.
-------------
VA6972 (R3-87)
<PAGE>
[SBL LOGO]
SECURITY BENEFIT LIFE
INSURANCE COMPANY
- --------------------------------------------------------------------------------
A MEMBER OF THE SECURITY 700 SW HARRISON ST.
BENEFIT GROUP OF COMPANIES TOPEKA, KANSAS 66636-0001
(785) 431-3000
SBL VARIABLE PRODUCTS
COMMISSION SCHEDULE
VARIFLEX ES VARIABLE ANNUITY
Group Allocated
Broker/Dealer:
EFFECTIVE DATE OF COMMISSION SCHEDULE:
COMMISSIONS - This Commission Schedule is hereby made a part of and amends your
selling agreement including, but not limited to, the SBL Variable Products Sales
Agreement and/or Marketing Organization Agreement, as applicable, (hereinafter
called the "Agreement") with Security Benefit Life Insurance Company and
Security Distributors, Inc., (hereinafter jointly called "SBL") and commissions
payable hereunder are subject to the provisions contained in the Agreement and
this Commission Schedule. Minimum Purchase Payments are as set out in the
applicable prospectus and contract. Commissions to a Broker/Dealer are equal to
a percentage of Purchase Payments written by that Broker/Dealer, as follows:
1. The rate of commission paid on Purchase Payments made with respect to each
particular Variflex ES Contract during all Contract Years for all regular
installment payments, lump sums and other irregular payments added to an
individual installment payment contract or certificate of a group contract:
*Commission Rate: 4.00%
*No Commission will be paid on Purchase Payments made which are less than
the minimum amount specified in the prospectus and contract.
2. ASSET BASED COMMISSIONS: SBL will pay an asset based commission at the end
of each calendar month on the aggregate Contract Value of Variflex ES
Contracts as of that date for which Broker/Dealer is listed on SBL's records
as the broker of record. On an annual basis, the asset based commission will
be equal to the amounts set forth below. The amount of the asset based
commission and its beginning date with respect to assets under a Contract
will vary based upon whether assets are allocated to the separate account
("Variable Assets") or the fixed account ("Fixed Assets"). No asset based
commission will be paid on Contracts which have annuitized under a life
contingent option. An Annuitization Fee may be available as discussed in
paragraph 5.
BEGINNING DATE
ANNUAL RATE (MEASURED FROM CONTRACT DATE)
Aggregate Value
of Variable Assets .25% 1st month
Aggregate Value
of Fixed Assets .15% 61st month
3. CONTRACT YEAR: For the purpose of this Commission Schedule, the "Contract
Year" shall be measured from the "Contract Date" which is the date the first
Purchase Payment is credited to a Contract.
4. TRANSFER OF SBL CONTRACT VALUES: No commission (including asset based
commission) is paid on the transfer of cash, loan or surrender value of a
life insurance or annuity contract issued by SBL or other members of The
Security Benefit Group of Companies applied to a Variflex ES Contract under
this Commission Schedule.
Death Benefit Applied to an Annuity Option: In the event that a beneficiary
under a Variflex ES Contract under this Commission Schedule applies the
death benefit to one of the annuity forms under the Contract, no commission
will be payable upon such application. An Annuitization Fee may be available
as discussed in paragraph 5.
5. ANNUITIZATION: An Annuitization Fee will be paid to Broker/Dealers who
secure from the Contract Owner (or his or her beneficiary) the proper forms
and information to commence an immediate life contingent annuity option and
has significantly assisted the client and SBL in such settlement. The
Annuitization Fee will be equal to 4% of the amount applied to a fixed life
contingent annuity option and 1.65% of the amount applied to a variable life
contingent annuity option.
6. CHANGE OF COMMISSION SCHEDULE: Notwithstanding any other provision of the
Agreement to the contrary, the following provisions shall apply. SBL
reserves the right at any time, with or without notice, to change, modify or
discontinue the commissions, asset based commissions or any other
compensation payable under this Commission Schedule. However, any such
change will not apply to the commissions or asset based commissions
applicable to Contracts issued before the effective date of such change.
7. CHANGE OF DEALER: A Contract Owner shall have the right to designate a new
broker/dealer, or terminate a broker/dealer without designating a
replacement, by sending written notice of such designation to SBL. Upon
written notice to SBL by the owner of the designation of a new
broker/dealer, all the commissions and asset based commissions shall be
payable to the new broker/dealer. Upon written notice to SBL by the owner of
termination of Broker/Dealer, without designating a new broker/dealer, SBL
shall cease paying commissions and asset based commissions to Broker/Dealer.
8. TERMINATION OF THE AGREEMENT/VESTING: In the event of termination of the
Agreement for any reason, all rights to receive commissions, asset based
commissions or other compensation under this Commission Schedule shall be
terminated, unless each of the following requirements is met: (i) the
Agreement has been in force for at least one year; (ii) Broker/Dealer is at
the time such commissions are payable properly licensed to receive such
commissions; (iii) Broker/Dealer is providing service to the Contract Owner
and performing its duties in a manner satisfactory to SBL; (iv) commissions
paid to Broker/Dealer in the previous calendar year amounted to at least
$500; and (v) Broker/Dealer has not been terminated, nor a new broker/dealer
designated, by the Contract Owner as set forth in paragraph 7 above.
THIS COMMISSION SCHEDULE replaces any previous Commission Schedule for the
Variable Annuity Contract listed above as of the Effective Date set forth above.
SECURITY DISTRIBUTORS, INC. SECURITY BENEFIT LIFE INSURANCE COMPANY
By: RICHARD K RYAN By: RICHARD K RYAN
------------------------------- ------------------------------------
Title: President Title: Senior Vice President - Sales
---------------------------- ------------------------------------
9904 (R4-99)
<PAGE>
[SBL LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
A Member of The Security 700 SW Harrison St.
Benefit Group of Companies Topeka, Kansas 66636-0001
785-431-3000
MARKETING ORGANIZATION AGREEMENT
SECURITY BENEFIT LIFE INSURANCE COMPANY
SECURITY DISTRIBUTORS, INC.
PRODUCT AUTHORIZATION
Fixed Products |_|
Variable Products |_|
MARKETING ORGANIZATION: ________________________________________________
This Agreement is entered into between Security Benefit Life Insurance Company,
a Kansas mutual life insurance company, Security Distributors, Inc. (solely in
its capacity as underwriter of the Variable Products), collectively referred to
herein as "SBL," and the undersigned, referred to herein as the "Marketing
Organization."
I. APPOINTMENTS AND DUTIES
A. APPOINTMENT. Subject to the terms and conditions of this contract,
Marketing Organization is appointed to solicit, and to recommend for
appointment Agents/Representatives and Marketing Organizations
(referred to herein as "Marketer(s)") to solicit applications for the
fixed annuity and fixed life insurance contracts ("Fixed Products")
and/or variable annuity and variable life insurance contracts
("Variable Products") more specifically described in the Commission
Schedule(s) attached hereto from time to time and incorporated by
reference (collectively referred to as the "Products"), to deliver the
contracts, to collect the initial premiums thereon, and to service the
business.
