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VARIFLEX
VARIABLE ANNUITY CONTRACTS
Sold by--
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON, TOPEKA, KANSAS 66636-0001
(785) 431-3000
This Prospectus describes the Variflex Variable Annuity Contracts ("Variflex
Contracts") offered by Security Benefit Life Insurance Company ("SBL"). SBL
offers Variflex Contracts to both individuals and groups. You may purchase
Variflex Contracts with a single payment, or with multiple payments. You may
elect annuity payments beginning immediately or at some later date.
You can use Variflex Contracts with retirement plans that qualify for
favorable tax treatment under the Internal Revenue Code. These retirement plans
include pension and profit sharing plans, annuity purchase plans of public
school systems and certain tax-exempt organizations, individual retirement plans
and annuities, and certain deferred compensation plans of state and local
governments. You can also use Variflex Contracts with plans and trusts that do
not qualify for favorable tax treatment.
You can receive annuity payments for life or for some other period of time.
The amount of the payments will be based on the investment performance of
Variflex, a separate account of SBL that is registered as a unit investment
trust. Variflex issues fourteen series: Growth, Growth-Income, Money Market,
Worldwide Equity, High Grade Income, Emerging Growth, Global Aggressive Bond,
Specialized Asset Allocation, Managed Asset Allocation, Equity Income, High
Yield, Social Awareness, Value, and Small Cap. The Variflex Series correspond to
series of SBL Fund, a registered open-end management investment company.
The High Yield, Value and Small Cap Series of Variflex generally are not
available under Variflex Contracts issued prior to January 4, 1999. The Series
will be available to those Contracts upon their conversion to SBL's new
administrative system. The Series also are not available to certain types of
Contracts (regardless of issue date), including Contracts issued for use with
pension and profit sharing plans, deferred compensation plans, SIMPLE IRA and
401(k) plans, Roth IRAs, simplified employee pension plans and employer
sponsored annuity purchase plans and Contracts with outstanding loans or
receiving annuity payments. Please contact SBL at the number below to determine
whether the High Yield, Value and Small Cap Series are available under your
Contract.
You may elect to receive all or some of your payments as Fixed Annuity
payments. Fixed Annuity payments, which are funded by SBL's General Account
assets, do not vary with the investment performance of Variflex.
This Prospectus provides information that you should know before you invest.
You may obtain a free Statement of Additional Information about Variflex
Contracts by writing SBL at the address above, or by calling (785) 431-3112 or
(800) 888-2461, extension 3112. This Prospectus incorporates the Statement of
Additional Information by reference. The Table of Contents of the Statement of
Additional Information is included at the end of this Prospectus.
SBL has filed the Statement of Additional Information with the Securities and
Exchange Commission. The Securities and Exchange Commission maintains a website
(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 Securities and Exchange Commission.
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Attached to this Prospectus is a prospectus of SBL Fund. You should retain both
prospectuses for future reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This Prospectus does not constitute an offering in any jurisdiction in which it
is illegal to make such offering. You should rely only on the information
contained in this document or in documents to which we have referred you. We
have not authorized anyone to provide you with information that is different.
The contract involves risk, including the loss of principal. The contract is not
a deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or by any other agency or bank.