Marketing Organization hereby accepts such appointment and confirms
that it will abide by the terms and conditions of this Agreement and
any sales manuals and/or rules and practices of SBL. Marketing
Organization will endeavor to promote SBL's interests and those mutual
interests of Marketing Organization and SBL as contemplated by this
Agreement and shall at all times conduct itself, and insure that its
employees and Marketers conduct themselves so as not to adversely
affect the business reputation or good standing of either the
Marketing Organization or SBL.
B. SALES FORCE. Marketing organization shall have the authority to
recruit, train and supervise Marketers for the sale of the Products.
Appointment of any Marketer shall be subject to prior approval of SBL.
SBL reserves the right to require termination of any Marketer's right
to sell any of the Products and to cancel the appointment of any
Marketer. Marketing Organization shall be responsible for any Marketer
appointed hereunder complying with the terms, conditions, and
limitations as set forth in this Agreement and any sales manuals
and/or rules and practices of SBL.
With respect to sales of Fixed Products, unless otherwise agreed in
writing by the parties, any and all agreements with Marketers shall be
made directly with SBL in writing on SBL's form and shall not become
effective until they are approved and executed by SBL and the Marketer
is licensed in accordance with Section III of this Agreement.
Marketing Organization shall not have authority to modify or amend any
such agreements. With respect to sales of Variable Products, any and
all agreements with Marketers shall be made between the Marketing
Organization and its Marketers, provided however, that SBL reserves
the right to require any Marketer to sign an agreement acknowledging
that no compensation is payable by SBL to the Marketer. SBL may, at
SBL's option, refuse to contract with any proposed Marketer and may at
any time terminate any agreement with any Marketer.
C. INDEPENDENT CONTRACTOR. Marketing Organization will be an independent
contractor and nothing contained herein shall be construed as creating
the relationship of employer-employee between SBL and Marketing
Organization. Marketing Organization will be acting as an independent
contractor only, and not as a partner, associate, or affiliate of SBL.
Marketing Organization will be free to exercise its own judgment as to
the time and manner of performing the services authorized by this
Agreement subject to such rules and regulations as may be adopted from
time to time by SBL.
D. LIMITATIONS OF AUTHORITY. Marketing Organization's authority shall
extend no further than as is stated in this Agreement. Marketing
Organization shall not (1) make, alter, modify, waive or change any
question, statement or answer on any application for insurance, the
terms of any receipt given thereon, or the terms of any policy or
contract; (2) extend or waive any provision of any policy or contract
or the time for payment of premiums; (3) guarantee dividends; (4)
deliver any policy unless the applicant is at the time in good health
and insurable condition; (5) incur any debts or liability for or
against SBL; or (6) receive any money for SBL except as herein stated.
E. COLLECTION OF MONEY. Marketing Organization is not authorized to
accept any premium for SBL except initial policy premiums, unless SBL
provides otherwise in writing. All customer checks should be made
payable directly to SBL. Receipts for premiums must be on the forms
furnished by SBL for that purpose. Marketing Organization shall
immediately remit to SBL all money received or collected on SBL's
behalf, and such money shall be considered as SBL's funds held in
trust by Marketing Organization. SBL will not accept premium payments
in the form of checks drawn on Marketing Organization or Marketer
accounts.
F. RECORDS. Marketing Organization agrees to maintain proper records and
accounts of business transacted under this contract, including but not
limited to, records of all written sales proposals made, applications
taken, money collected, policies issued and delivered, and all service
to policy owners on SBL's behalf. All such records shall be made
available to SBL or SBL's representatives, with or without prior
notice, during business hours.
II. COMPENSATION
A. COMPENSATION TO MARKETING ORGANIZATION. As full compensation, SBL will
pay Marketing Organization or its affiliated insurance agency (if
applicable) commissions as described in the attached Commission
Schedule(s) for policies sold by Marketers assigned to Marketing
Organization. There shall be no additional compensation or
reimbursement to Marketing Organization for services performed or
expenses incurred. Marketing Organization shall be responsible for and
shall pay all expenses Marketing Organization incurs in the
performance of this Agreement. Further, SBL may amend any Commission
Schedule at any time by giving Marketing Organization written notice
of such change. Any changes SBL may make to the Commission Schedule
will apply only to those policies issued on or after the effective
date of the changes.
The rate of commissions or right to receive compensation on any policy
or contract (1) not listed in this Agreement, (2) requiring special
underwriting, or (3) obtained through a lead furnished by SBL, shall
be governed by SBL's rules and practices in effect at that time and
shall eventually be covered by a separate agreement between Marketing
Organization and SBL, by written amendment to this Agreement, or by
written notice to Marketing Organization.
B. COMPENSATION TO MARKETERS. This Agreement is not intended to benefit
in any manner whatsoever the Marketers or any other entity as a
third-party beneficiary. With respect to sales of Fixed Products,
payment of compensation by SBL to Marketers will be made only pursuant
to the terms of a separate written Agreement between SBL and Marketer.
With respect to the sales of Variable Products, SBL will pay no
compensation to Marketers; payment of compensation to Marketers, if
any, will be made only pursuant to the terms of a separate written
Agreement between the Marketing Organization and Marketer.
C. PROVISIONS RELATING TO COMPENSATION. Neither Marketing Organization
nor any Marketer assigned to Marketing Organization shall withhold
compensation from any premiums or contributions submitted to SBL. No
commissions will be payable on premiums or contributions which shall
be refunded for any reason, and Marketing Organization shall refund to
SBL any commission paid to Marketing Organization on any such premiums
or contributions. SBL shall not, under any circumstances whatsoever,
pay or allow any rebate of commissions in any manner, directly or
indirectly.
III. COMPLIANCE
A. GENERAL REQUIREMENTS. Marketing Organization agrees to abide by all
applicable local, state and federal laws and regulations as well as
the rules and regulations of the National Association of Securities
Dealers, Inc. (NASD) and the Securities and Exchange Commission in
conducting business under this Agreement. Marketing Organization shall
insure that all of its Marketers comply with all such rules, laws, and
regulations.
B. LICENSING. Marketing Organization agrees that neither it nor its
Marketers will solicit or submit applications for any of the Products
unless Marketing Organization, its affiliated insurance agency (if
applicable), and its Marketers are properly licensed under all
applicable state insurance laws. Marketing Organization shall be
responsible for each Marketer becoming so licensed and shall notify
SBL if any Marketer ceases to be so licensed.
WITH RESPECT TO SALES OF VARIABLE PRODUCTS: (1) Marketing Organization
hereby confirms that it is a member in good standing of the National
Association of Securities Dealers, Inc., hereinafter called "NASD,"
and further agrees to notify SBL if it ceases to be a member of the
NASD, (2) Marketing Organization agrees to abide by the applicable
Rules of Fair Practice of the NASD which rules are incorporated herein
as if set forth in full, (3) Marketing Organization represents that
the signing of this agreement is a representation to SBL that
Marketing Organization is a properly registered Broker/Dealer under
the Securities Exchange Act of 1934, and (4) Marketing Organization
shall insure that all Marketers recruited by Marketing Organization to
sell the Variable Products shall be duly registered pursuant to
applicable state and federal securities laws and regulations and shall
notify SBL if any Marketer ceases to be so registered.
Marketing Organization will be responsible to secure and provide to
SBL adequate proof of any licenses, securities registration, bonds or
other requirements or qualifications as may be required by SBL or the
state or states where Marketing Organization and its affiliated
insurance agency (if applicable) is authorized to solicit insurance
and securities.
C. PRINTED MATTER. SBL will furnish Marketing Organization all
prospectuses, reports, applications and other printed matter necessary
to conduct the business anticipated hereunder with respect to SBL's
Products. Advertising material of any nature not supplied by SBL shall
be used by Marketing Organization only after Marketing Organization
has received SBL's written approval. Likewise, Marketing Organization
may use SBL's name and trademark, or those of any affiliated
companies, only with SBL's written approval.
IV. SBL'S RIGHT OF ACTION
A. CHANGES. SBL may at any time and from time to time (1) change or
modify this Agreement, (2) modify or amend any prospectus, policy
form, or contract, (3) change sales charges, (4) modify or alter the
conditions or terms under which any Product may be sold or regulate
its sale in any way, (5) discontinue or withdraw any Product from any
state, without prejudice to continue such Product elsewhere or (6)
cease doing business in any state.
B. RIGHTS OF REJECTION AND SETTLEMENT. SBL reserves the right to reject
any application or refund any money submitted by Marketers assigned to
Marketing Organization. In the event of such rejection or refund,
Marketing Organization's commission on such shall be refunded as
described previously by being charged against Marketing Organization's
earnings or, upon demand, by payment directly to SBL. It is the
intention of the parties to this Agreement that Marketing Organization
shall be entitled to receive commissions only upon premiums or
contributions received in cash and retained by SBL.
C. RIGHT OF OFFSET OF INDEBTEDNESS. Any advance, loan, annualization of
compensation, or extension of credit from SBL to Marketing
Organization and to Marketers appointed by or assigned to Marketing
Organization, or any loss or liability incurred by SBL as a result of
the actions of Marketing Organization or its affiliated insurance
agency (if applicable) shall constitute a general indebtedness of
Marketing Organization to SBL. The entire indebtedness, as shown in
SBL's ledger accounts, may be deemed due and payable at any time and
SBL may exercise any rights or remedies to collect such indebtedness,
including but not limited to, charging to Marketing Organization all
attorney's fees or other collection expenses, as permitted by law.
SBL may deduct any amounts Marketing Organization owes SBL now or in
the future, as a result of this or any other contract with the
Company, from any compensation due Marketing Organization. Marketing
Organization hereby assigns, transfers and sets over to SBL any monies
that from time to time may become due to Marketing Organization from
SBL under this contract or otherwise to secure any debt to SBL.
V. TERMINATION
A. VOLUNTARY TERMINATION. Either of the parties hereto may terminate this
Agreement, without stating any cause, by mailing to the other party at
their last known address a notice of termination which shall be
effective fifteen days from mailing.
B. AUTOMATIC TERMINATION. This Agreement terminates automatically (1) if
Marketing Organization is an individual, upon Marketing Organization's
death, (2) if a partnership, upon the death of any partner or change
in the partners composing the firm, or dissolution of the partnership
for any reason, (3) if a corporation, upon Marketing Organization's
dissolution or disqualification to perform the duties anticipated
hereunder, (4) upon revocation, termination, suspension or nonrenewal
of Marketing Organization's securities registration or insurance
licenses by any state in which Marketing Organization is required by
law to maintain such a license in order to perform its duties under
this Agreement, (5) with respect to the Variable Products, upon
Marketing Organization's ceasing to be an NASD registered
broker/dealer in good standing (this includes any suspension of
Marketing Organization's membership), or (5) upon Marketing
Organization's filing a petition for bankruptcy or one being filed for
Marketing Organization, upon Marketing Organization being adjudged
bankrupt, or upon Marketing Organization's executing a general
assignment for the benefit of creditors.
C. TERMINATION FOR CAUSE. Marketing Organization's rights under this
contract, including the right to any further payment of any type of
compensation, either during or after the termination of this contract,
shall automatically and completely cease if any of the following occur
at any time: (1) Marketing Organization violates any of the terms
hereof, (2) Marketing Organization violates any law or regulation
relating to the activities anticipated hereunder, (3) Marketing
Organization induces or attempts to induce any Marketer and/or person
under contract with SBL to terminate the contractual relationship or
cease doing business or producing for SBL, (4) Marketing Organization
initiates or induces any misappropriation or commingling of Marketing
Organization's and SBL's funds, or (5) Marketing Organization engages
in any fraudulent act or misrepresentation. In determining cause for
termination, SBL shall use its sole discretion and shall notify
Marketing Organization in writing of SBL's decision.
D. RETURN OF SBL PROPERTY. Upon termination of this contract, Marketing
Organization agrees to return any equipment, supplies, printed
materials or other property, including, but not limited to,
policyholder lists and policyholder records SBL has furnished
Marketing Organization. Marketing Organization acknowledges that any
policyholder lists or records in Marketing Organization's possession
are SBL's property, and that the Company has a continuing proprietary
interest in the lists and records relating to its policyholders.
VI. THIRD PARTY COMPLAINTS AND LITIGATION
A. NOTIFICATION AND COOPERATION. SBL and Marketing Organization will
promptly notify the other if either of them becomes aware of any
arbitration, litigation, judicial proceeding, insurance department or
other governmental agency inquiry or complaint, regulatory or
administrative investigation or proceeding, or customer complaint or
demand, which directly or indirectly involves the rights and
obligations of the parties under this Agreement. SBL and Marketing
Organization each agree to cooperate fully with the other with respect
to any matter referred to in this Section VI.
B. DEFENSE OF ACTIONS. If any legal action is brought by a third party
against SBL or Marketing Organization, or both, which is based in
whole or in part on any alleged act, fault or failure of Marketing
Organization in connection with this Agreement, SBL may require
Marketing Organization to defend SBL in such action, or, SBL may
defend any such action and expend such sums, including attorneys'
fees, to be reimbursed by Marketing Organization in accordance with
Section VI.E. below.
C. SERVICE OF PROCESS. Marketing Organization shall transmit to the
attention of SBL's Legal Counsel at 700 Harrison, Topeka, Kansas
66636, by certified mail within 24 hours after receipt, any paper
served upon Marketing Organization in connection with any proceeding,
hearing or action, whether legal or otherwise, by or against SBL. Any
failure on Marketing Organization's part to comply with this provision
which causes additional loss or expense to SBL shall be reimbursed by
Marketing Organization to SBL.
D. SETTLEMENT. SBL has the right to settle any claim against SBL, and any
claim made against SBL and Marketing Organization jointly, arising out
of this Agreement or any other agreement between SBL and Marketing
Organization now or hereafter existing, and SBL's determination as to
any such matter will be final and binding. In any action brought
jointly against SBL and Marketing Organization which is based in whole
or in part on any alleged act, fault or failure of Marketing
Organization, Marketing Organization shall not settle such action or
any portion thereof except with the express, written consent of SBL.
E. INDEMNIFICATION. Marketing Organization shall indemnify and hold SBL
harmless from any liability, loss, cost, claim or damaged caused by
the negligence or misconduct of Marketing Organization, its affiliated
insurance agency (if applicable), Marketers and/or either of their
officers, directors and employees. Marketing Organization shall
reimburse SBL for any legal or other expenses reasonably incurred by
SBL in connection with its investigation and defense of any such loss,
cost, claim, damage or liability, or of any proceeding or action
resulting from those matters.
VII. GENERAL PROVISIONS
A. CONFIDENTIALITY. Marketing Organization will treat all matters
relating to SBL's business as confidential information, and not
divulge any information in any way to other entities during or after
the term of this contract.