PROSPECTUS DATED: January 4, 1999 RETAIN FOR FUTURE REFERENCE
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VARIFLEX CONTENTS
Page
DEFINITIONS............................................................... 4
SUMMARY OF THE CONTRACT................................................... 5
Purpose of the Contract................................................. 5
the Separate Account and Sbl Fund....................................... 5
General Account......................................................... 5
Purchase Payments....................................................... 5
Contract Benefits....................................................... 5
Free-look Right......................................................... 6
Charges and Deductions.................................................. 6
Contingent Deferred Sales Charge...................................... 6
Mortality and Expense Risk Charge..................................... 6
Administrative Fee.................................................... 6
Premium Tax Charge.................................................... 6
Other Expenses........................................................ 6
Contacting Sbl.......................................................... 6
SUMMARY OF EXPENSES....................................................... 7
CONDENSED FINANCIAL INFORMATION........................................... 9
SECURITY BENEFIT LIFE INSURANCE COMPANY AND VARIFLEX...................... 12
Security Benefit Life Insurance Company................................. 12
Year 2000 Compliance.................................................... 12
Variflex................................................................ 12
SBL FUND ................................................................. 13
Series A................................................................ 13
Series B................................................................ 13
Series C................................................................ 13
Series D................................................................ 13
Series E................................................................ 13
Series J................................................................ 13
Series K................................................................ 13
Series M................................................................ 13
Series N................................................................ 13
Series O................................................................ 14
Series P................................................................ 14
Series S................................................................ 14
Series V................................................................ 14
Series X................................................................ 14
the Investment Manager.................................................. 14
VARIFLEX CONTRACTS........................................................ 14
Purpose of the Contracts................................................ 14
Types of Variflex Contracts............................................. 15
Single Payment Immediate Annuity Contract............................. 15
Single and Flexible Payment Deferred Annuity Contracts................ 15
Group Flexible Payment Deferred Annuity Contract ..................... 15
Contract Application and Purchase Payments.............................. 15
Allocation of Purchase Payments......................................... 15
Crediting of Accumulation Units......................................... 16
Dollar Cost Averaging Option............................................ 16
Asset Reallocation Option............................................... 16
Transfer of Contract Value.............................................. 17
Contract Value.......................................................... 17
Determination of Contract Value......................................... 17
Contractowner Inquiries................................................. 18
CHARGES AND DEDUCTIONS.................................................... 18
Contingent Deferred Sales Charge........................................ 18
Hospital/Nursing Home Waiver.......................................... 19
Other Charges........................................................... 19
Administrative Fee.................................................... 19
State Premium Taxes................................................... 19
Mortality and Expense Risk Charge..................................... 20
Charges for Taxes..................................................... 20
Sequential Deduction of Fees............................................ 20
Variations in Charges................................................... 20
Guarantee of Certain Charges............................................ 20
Sbl Fund Expenses....................................................... 20
DISTRIBUTIONS UNDER THE CONTRACT.......................................... 20
Accumulation Period..................................................... 20
Full and Partial Withdrawals.......................................... 20
Systematic Withdrawals................................................ 21
Free-Look Right....................................................... 22
Death Benefit During Accumulation Period.............................. 22
Death of the Annuitant................................................ 23
Loans Available from Certain Qualified Contracts...................... 23
Constraints on Distributions from Certain Section 403(b)
Annuity Contracts................................................... 24
Annuity Period.......................................................... 24
Annuity Provisions.................................................... 24
Election of Annuity Commencement Date and Form of Annuity............. 24
Non-Qualified Contracts............................................. 24
Qualified Contracts................................................. 25
Allocation of Benefits................................................ 25
Optional Annuity Forms................................................ 25
Option 1 - Life Income.............................................. 25
Option 2 - Life Income with Guaranteed Payments
of 5, 10, 15, or 20 Years......................................... 25
Option 3 - Unit Refund Life Income.................................. 25
Option 4 - Joint and Survivor Annuity............................... 25
Option 5 - Installment Payments for a Fixed Period.................. 26
Option 6 - Installment Payments for a Fixed Amount.................. 26