B. WAIVER. SBL's forbearance or failure to exercise any rights hereunder
or insist upon strict compliance herewith shall not constitute a
waiver of any right, condition, or obligation of Marketing
Organization under this Agreement.
C. PRIOR AGREEMENTS. This Agreement shall supersede any and all prior
agreement(s) between Marketing Organization and SBL in relation to
sales of Products after this Agreement becomes effective; it being
understood, however, that all obligations to SBL previously incurred
or assumed by SBL and liens created in connection therewith still
exist and shall attach hereto.
D. ASSIGNMENT. Neither this Agreement nor any of the benefits to accrue
hereunder shall be assigned or transferred, either in whole or in
part, without SBL's prior written consent. Any assignments shall be
subject to a first lien to SBL for any indebtedness owed to SBL.
E. NOTICES. All notices required or permitted to be given under this
contract shall be in writing and shall be delivered personally or
mailed to an officer of the party receiving such notice at its home
office at the address set forth above.
F. GOVERNING LAW. This contract shall be construed to be in accordance
with the laws of the State of Kansas.
H. ENTIRE AGREEMENT. The foregoing provisions, the attached Commission
Schedules and any rate books, manuals, or bulletins issued by SBL in
connection with this Agreement constitute the entire agreement between
the parties and SBL shall not be bound by any other promise,
agreement, understanding or representation unless it is made by an
instrument in writing, signed by all of the parties or is in the form
of a written notice from SBL to Marketing Organization which expresses
by its terms an intention to modify this Agreement.
I. SEVERABILITY. If it should appear that any term of this contract is in
conflict with any rule of law, statute, or regulation in effect in any
state where Marketing Organization writes or solicits business for
SBL, then any such term shall be deemed inoperative and null and void
insofar as it may be in conflict therewith and shall be deemed
modified to conform to such rule of law, statute or regulation. The
existence of any such apparent conflict shall not invalidate the
remaining provisions of this contract.
J. EFFECTIVE DATE. This Agreement shall take effect shown below, if
Marketing Organization has been duly licensed in the appropriate
jurisdiction(s) to perform the functions anticipated herein.
MARKETING ORGANIZATION SECURITY BENEFIT LIFE INSURANCE COMPANY
______________________________________ By ____________________________________
Print Name of Marketing Organization
|_| Individual |_| Partnership
|_| Corporation Title _________________________________
______________________________________ Date __________________________________
Print Name of Principal Officer
if a Partnership or Corporation
SECURITY DISTRIBUTORS, INC.
By ___________________________________
Signature of Individual
or Principal Officer By ____________________________________
Date _________________________________ Title _________________________________
APPROVED BY: Date __________________________________
______________________________________
Print Name of Sponsoring Marketing
Organization (if applicable)
By ___________________________________
Signature of Principal Officer
Effective Date of Agreement __________
9482 (R7-97) 32-94821-00
<PAGE>
[SBL LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
A MEMBER OF THE SECURITY 700 SW HARRISON ST.
BENEFIT GROUP OF COMPANIES TOPEKA, KANSAS 66636-0001
(785) 431-3000
SBL VARIABLE PRODUCTS
COMMISSION SCHEDULE
VARIFLEX ES VARIABLE ANNUITY
Group Allocated
Broker/Dealer:
EFFECTIVE DATE OF COMMISSION SCHEDULE:
COMMISSIONS - This Commission Schedule is hereby made a part of and amends your
selling agreement including, but not limited to, the SBL Variable Products Sales
Agreement and/or Marketing Organization Agreement, as applicable, (hereinafter
called the "Agreement") with Security Benefit Life Insurance Company and
Security Distributors, Inc., (hereinafter jointly called "SBL") and commissions
payable hereunder are subject to the provisions contained in the Agreement and
this Commission Schedule. Minimum Purchase Payments are as set out in the
applicable prospectus and contract. Commissions to a Broker/Dealer are equal to
a percentage of Purchase Payments written by that Broker/Dealer, as follows:
1. The rate of commission paid on Purchase Payments made with respect to each
particular Variflex ES Contract during all Contract Years for all regular
installment payments, lump sums and other irregular payments added to a
certificate of a group contract are outlined below:
PAYMENT EVENT ISSUE AGE COMMISSION RATE
Regular Installment Payment received 0 - 65 7.00%
during the first Contract Year 66 - 80 4.00%
Regular Installment Payment received 0 - 65 3.00%
in the second Contract Year and thereafter 66 - 80 4.00%
Lump Sum, Single Payment and other All Ages 4.00%
Irregular Payments
Increase in the Regular Installment Payment 0 - 65 7.00%
received during the second through ninth 66 - 80 4.00%
Contract Years
*Commission will not be paid on Purchase Payments made which are less than the
minimum amount specified in the prospectus and contract.
2. ASSET BASED COMMISSIONS: SBL will pay an asset based commission at the end
of each calendar month on the aggregate Contract Value of Variflex ES
Contracts as of that date for which Broker/Dealer is listed on SBL's records
as the broker of record. On an annual basis, the asset based commission will
be equal to the amounts set forth below. The amount of the asset based
commission and its beginning date with respect to assets under a Contract
will vary based upon whether assets are allocated to the separate account
("Variable Assets") or the fixed account ("Fixed Assets"). No asset based
commission will be paid on Contracts which have annuitized under a life
contingent option. An Annuitization Fee may be available as discussed in
paragraph 5.
BEGINNING DATE
ANNUAL RATE (MEASURED FROM CONTRACT DATE)
Aggregate Value of
Variable Assets .25% 1st month
Aggregate Value of
Fixed Assets .15% 61st month
3. CONTRACT YEAR: For the purpose of this Commission Schedule, the "Contract
Year" shall be measured from the "Contract Date" which is the date the first
Purchase Payment is credited to a certificate of a group contract.
4. TRANSFER OF SBL CONTRACT VALUES: No commission (including asset based
commission) is paid on the transfer of cash, loan or surrender value of a
life insurance or annuity contract issued by SBL or other members of The
Security Benefit Group of Companies applied to a Variflex ES Contract under
this Commission Schedule.
Death Benefit Applied to an Annuity Option: In the event that a beneficiary
under a Variflex ES Contract under this Commission Schedule applies the
death benefit to one of the annuity forms under the Contract, no commission
will be payable upon such application. An Annuitization Fee may be available
as discussed in paragraph 5.
5. ANNUITIZATION: An Annuitization Fee will be paid to a Broker/Dealer who
secures from the Contract Owner (or his or her beneficiary) the proper forms
and information to commence an immediate life contingent annuity option and
significantly assists the client and SBL in such settlement. The
Annuitization Fee will be equal to 4% of the amount applied to a fixed life
contingent annuity option and 2% of the amount applied to a variable life
contingent annuity option.
6. COMMISSION CHARGEBACK PROVISIONS:
Full Withdrawals from the Contract: 30% of commissions paid on Purchase
Payments received will be charged back to the Broker/Dealer in the event of
a full withdrawal within the first Contract Year.
Partial Withdrawals in the First Contract Year: A 30% commission chargeback
will be made in the first Contract Year on partial withdrawals which exceed
the Free Amount. The Free Amount is 10% of the Purchase Payments made as of
the date of the partial withdrawal, reduced by any previous withdrawals that
were not subject to a chargeback.
Death Benefit Paid in First Contract Year: No commission chargeback is
applicable
7. CHANGE OF COMMISSION SCHEDULE: Notwithstanding any other provision of the
Agreement to the contrary, the following provisions shall apply. SBL
reserves the right at any time, with or without notice, to change, modify or
discontinue the commissions, asset based commissions or any other
compensation payable under this Commission Schedule. However, any such
change will not apply to the commissions or asset based commissions
applicable to Contracts issued before the effective date of such change.
8. CHANGE OF DEALER: A Contract Owner shall have the right to designate a new
broker/dealer, or terminate a broker/dealer without designating a
replacement, by sending written notice of such designation to SBL. Upon
written notice to SBL by the owner of the designation of a new
broker/dealer, all the commissions and asset based commissions shall be
payable to the new broker/dealer. Upon written notice to SBL by the owner of
termination of Broker/Dealer, without designating a new broker/dealer, SBL
shall cease paying commissions and asset based commissions to Broker/Dealer.
9. TERMINATION OF THE AGREEMENT/VESTING: In the event of termination of the
Agreement for any reason, all rights to receive commissions, asset based
commissions or other compensation under this Commission Schedule shall be
terminated, unless each of the following requirements is met: (i) the
Agreement has been in force for at least one year; (ii) Broker/Dealer is at
the time such commissions are payable properly licensed to receive such
commissions; (iii) Broker/Dealer is providing service to the Contract Owner
and performing its duties in a manner satisfactory to SBL; (iv) commissions
paid to Broker/Dealer in the previous calendar year amounted to at least
$500; and (v) Broker/Dealer has not been terminated, nor a new broker/dealer
designated, by the Contract Owner as set forth in paragraph 8 above.
THIS COMMISSION SCHEDULE replaces any previous Commission Schedule for the
Variable Annuity Contract listed above as of the Effective Date set forth above.
SECURITY DISTRIBUTORS, INC. SECURITY BENEFIT LIFE INSURANCE COMPANY
By: RICHARD K RYAN By: RICHARD K RYAN
--------------------------- ------------------------------------
Title: President Title: Senior Vice President - Sales
------------------------ ---------------------------------
9904ES(3-99) 32-99040-01
<PAGE>
[SBG LOGO]
- --------------------------------------------------------------------------------
Security Benefit Life Insurance Company 700 SW Harrison St.
Security Benefit Group, Inc. Topeka, Kansas 66636-0001
Security Distributors, Inc. (785) 431-3000
Security Management Company, LLC
April 30, 1999
Security Benefit Life Insurance Company
700 SW Harrison Street
Topeka, KS 66636-0001
Re: Variflex Separate Account (Variflex ES)
File Nos.: 811-3957 & 333-36529
Post-Effective Amendment Nos.: 2 and 3
Dear Sir/Madam:
This letter is with reference to the Registration Statement of Variflex Separate
Account (Variflex ES) of which Security Benefit Life Insurance Company
(hereinafter "SBL") is the Depositor. Said Registration Statement is being filed
with the Securities and Exchange Commission for the purpose of registering the
variable annuity contracts issued by SBL and the interests in the Variflex
Separate Account under such variable annuity contracts which will be sold
pursuant to an indefinite registration.
I have examined the Articles of Incorporation and Bylaws of SBL, minutes of the
meetings of the Board of Directors and other records, and pertinent provisions
of the Kansas insurance laws, together with applicable certificates of public
officials and other documents which I have deemed relevant. Based on the
foregoing, it is my opinion that:
1. SBL is duly organized and validly existing as a stock life insurance company
under the laws of the State of Kansas.
2. Variflex Separate Account has been validly created as a Separate Account in
accordance with the pertinent provisions of the insurance laws of Kansas.
3. SBL has the power, and has validly and legally exercised it, to create and
issue the variable annuity contracts which are administered within and by
means of the Variflex Separate Account.
4. The amount of variable annuity contracts to be sold pursuant to the
indefinite registration, when issued, will represent binding obligations of
SBL in accordance with their terms providing said contracts were issued for
the considerations set forth therein and evidenced by appropriate policies
and certificates.
I hereby consent to the inclusion in the Registration Statement of my foregoing
opinion.
Respectfully submitted,
AMY J. LEE
Amy J. Lee
Associate General Counsel and Vice President
Security Benefit Life Insurance Company
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 5, 1999, with respect to the consolidated
financial statements of Security Benefit Life Insurance Company and Subsidiaries
and the financial statements of Variflex included in Post-Effective Amendment
No. 2 to the Registration Statement under the Securities Act of 1933
(Registration No. 333-36529) and Post-Effective Amendment No. 3 to the
Registration Statement under the Investment Company Act of 1940 (Registration
No. 811-3957) on Form N-4 and the related Statement of Additional Information
accompanying the Prospectus of Variflex ES Variable Annuity.
Ernst & Young LLP
Kansas City, Missouri
April 30, 1999
<PAGE>
Variflex ES Item 24.b Exhibit (13)
GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 1,181.20
((1+T)^.31)^1/.31 = (1.1812)^1/.31
1+T = 1.7112
T = 0.7112
GROWTH-INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 1,090.80
((1+T)^.31)^1/.31 = (1.0908)^1.31
1+T = 1.3236
T = .3236
MONEY MARKET YIELD
Money Market Series (Series C) as of December 31, 1998
CALCULATION OF CHANGE IN UNIT VALUE:
( Underlying Underlying )
( Fund Price Fund Price )