Option 7 - Deposit Option........................................... 26
Option 8 - IRC Age Recalculation.................................... 26
Option 9 - Period Certain........................................... 26
Option 10 - Joint and Contingent Survivor Option.................... 26
Other Annuity Forms................................................. 26
Value of Variable Annuity Payments: Assumed Investment Rates......... 26
Restrictions Under the Texas Optional Retirement Program.............. 26
FEDERAL TAX MATTERS....................................................... 27
Introduction............................................................ 27
Tax Status of Sbl and the Separate Account.............................. 27
General............................................................... 27
Charge for SBL Taxes.................................................. 27
Diversification Standards............................................. 27
Income Taxation of Annuities in General................................. 28
Non-Qualified Contracts............................................... 28
Surrenders or Withdrawals Prior to the Annuity Commencement Date.... 28
Surrenders or Withdrawals on or after the Annuity Commencement Date. 28
Penalty Tax on Certain Surrenders and Withdrawals................... 28
Additional Considerations............................................. 29
Distribution-at-Death Rules......................................... 29
Gift of Annuity Contracts........................................... 29
Contracts Owned by Non-Natural Persons.............................. 29
Multiple Contract Rule.............................................. 29
Possible Tax Changes................................................ 29
Transfers, Assignments or Exchanges of a Contract................... 29
Qualified Contracts................................................... 29
Section 401......................................................... 30
Section 403(b)...................................................... 31
Section 408 and Section 408A........................................ 31
Section 457......................................................... 32
Rollovers........................................................... 33
Tax Penalties....................................................... 33
Withholding......................................................... 33
DISTRIBUTOR OF THE CONTRACTS.............................................. 34
OTHER INFORMATION......................................................... 34
Voting of SBL Fund Shares............................................... 34
Substituted Securities.................................................. 34
Reports to Owners....................................................... 35
Performance Information................................................. 35
THE GENERAL ACCOUNT....................................................... 36
Financial Statements.................................................... 36
STATEMENT OF ADDITIONAL INFORMATION....................................... 37
APPENDIX A - IRA Disclosure Statement
APPENDIX B - Roth IRA Disclosure Statement
APPENDIX C - Security Benefit Life Insurance Company Fixed and Variable
Annuity SIMPLE IRA Disclosure Statement
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THE CONTRACT AND CERTAIN VARIFLEX SERIES ARE NOT AVAILABLE IN ALL STATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT BE LAWFULLY MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, THE FUND'S PROSPECTUS OR THE STATEMENT OF ADDITIONAL INFORMATION OF
THE FUND OR ANY SUPPLEMENT THERETO.
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<PAGE>
DEFINITIONS
THE FOLLOWING DEFINITIONS MAY BE USEFUL IN READING THIS PROSPECTUS. CERTAIN
ADDITIONAL TERMS ARE DEFINED IN THE TEXT.
ACCUMULATION PERIOD -- The period from the date the Contract is first
purchased to the Annuity Commencement Date, or, if earlier, when the Contract is
terminated, either through a full withdrawal, payment of charges or payment of
the death benefit.
ACCUMULATION UNIT -- SBL uses Accumulation Units to calculate the value of a
Contractowner's or Participant's interest in Variflex during the Accumulation
Period. They are also used to calculate variable annuity payments under Annuity
Options 5, 6 and 8. The price of a Series' Accumulation Units fluctuates with
the value of shares of the corresponding series of the underlying Fund.
ANNUITANT -- The person designated to receive, or actually receiving, annuity
payments under a Variflex Contract.
ANNUITY COMMENCEMENT DATE -- The date when annuity payments are scheduled to
begin.
BENEFICIARY -- For Contracts issued on or after January 4, 1999, the
beneficiary is the first person on the following list who is alive on the date
of the Owner's death: the Owner; joint Owner; primary beneficiary; secondary
beneficiary; annuitant; or if none of the above are alive, the Owner's estate.
For a Contract issued prior to January 4, 1999, the beneficiary is the primary
beneficiary; secondary beneficiary; or if none of the above are alive, the
Annuitant's estate.
CONTRACTOWNER OR OWNER -- The person or entity entitled to exercise all legal
rights of ownership in a Variflex Contract and in whose name the Contract is
issued.
CONTRACT DATE -- The Contract Date is shown in the Contract or Certificate.
Annual Contract anniversaries are measured from the Contract Date.
CONTRACT DEBT -- The unpaid loan balance including accrued loan interest.
CONTRACT VALUE -- The total value of the amounts in a Contract allocated to
the Series of Variflex and the General Account, as well as any amount set aside
in the General Account to secure loans as of any Valuation Date.
CONTRACT YEAR -- Each twelve-month period measured from the Contract Date.
FIXED ANNUITY -- An annuity under which the amount of each annuity payment
does not vary with the investment experience of the Variflex Separate Account
and which is guaranteed by SBL.
GENERAL ACCOUNT -- An account that is part of SBL's general account in which
all or a portion of the Contract Value may be held for accumulation at fixed
rates of interest (which may not be less than 3 percent) declared by SBL
periodically at its discretion.
GROUP ALLOCATED CONTRACT -- A master agreement between the Contractowner and
SBL under which a Participant Account is established for Participants under the
Plan.
GROUP UNALLOCATED CONTRACT -- A group version of the Variflex Contracts under
which individual accounts are not established for each Participant, but instead,
all Contract Value is credited to the Contractowner's account.