(12-31-98 - 12-25-98 ) = Weekly Earnings
( Underlying Fund Price )
( 12-25-98 )
12.5235979 - 12.5143016 = .000742854
- -------------------------------------
12.5143016
[(1 + Weekly Earnings)^1/7 - (Daily M&E Charge + Daily Admin. Fee)
^7 - 1 = Base Period Return
[(1 + .000742854^1/7 - (.000027397260 + .0000021590161)]^7 - 1 = .000535847
CURRENT 7-DAY YIELD:
(Base Period Return)365/7 = Current 7-Day Yield
(.000535847)365/7 = 2.79%
EFFECTIVE YIELD:
[(Base Period Return + 1)^365/7] - 1 = Effective Yield
[(.000535847 + 1)^365/7] - 1 = 2.83%
<PAGE>
MONEY MARKET SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 962.12
((1+T)^.31)^1/.31 = (0.9621)^1/.31
1+T = 0.8829
T = (0.1171)
WORLDWIDE EQUITY SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 1129.05
((1+T)^.31)^1/.31 = (1.1291)^1/.31
1+T = 1.4793
T = 0.4793
HIGH GRADE INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 963.78
((1+T)^.31)^1/.31 = (0.9638)^1/.31
1+T = 0.8878
T = (0.1122)
<PAGE>
HIGH GRADE INCOME SERIES
Yield Calculation As Of December 31, 1998 = 6.64%
[ (.49-0.00) ]^6
2[------------------------------- + 1 ] - 1
[ (6.7822)(13.25) ]
[(( .490352 ) )^6]
2[((----------------------- ) + 1 ) ] - 1
[(( 89.86 ) ) ]
2[((.005456592 + 1)^6) - 1]
2[(1.005456592)^6 - 1]
2[(1.0332 - 1)]
2(.0332)
= .0664
<PAGE>
MID CAP SERIES
(formerly EMERGING GROWTH SERIES)
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 1,288.42
((1+T)^.31)^1/.31 = (1.2884)^1/.31
1+T = 2.2648
T = 1.2648
GLOBAL STRATEGIC INCOME SERIES
(formerly GLOBAL AGGRESSIVE BOND SERIES)
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 1,028.79
((1+T)^.31)^1/.31 = (1.0288)^1/.31
1+T = 1.0959
T = 0.0959
GLOBAL TOTAL RETURN SERIES
(formerly SPECIALIZED ASSET ALLOCATION SERIES)
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 1,077.99
((1+T)^.31)^1/.31 = (1.0780)^1/.31
1+T = 1.2741
T = 0.2741
MANAGED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 1,084.53
((1+T)^.31)^1/.31 = (1.0845)^1/.31
1+T = 1.2992
T = 0.2992
EQUITY INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 1,104.77
((1+T)^.31)^1/.31 = (1.1048)^1/.31
1+T = 1.3791
T = 0.3791
HIGH YIELD SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 982.25
((1+T)^.31)^1/.31 = (0.9823)^1/.31
1+T = 0.9439
T = (0.0561)
SOCIAL AWARENESS SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 1,237.59
((1+T)^.31)^1/.31 = (1.2376)^1/.31
1+T = 1.9890
T = .9890
VALUE SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 1,183.61
((1+T)^.31)^1/.31 = (1.1836)^1/.31
1+T = 1.7225
T = 0.7225
SMALL CAP SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITH CONTINGENT DEFERRED SALES CHARGE AND ADMINISTRATIVE FEES)
.31 Year (from date of inception September 10, 1998)
1000 (1+T)^.31 = 1,202.67
((1+T)^.31)^1/.31 = (1.2027)^1/.31
1+T = 1.8136
T = 0.8136
<PAGE>
GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,241.45
(1+T)^1 = (1.2415)^1
1+T = 1.2415
T = 0.2415
5 Years
1000 (1+T)^5 = 2,527.34
((1+T)^5)^1/5 = (2.5273)^1/5
1+T = 1.2037
T = 0.2037
10 Years
1000 (1+T)^10 = 5,029.49
((1+T)^10)^1/10 = (5.0295)^1/10
1+T = 1.1753
T = 0.1753
GROWTH-INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,064.91
(1+T)^1 = (1.0649)^1
1+T = 1.0649
T = 0.0649
5 Years
1000 (1+T)^5 = 1,927.19
((1+T)^5)^1/5 = (1.9272)^1/5
1+T = 1.1402
T = 0.1402
10 Years
1000 (1+T)^10 = 3,609.00
((1+T)^10)^1/10 = (3.6090)^1/10
1+T = 1.1369
T = 0.1369
MONEY MARKET SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,028.50
(1+T)^1 = (1.0285)^1
1+T = 1.0285
T = 0.0285
5 Years
1000 (1+T)^5 = 1,205.17
((1+T)^5)^1/5 = (1.2052)^1/5
1+T = 1.0380
T = 0.0380
10 Years
1000 (1+T)^10 = 1,508.38
((1+T)^10)^1/10 = (1.5084)^1/10
1+T = 1.0420
T = 0.0420
WORLDWIDE EQUITY SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,189.15
(1+T)^1 = (1.1892)^1
1+T = 1.1892
T = 0.1892
5 Years
1000 (1+T)^5 = 1,622.18
((1+T)^5)^1/5 = (1.6222)^1/5
1+T = 1.1016
T = 0.1016
10 Years
1000 (1+T)^10 = 1,571.65
((1+T)^10)^1/10 = (1.5717)^1/10
1+T = 1.0463
T = 0.0463
HIGH GRADE INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,069.41
(1+T)^1 = (1.0694)^1
1+T = 1.0694
T = 0.0694
5 Years
1000 (1+T^5 = 1,236.02
((1+T)^5)^1/5 = (1.2360)^1/5
1+T = 1.0433
T = 0.0433
10 Years
1000 (1+T)^10 = 1,986.51
((1+T)^10)^1/10 = (1.9865)^1/10
1+T = 1.0710
T = 0.0710
MID CAP SERIES
(formerly EMERGING GROWTH SERIES)
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,167.57
(1+T)^1 = (1.1676)^1
1+T = 1.1676
T = 0.1676
5 Years
1000 (1+T)^5 = 1,796.99
((1+T)^5)^1/5 = (1.7970)^1/5
1+T = 1.1244
T = 0.1244
6.25 Years (From Date of Inception October 1, 1992)
1000 (1+T)^6.25 = 2,516.26
((1+T)^6.25)^1/6.25 = (2.5163)^1/6.25
1+T = 1.1591
T = 0.1591
GLOBAL STRATEGIC INCOME SERIES
(formerly GLOBAL AGGRESSIVE BOND SERIES)
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,058.17
(1+T)^1 = (1.0582)^1
1+T = 1.0582
T = 0.0582
3.58 Years (From Date of Inception June 1, 1995)
1000 (1+T)^3.58 = 1,327.99
((1+T)^3.58)^1/3.58 = (1.3280)^1/3.58
1+T = 1.0825
T = 0.0825
GLOBAL TOTAL RETURN SERIES
(formerly SPECIALIZED ASSET ALLOCATION SERIES)
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,115.51
(1+T)^1 = (1.1155)^1
1+T = 1.1155
T = 0.1155
3.58 Years (From Date of Inception June 1, 1995)
1000 (1+T)^3.58 = 1,409.99
((1+T)^3.58)^1/3.58 = (1.4100)^1/3.58
1+T = 1.1007
T = 0.1007
MANAGED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,172.76
(1+T)^1 = (1.1728)^1
1+T = 1.1728
T = 0.1728
3.58 Years (From Date of Inception June 1, 1995)
1000 (1+T)^3.58 = 1,635.98
((1+T)^3.58)^1/3.58 = (1.6360^1/3.58
1+T = 1.1474
T = 0.1474
EQUITY INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,079.77
(1+T)^1 = (1.0798)^1
1+T = 1.0798
T = 0.0798
3.58 Years (From Date of Inception June 1, 1995)
1000 (1+T)^3.58 = 1,895.02
((1+T)^3.58)^1/3.58 = (1.8950)^1/3.58
1+T = 1.1955
T = 0.1955
HIGH YIELD SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,047.86
(1+T)^1 = (1.0479)^1
1+T = 1.0479
T = 0.0479
2.40 Years (From Date of Inception August 5, 1996)
1000 (1+T)^2.40 = 1,246.84