HOSPITAL -- An institution that is licensed as such by the Joint Commission
of Accreditation of Hospitals, or any lawfully operated institution that
provides in-patient treatment of sick and injured persons through medical,
diagnostic and surgical facilities directed by physicians and 24 hour nursing
services.
PARTICIPANT -- A person for whom or with respect to whom purchase payments
are made under a Group Allocated Contract.
PARTICIPANT ACCOUNT -- An individual account which is established for a
Participant to record Contract Value for the Participant under a Group Allocated
Contract.
PLAN -- The employer-sponsored retirement plan, annuity purchase arrangement,
or deferred compensation program for which the Contract is issued. To the extent
provided by the Plan, any rights that may be exercised by a Participant under
the Group Allocated Contract may instead be exercised by the Owner or a Plan
representative.
PURCHASE PAYMENT -- A payment applied to a Variflex Contract.
QUALIFIED SKILLED NURSING FACILITY -- A facility licensed by the state to
provide on a daily basis convalescent or chronic care for in-patients who, by
reason of infirmity or illness, are not able to care for themselves.
SEPARATE ACCOUNT OR VARIFLEX -- Variflex is a separate account of SBL that
consists of accounts, referred to as Series, each of which invests in a
corresponding series of the SBL Fund.
VALUATION DATE -- Each date on which Variflex is valued, which currently
includes each day that SBL is open for business and the New York Stock Exchange
is open for trading. The New York Stock Exchange is closed on weekends and 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 Series of Variflex. The Valuation Period begins at the close of one
Valuation Date and ends at the close of the next succeeding Valuation Date.
VARIABLE ANNUITY -- An Annuity providing payments which vary in dollar amount
depending on the investment results of Variflex and the Fund.
VARIFLEX CONTRACTS-401(K) AND 408(K) -- A version of the Variflex Contracts
offered prior to May 1, 1990, to plans that qualify under Section 401(k) and
408(k)(6) of the Internal Revenue Code. The differences between this contract
and the currently offered versions of the Variflex Contract qualifying under
Section 401(k) and 408(k)(6) of the Code are noted where appropriate.
VARIFLEX INCOME VARIABLE ANNUITY ("VIVA") CONTRACT -- A version of the
Variflex Contracts offered prior to May 1, 1995 that is funded by a single
payment, with additional purchase payments allowed during the first Contract
Year, pursuant to which annuity payments will commence at some agreed time in
the future.
WITHDRAWAL VALUE -- The amount a Contractowner may receive upon full
withdrawal of the Contract, which is equal to Contract Value less any Contract
Debt, any applicable withdrawal charges, a pro rata Administrative Fee and any
uncollected premium taxes.
SUMMARY OF THE CONTRACT
This summary provides a brief overview of the Variflex Variable Annuity
Contract (the "Contract"). Further detail is provided in this Prospectus, the
Statement of Additional Information, and the Contract. Unless otherwise noted,
this summary and the remainder of the Prospectus describe the Separate Account
portion of the Contract. We describe the General Account on page 36 and in the
Contract.
PURPOSE OF THE CONTRACT -- The Contract is designed to give you flexibility in
planning for retirement and other financial goals. You may invest in the Series
and the General Account. Amounts allocated to the Series will vary in value,
while SBL guarantees that amounts allocated to the General Account will earn a
minimum rate of interest. The Contract also provides several options for annuity
payments on a variable basis, a fixed basis, or both. During the Accumulation
Period, you can allocate purchase payments to the Series of the Separate Account
or to the General Account. See "Variflex Contracts," page 14.
Individuals can purchase the Contract as a non-tax qualified retirement plan
("Non-Qualified Contract"). Individuals or groups can also purchase the Contract
in connection with a retirement plan qualified under Section 401, 403(b), 408,
or 457 of the Internal Revenue Code of 1986, as amended. We sometimes refer to
these plans as "Qualified Contracts."
THE SEPARATE ACCOUNT AND SBL FUND -- You may allocate all or part of your
purchase payments to the Separate Account. The Separate Account is divided into
fourteen accounts called Series. Each Series invests only in shares of a
corresponding series of SBL Fund and has different investment objectives. The
Series are: Growth Series, Growth-Income Series, Money Market Series, Worldwide
Equity Series, High Grade Income Series, Emerging Growth Series, Global
Aggressive Bond Series, Specialized Asset Allocation Series, Managed Asset
Allocation Series, Equity Income Series, High Yield Series, Social Awareness
Series, Value Series and Small Cap Series. The High Yield, Value and Small Cap
Series are not available under certain Contracts. Please contact SBL to
determine whether they are available under your Contract. See "Variflex," and
"SBL Fund," page 13.
The amount of money held in a Series will increase or decrease depending on
the investment performance of the series of SBL Fund in which the Series
invests. You bear the investment risk for amounts allocated to Series of the
Separate Account, and your investment in the Contract may decline in value.
GENERAL ACCOUNT -- You may allocate all or part of your purchase payments to the
General Account, which is part of SBL's general account. SBL determines the
interest rates for amounts allocated to the General Account. The interest rates
are guaranteed to be at least an effective annual rate of 3 percent (or higher
for certain Contracts issued prior to January 4, 1999). See "The General
Account," page 36.
PURCHASE PAYMENTS -- The minimum initial purchase payment is $500 for
Non-Qualified Contracts, $25 for Qualified Contracts and $2,500 for single
premium immediate annuity contracts. After the initial purchase payment, you may
choose the amount and frequency of purchase payments, except that the minimum
subsequent purchase payment is $25. See "Contract Application and Purchase
Payments," page 15.
CONTRACT BENEFITS -- During the Accumulation Period, you may transfer Contract
Value among the Series of the Separate Account and to and from the General
Account. Transfers are subject to the restrictions described in "Variflex
Contracts," page 14 and "The General Account," page 36.
You may surrender a Contract for its Withdrawal Value at any time before the
Annuity Commencement Date, and you may take partial withdrawals, including
systematic withdrawals, from the Contract Value. Withdrawals are subject to the
restrictions described in "The General Account," page 36. See "Full and Partial
Withdrawals," page 20 and "Federal Tax Matters," page 27 for more information
about withdrawals. These sections include information on the 10 percent penalty
tax the Internal Revenue Service may impose on withdrawals you make before
reaching age 59 1/2.
For individual and Group Allocated Contracts, the Contract provides a death
benefit if you die during the Accumulation Period. The amount of the death
benefit will depend on the value of your Contract, and your age on the Contract
Date. SBL will pay the death benefit proceeds to the beneficiary when it
receives proof of your death and instructions regarding payment. Variflex
Contracts issued prior to January 4, 1999, provide a death benefit upon the
death of the Annuitant rather than the Owner. For Non-Qualified Contracts,
including Contracts issued prior to January 4, 1999, SBL will pay the death
benefit upon your death to meet the distribution requirements of Section 72(s)
of the Internal Revenue Code. Under a Group Unallocated Contract, the Plan
provisions will determine the death benefit. (See "Death Benefit During
Accumulation Period," page 22.)
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. If you
return a Contract, SBL will refund to you purchase payments allocated to the
General Account, plus the Contract Value in the Series, plus any charges
deducted from Contract Value in the Series. SBL will refund purchase payments
allocated to the Series rather than the Contract Value when required by law.
CHARGES AND DEDUCTIONS -- SBL does not deduct sales load from purchase payments
before allocating the purchase payments to the Contract Value. SBL will deduct
certain charges in connection with the Contract as described below.
CONTINGENT DEFERRED SALES CHARGE. SBL may assess a contingent deferred sales
charge (also called a withdrawal charge) on a withdrawal, including certain
systematic withdrawals, depending on the Contract Year in which you make the
withdrawal. During the first Contract Year, the withdrawal charge applies to the
total amount withdrawn, to the extent that the amount withdrawn does not exceed
the amount of total Purchase Payments. For all Contract Years after the first
Contract Year, SBL will not assess a withdrawal charge upon the first withdrawal
in the Contract Year of up to 10 percent of the Contract Value (the "free
withdrawal"). You forfeit any part of the free withdrawal for a Contract Year
that you do not apply to the first withdrawal.