(1+T)^2.40)^1/2.40 = (1.2468)^1/2.40
1+T = 1.0963
T = 0.0963
SOCIAL AWARENESS SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,301.22
(1+T)^1 = (1.3012)^1
1+T = 1.3012
T = 0.3012
5 Years
1000 (1+T)^5 = 2,234.27
((1+T)^5)^1/5 = (2.2343)^1/5
1+T = 1.1744
T = 0.1744
7.67 Years (From Date of Inception May 1, 1991)
1000 (1+T)^7.67 = 2,988.44
((1+T)^7.67)^1/7.67 = (2.9884)^1/7.67
1+T = 1.1534
T = 0.1534
VALUE SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 1+T)^1 = 1,154.14
(1+T)^1 = (1.1541)^1
1+T = 1.1541
T = 0.1541
1.67 Years (from date of inception May 1, 1997)
1000 (1+T)^1.67 = 1,313.35
((1+T)^1.67) = (1.3134)^1/1.67
1+T = 1.1773
T = 0.1773
SMALL CAP SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
(WITHOUT CONTINGENT DEFERRED SALES CHARGE OR ADMINISTRATIVE FEES)
1 Year
1000 (1+T)^1 = 1,104.60
(1+T)^1 = (1.1046)^1
1+T = 1.1046
T = 0.1046
1.21 Years (from date of inception October 15, 1997)
1000 (1+T)^1.21 = 1,056.00
((1+T)^1.21) = (1.0560)^1/1.21
1+T = 1.0461
T = 0.0461
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES A (GROWTH)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,241.45 - $1,000 $241.45 / $1,000 = 24.15%
1997 1,274.32 - 1,000 274.32 / 1,000 = 27.43%
1996 1,214.52 - 1,000 214.52 / 1,000 = 21.45%
1995 1,351.34 - 1,000 351.34 / 1,000 = 35.13%
1994 973.80 - 1,000 (26.20) / 1,000 = (2.62)%
1993 1,125.73 - 1,000 125.73 / 1,000 = 12.57%
1992 1,100.49 - 1,000 100.49 / 1,000 = 10.05%
1991 1,347.15 - 1,000 347.15 / 1,000 = 34.72%
1990 892.83 - 1,000 (107.17) / 1,000 = (10.72)%
1989 1,335.72 - 1,000 335.72 / 1,000 = 33.57%
1988 1,090.20 - 1,000 90.20 / 1,000 = 9.02%
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES B (GROWTH-INCOME)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDIN INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,064.91 - $1,000 $64.91 / $1,000 = 6.49%
1997 1,252.34 - 1,000 252.34 / 1,000 = 25.23%
1996 1,170.63 - 1,000 170.63 / 1,000 = 17.06%
1995 1,284.77 - 1,000 284.77 / 1,000 = 28.48%
1994 960.55 - 1,000 (39.45) / 1,000 = (3.95)%
1993 1,085.15 - 1,000 85.15 / 1,000 = 8.52%
1992 1,051.81 - 1,000 51.81 / 1,000 = 5.18%
1991 1,364.23 - 1,000 364.23 / 1,000 = 36.42%
1990 945.94 - 1,000 (54.06) / 1,000 = (5.41)%
1989 1,271.13 - 1,000 271.13 / 1,000 = 27.11%
1988 1,181.31 - 1,000 181.31 / 1,000 = 18.13%
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES C (MONEY MARKET)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,028.50 - $1,000 $28.50 / $1,000 = 2.85%
1997 1,041.26 - 1,000 41.26 / 1,000 = 4.13%
1996 1,040.16 - 1,000 40.16 / 1,000 = 4.02%
1995 1,040.78 - 1,000 40.78 / 1,000 = 4.08%
1994 1,026.95 - 1,000 26.95 / 1,000 = 2.70%
1993 1,015.57 - 1,000 15.57 / 1,000 = 1.56%
1992 1,022.14 - 1,000 22.14 / 1,000 = 2.21%
1991 1,045.98 - 1,000 45.98 / 1,000 = 4.60%
1990 1,067.74 - 1,000 67.74 / 1,000 = 6.77%
1989 1,079.61 - 1,000 79.61 / 1,000 = 7.96%
1988 1,061.06 - 1,000 61.06 / 1,000 = 6.11%
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES D (WORLDWIDE EQUITY)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,189.15 - $1,000 $189.15 / $1,000 = 18.92%
1997 1,053.87 - 1,000 53.87 / 1,000 = 5.39%
1996 1,162.85 - 1,000 162.85 / 1,000 = 16.29%
1995 1,095.26 - 1,000 95.26 / 1,000 = 9.53%
1994 1,017.16 - 1,000 17.16 / 1,000 = 1.72%
1993 1,303.16 - 1,000 303.16 / 1,000 = 30.32%
1992 964.14 - 1,000 (35.86) / 1,000 = (3.59)%
1991* 1,032.35 - 1,000 32.35 / 1,000 = 3.24%
*From May 1, 1991 to December 31, 1991.
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES E (HIGH GRADE INCOME)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,069.41 - $1,000 $69.41 / $1,000 = 6.94%
1997 1,089.32 - 1,000 89.32 / 1,000 = 8.93%
1996 982.85 - 1,000 (17.15) / 1,000 = (1.72)%
1995 1,171.21 - 1,000 171.21 / 1,000 = 17.12%
1994 921.47 - 1,000 (78.53) / 1,000 = (7.85)%
1993 1,115.03 - 1,000 115.03 / 1,000 = 11.50%
1992 1,063.74 - 1,000 63.74 / 1,000 = 6.37%
1991 1,158.01 - 1,000 158.01 / 1,000 = 15.80%
1990 1,056.12 - 1,000 56.12 / 1,000 = 5.61%
1989 1,107.64 - 1,000 107.64 / 1,000 = 10.76%
1988 1,061.26 - 1,000 61.26 / 1,000 = 6.13%
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES J (MID CAP, FORMERLY EMERGING GROWTH)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,167.57 - $1,000 $167.57 / $1,000 = 16.76%
1997 1,187.50 - 1,000 187.50 / 1,000 = 18.75%
1996 1,168.56 - 1,000 168.56 / 1,000 = 16.86%
1995 1,180.22 - 1,000 180.22 / 1,000 = 18.02%
1994 939.64 - 1,000 (60.36) / 1,000 = (6.04)%
1993 1,125.24 - 1,000 125.24 / 1,000 = 12.52%
1992* 1,244.59 - 1,000 244.59 / 1,000 = 24.46%
*From October 1, 1992 to December 31, 1992.
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES K (GLOBAL STRATEGIC INCOME, FORMERLY GLOBAL AGGRESSIVE BOND)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,058.17 - $1,000 $58.17 / $1,000 = 5.82%
1997 1,043.15 - 1,000 43.15 / 1,000 = 4.32%
1996 1,125.47 - 1,000 125.47 / 1,000 = 12.55%
1995* 1,068.82 - 1,000 68.82 / 1,000 = 6.88%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES M (GLOBAL TOTAL RETURN, FORMERLY SPECIALIZED ASSET ALLOCATION)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,115.51 - $1,000 $115.51 / $1,000 = 11.55%
1997 1,050.97 - 1,000 50.97 / 1,000 = 5.10%
1996 1,130.89 - 1,000 130.89 / 1,000 = 13.09%
1995* 1,063.74 - 1,000 63.74 / 1,000 = 6.37%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES N (MANAGED ASSET ALLOCATION)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,172.76 - $1,000 $172.76 / $1,000 = 17.28%
1997 1,172.49 - 1,000 172.49 / 1,000 = 17.25%
1996 1,116.64 - 1,000 116.64 / 1,000 = 11.66%
1995* 1,065.70 - 1,000 65.70 / 1,000 = 6.57%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES O (EQUITY INCOME)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,079.77 - $1,000 $79.77 / $1,000 = 7.98%
1997 1,271.20 - 1,000 271.20 / 1,000 = 27.12%
1996 1,188.32 - 1,000 188.32 / 1,000 = 18.83%
1995* 1,162.09 - 1,000 162.09 / 1,000 = 16.21%
*From June 1, 1995 to December 31, 1995.