The withdrawal charge applies to the portion of a withdrawal that exceeds the
free withdrawal amount to the extent that portion of the withdrawal does not
exceed total purchase payments, reduced by any previous withdrawals (not
including free withdrawals). Withdrawals are made first from purchase payments
and then from earnings. The amount of the charge will depend on the Contract
Year in which you make the withdrawal:
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Withdrawal Charge
---------------------------------
Variflex Variflex Contracts-
Contract Year Contracts 401(k) and 408(k)
---------------------------------------------------
1 8% 8%
2 7% 8%
3 6% 8%
4 5% 8%
5 4% 7%
6 3% 6%
7 2% 5%
8 1% 4%
9 and later 0% 0%
---------------------------------------------------
The amount of a withdrawal charge, when added to withdrawal charges
previously assessed, will never exceed 8 percent of purchase payments under the
Contract. In addition, SBL will not impose a withdrawal charge on: (1) payment
of death benefit proceeds; (2) certain systematic withdrawals; or (3) annuity
options that provide for payments for life, or that provide for payments for a
period of at least seven years (five years for Contracts issued prior to January
4, 1999). If approved by the insurance department, SBL will also waive the
withdrawal charge if you are confined to a hospital or qualified skilled nursing
facility for 90 consecutive days or more. See "Contingent Deferred Sales
Charge," page 18.
MORTALITY AND EXPENSE RISK CHARGE. SBL deducts a daily charge from the assets
of each Series of Variflex for mortality and expense risks. The charge is equal
to an annual rate of 1.2 percent of each Series' average daily net assets. See
"Mortality and Expense Risk Charge," page 20.
ADMINISTRATIVE FEE. SBL deducts from each Account an Administrative Fee of
$30 on each Contract Anniversary (or, for Contracts issued prior to January 4,
1999, on December 31). The Administrative Fee for Variflex Contracts-401(k) and
408(k) is the lesser of $30 or 2 percent of Contract Value as of December 31.
SBL does not assess the Administrative Fee against Contract Value which has been
applied under Annuity Options 1 through 4, 9 and 10. See "Administrative Fee,"
page 19.
PREMIUM TAX CHARGE. SBL assesses a premium tax charge to reimburse itself for
any premium taxes it incurs. SBL will usually deduct this charge on
annuitization or upon full withdrawal. SBL may also assess a premium tax charge
on partial withdrawals, including systematic withdrawals. SBL can deduct these
taxes when due or anytime after. Premium tax rates range from 0 percent to 3.5
percent. See "State Premium Taxes," page 19.
OTHER EXPENSES. SBL pays the operating expenses of the Separate Account. SBL
Fund pays the Fund's investment advisory fees and operating expenses. The net
asset value of the Fund shares reflects the Fund's fees and expenses. For a
description of these charges and expenses, see the accompanying Prospectus for
SBL Fund.
CONTACTING SBL -- You should direct all 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. You may also call SBL at
(785) 431-3112 or 1-800-888-2461, extension 3112.
SUMMARY OF EXPENSES
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CONTRACTOWNER TRANSACTION EXPENSES
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Sales Load Imposed on Purchase (as a percentage of Purchase Payments).... 0%
Contingent Deferred Sales Load (as a percentage of Purchase Payments
or amount withdrawn, as applicable)(1)................................ 8%
Surrender Fees (as a percentage of amount surrendered, if applicable).... 0%
Exchange Fee............................................................. $0
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ANNUAL CONTRACT FEE(2)................................................... $30
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SEPARATE ACCOUNT ANNUAL FEE (as a percentage of average account value)
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Mortality and Expense Risk Fees........................................... 1.2%
Account Fees and Expenses................................................. 0.0%
---
Total Separate Account Annual Expenses.................................... 1.2%
================================================================================
SBL FUND ANNUAL EXPENSES (as a percentage of average net assets)
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Other
Expenses
Management Other Expenses Total
Fees (after (after expense Annual
fee waiver) reimbursement) Expenses(3)
----------- -------------- -----------
Growth (Series A).................. 0.75% 0.06% 0.81%
Growth-Income (Series B)........... 0.75% 0.08% 0.83%
Money Market (Series C)............ 0.50% 0.08% 0.58%
Worldwide Equity (Series D)........ 1.00% 0.24% 1.24%
High Grade Income (Series E)....... 0.75% 0.08% 0.83%
Emerging Growth (Series J)......... 0.75% 0.07% 0.82%
Global Aggressive Bond (Series K).. 0.75%(4) 0.64% 1.39%
Specialized Asset Allocation
(Series M)....................... 1.00% 0.26% 1.26%
Managed Asset Allocation (Series N) 1.00% 0.35% 1.35%
Equity Income (Series O)........... 1.00% 0.09% 1.09%
High Yield (Series P).............. 0.00%(3) 0.31% 0.31%
Social Awareness (Series S)........ 0.75% 0.08% 0.83%
Value (Series V)................... 0.75%(4) 0.40%(5) 1.15%
Small Cap (Series X)............... 0.00%(3) 0.98%(5) 0.98%
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(1) SBL decreases the contingent deferred sales load based on the Contract Year
in which you make the withdrawal. This charge ranges from 8% in the first
Contract Year to 0% in the ninth Contract Year. Different charges apply to
Variflex Contracts-401(k) and 408(k). Under certain circumstances, SBL may
reduce or waive the contingent deferred sales load.
(2) The annual Administrative Fee for Variflex Contracts-401(k) and 408(k) is
the lesser of 2% of assets valued as of December 31 or $30.
(3) During the fiscal year ended December 31, 1998, the Investment Adviser
waived the management fees of Series P and Series X; absent such waiver,
the advisory fee of Series P would have been .75% and that of Series X
would have been 1.00%. There can be no assurance that the Investment
Adviser will continue to waive the Series advisory fees after December 31,
1998.
(4) During the fiscal year ended December 31, 1997, the Investment Adviser
waived the management fees of Series K and Series V and continued such
waiver through April 30, 1998. Expense information for Series K and V has
been restated to reflect the fees that would have been applicable had there
been no fee waiver.
(5) Other Expenses for Series V and Series X are based on estimated amounts for
the current fiscal year.
EXAMPLE: VARIFLEX CONTRACTS -- If you surrender your contract at the end of the
time period below: You would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets:
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1 Year 3 Years 5 Years 10 Years
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Growth Series......................... $101 $125 $153 $244
Growth-Income Series.................. 102 125 154 246
Money Market Series................... 99 118 142 220
Worldwide Equity Series............... 110 149 197 330
High Grade Income Series.............. 102 125 154 246
Emerging Growth Series................ 102 125 154 245
Global Aggressive Bond Series......... 100 120 145 226
Specialized Asset Allocation Series... 106 138 176 290
Managed Asset Allocation Series....... 107 140 181 298
Equity Income Series.................. 104 133 168 273
High Yield Series..................... 96 110 128 191
Social Awareness Series............... 102 125 154 246
Value Series.......................... 105 135 171 279
Small Cap Series...................... 99 118 142 220
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If you do not surrender your contract: You would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets:
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1 Year 3 Years 5 Years 10 Years
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Growth Series......................... $21 $66 $113 $244
Growth-Income Series.................. 22 67 114 246
Money Market Series................... 19 59 102 220
Worldwide Equity Series............... 30 92 157 330
High Grade Income Series.............. 22 67 114 246
Emerging Growth Series................ 22 66 114 245
Global Aggressive Bond Series......... 20 61 105 226
Specialized Asset Allocation Series... 26 80 136 290
Managed Asset Allocation Series....... 27 82 141 298
Equity Income Series.................. 24 75 128 273
High Yield Series..................... 16 51 88 191
Social Awareness Series............... 22 67 114 246
Value Series.......................... 25 76 131 279
Small Cap Series...................... 19 59 102 220
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EXAMPLE: VARIFLEX CONTRACTS - 401(K) AND 408(K) (SOLD PRIOR TO MAY 1, 1990) --
If you surrender your contract at the end of the time period below: You would
pay the following expenses on a $1,000 investment, assuming 5% annual return on
assets:
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Growth Series......................... $102 $145 $184 $246
Growth-Income Series.................. 102 146 185 248
Money Market Series................... 99 139 173 222
Worldwide Equity Series............... 110 169 227 332
High Grade Income Series.............. 102 146 185 248
Emerging Growth Series................ 102 145 185 247
Global Aggressive Bond Series......... 100 140 176 229
Specialized Asset Allocation Series... 106 158 207 291
Managed Asset Allocation Series....... 107 160 212 300
Equity Income Series.................. 104 153 199 275
High Yield Series..................... 97 131 159 193
Social Awareness Series............... 102 146 185 248