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES P (HIGH YIELD)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,047.86 - $1,000 $47.86 / $1,000 = 4.79%
1997 1,121.60 - 1,000 121.60 / 1,000 = 12.16%
1996* 1,061.71 - 1,000 61.71 / 1,000 = 6.17%
*From August 5, 1996 to December 31, 1996.
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES S (SOCIAL AWARENESS)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,301.22 - $1,000 $301.22 / $1,000 = 30.12%
1997 1,214.25 - 1,000 214.25 / 1,000 = 21.43%
1996 1,176.28 - 1,000 176.28 / 1,000 = 17.63%
1995 1,262.35 - 1,000 262.35 / 1,000 = 26.24%
1994 952.34 - 1,000 (47.66) / 1,000 = (4.77)%
1993 1,107.71 - 1,000 107.71 / 1,000 = 10.77%
1992 1,152.25 - 1,000 152.25 / 1,000 = 15.23%
1991* 1,048.42 - 1,000 48.42 / 1,000 = 4.84%
*From May 1, 1991 to December 31, 1991.
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES V (VALUE)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,154.14 - $1,000 $154.14 / $1,000 = 15.41%
1997* 1,304.18 - 1,000 304.18 / 1,000 = 30.42%
*From May 1, 1997 to December 31, 1997.
<PAGE>
VARIFLEX ES
NON-STANDARDIZED TOTAL RETURN
SERIES X (SMALL CAP)
Quotation of Total Return for the periods of January 1, 1988 to December 31,
1998.
Initial Investment = $1,000
INCREASE
ENDING INITIAL (DECREASE) INITIAL % INCREASE
VALUE VALUE IN VALUE VALUE (DECREASE)
1998 $1,104.60 - $1,000 104.60 / $1,000 = 10.46%
1997* 955.97 - 1,000 (44.03) / 1,000 = (4.40)%
*From October 15, 1997 to December 31, 1997.
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SEDGWICK)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Thomas R. Clevenger, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX SEPARATE ACCOUNT (VARIFLEX EDUCATOR SERIES)
with like effect as though said Registration Statements and other documents had
been signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of January, 1999.
THOMAS R. CLEVENGER
------------------------------
Thomas R. Clevenger
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
ANNETTE E. CRIPPS
------------------------------
Notary Public
My Commission Expires:
7/8/2001
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Sister Loretto Marie Colwell, being a Director of SECURITY BENEFIT LIFE
INSURANCE COMPANY, by these presents do make, constitute and appoint Howard R.
Fricke, James R. Schmank and Roger K. Viola, and each of them, my true and
lawful attorneys, each with full power and authority for me and in my name and
behalf to sign Registration Statements, any amendments thereto and any
applications for exemptive relief filed pursuant to the Investment Company Act
of 1940 or the Securities Act of 1933, as amended, and any instrument or
document filed as part thereof, or in connection therewith or in any way related
thereto, in connection with Variable Annuity Contracts offered, issued or sold
by SECURITY BENEFIT LIFE INSURANCE COMPANY and any VARIFLEX SEPARATE ACCOUNT
(VARIFLEX EDUCATOR SERIES) with like effect as though said Registration
Statements and other documents had been signed and filed personally by me in the
capacity aforesaid. Each of the aforesaid attorneys acting alone shall have all
the powers of all of said attorneys. I hereby ratify and confirm all that the
said attorneys, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of January, 1999.
SISTER LORETTO MARIE COLWELL
------------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 16th day of January, 1999.
JULIA A. SMRHA
------------------------------
Notary Public
My Commission Expires:
7-8-2000
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John C. Dicus, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX SEPARATE ACCOUNT (VARIFLEX EDUCATOR SERIES)
with like effect as though said Registration Statements and other documents had
been signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of January, 1999.
JOHN C. DICUS
------------------------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
ANNETTE E. CRIPPS
------------------------------
Notary Public
My Commission Expires:
7/8/2001
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Steven J. Douglass, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX SEPARATE ACCOUNT (VARIFLEX EDUCATOR SERIES)
with like effect as though said Registration Statements and other documents had
been signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of January, 1999.
STEVEN J. DOUGLASS
------------------------------
Steven J. Douglass
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
NANCY A. LEWIS
------------------------------
Notary Public
My Commission Expires:
10-16-99
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Howard R. Fricke, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint James R. Schmank and
Roger K. Viola, and each of them, my true and lawful attorneys, each with full
power and authority for me and in my name and behalf to sign Registration
Statements, any amendments thereto and any applications for exemptive relief
filed pursuant to the Investment Company Act of 1940 or the Securities Act of
1933, as amended, and any instrument or document filed as part thereof, or in
connection therewith or in any way related thereto, in connection with Variable
Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE INSURANCE
COMPANY and any VARIFLEX SEPARATE ACCOUNT (VARIFLEX EDUCATOR SERIES) with like
effect as though said Registration Statements and other documents had been
signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of January, 1999.
HOWARD R. FRICKE
------------------------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
ANNETTE E. CRIPPS
------------------------------
Notary Public
My Commission Expires:
7/8/2001
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, W. W. Hanna, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX SEPARATE ACCOUNT (VARIFLEX EDUCATOR SERIES)
with like effect as though said Registration Statements and other documents had
been signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of January, 1999.
W. W. HANNA
------------------------------
W. W. Hanna
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
CAROLYN R. SOUDERS
------------------------------
Notary Public
My Commission Expires:
7/21/99
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF FLORIDA )
) ss.
COUNTY OF PINELLAS)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John E. Hayes, Jr., being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX SEPARATE ACCOUNT (VARIFLEX EDUCATOR SERIES)
with like effect as though said Registration Statements and other documents had
been signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of January, 1999.
JOHN E. HAYES, JR.
------------------------------
John E. Hayes, Jr.
SUBSCRIBED AND SWORN to before me this 27th day of January, 1999.
PAMELA MURRAY
------------------------------
Notary Public
My Commission Expires:
3/2/2000
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF DOUGLAS)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Laird G. Noller, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX SEPARATE ACCOUNT (VARIFLEX EDUCATOR SERIES)
with like effect as though said Registration Statements and other documents had
been signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of January, 1999.
LAIRD G. NOLLER
------------------------------
Laird G. Noller
SUBSCRIBED AND SWORN to before me this 25th day of January, 1999.
ANNETTE E. CRIPPS
------------------------------
Notary Public
My Commission Expires:
7/8/2001
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Frank C. Sabatini, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX SEPARATE ACCOUNT (VARIFLEX EDUCATOR SERIES)
with like effect as though said Registration Statements and other documents had
been signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of January, 1999.
FRANK C. SABATINI
------------------------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 21st day of January, 1999.
PATRICIA A. CLARK
------------------------------
Notary Public
My Commission Expires:
3-5-2002
- ----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Robert C. Wheeler, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX SEPARATE ACCOUNT (VARIFLEX EDUCATOR SERIES)
with like effect as though said Registration Statements and other documents had
been signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of January, 1999.
ROBERT C. WHEELER
------------------------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
NANCY G. DEBACKER
------------------------------
Notary Public
My Commission Expires:
December 15, 1999
- ----------------------