Value Series.......................... 105 155 202 281
Small Cap Series...................... 103 150 193 264
- --------------------------------------------------------------------------------
If you do not surrender your contract: You would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets:
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Growth Series......................... $22 $67 $114 $246
Growth-Income Series.................. 22 67 115 248
Money Market Series................... 19 60 103 222
Worldwide Equity Series............... 30 93 158 332
High Grade Income Series.............. 22 67 115 248
Emerging Growth Series................ 22 67 115 247
Global Aggressive Bond Series......... 20 62 106 229
Specialized Asset Allocation Series... 26 80 137 291
Managed Asset Allocation Series....... 27 83 142 300
Equity Income Series.................. 24 75 129 275
High Yield Series..................... 17 51 89 193
Social Awareness Series............... 22 67 115 248
Value Series.......................... 25 77 132 281
Small Cap Series...................... 23 72 123 264
- --------------------------------------------------------------------------------
This table describes the fees and expenses you may pay if you buy a Variflex
Contract. The example does not reflect past or future expenses, and does not
include state premium taxes, which some states may assess. ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN. The example assumes a 5 percent annual
rate of return. This rate of return does not represent past or future
performance of the Fund. The example assumes that SBL will deduct any annual
contract fee pro rata from each Series; however, under the Contract, SBL deducts
the Administrative Fee sequentially from the Series as described under
"Sequential Deduction of Fees" in this Prospectus. For a more complete
description of the costs and expenses of the Fund, see the prospectus for SBL
Fund.
CONDENSED FINANCIAL INFORMATION
The following condensed financial information presents accumulation unit values
at the beginning and end of each period as well as ending accumulation units
outstanding for Qualified and Non-Qualified Contracts under the Series of
Variflex.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
QUALIFIED CONTRACTS 1997 1996 1995(d)(e) 1994 1993 1992(c) 1991(a)(b) 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH SERIES (SERIES A)
Accumulation unit value:
Beginning of period $45.76 $37.75 $27.94 $28.75 $25.59 $23.30 $17.33 $19.45 $14.59 $13.41
End of period $58.19 $45.76 $37.75 $27.94 $28.75 $25.59 $23.30 $17.33 $19.45 $14.59
Accumulation units
outstanding at
the end of period 11,293,953 10,310,079 9,203,332 7,723,910 6,900,722 6,640,177 5,420,372 4,616,955 3,191,257 3,032,118
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH-INCOME SERIES
(SERIES B)
Accumulation unit value:
Beginning of period $46.58 $39.88 $31.03 $32.37 $29.89 $28.47 $20.92 $22.16 $17.46 $14.81
End of period $58.22 $46.58 $39.88 $31.03 $32.37 $29.89 $28.47 $20.92 $22.16 $17.46
Accumulation units
outstanding at
the end of period 15,086,547 15,264,292 14,963,215 14,312,801 13,236,948 11,381,462 8,753,337 6,449,776 4,613,783 3,388,090
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET SERIES
(SERIES C)
Accumulation unit value:
Beginning of period $18.26 $17.59 $16.89 $16.48 $16.26 $15.94 $15.27 $14.33 $13.30 $12.56
End of period $18.97 $18.26 $17.59 $16.89 $16.48 $16.26 $15.94 $15.27 $14.33 $13.30
Accumulation units
outstanding at
the end of period 2,479,744 3,252,140 2,989,809 3,578,026 2,680,809 2,373,251 2,161,924 1,913,734 3,216,085 2,774,046
- ------------------------------------------------------------------------------------------------------------------------------------
WORLDWIDE EQUITY SERIES
(SERIES D)
Accumulation unit value:
Beginning of period $14.51 $12.51 $11.42 $11.25 $ 8.65 $8.99 $8.07 $10.57 $11.74 $11.33
End of period $15.26 $14.51 $12.51 $11.42 $11.25 $8.65 $8.99 $ 8.07 $10.57 $11.74
Accumulation units
outstanding at
the end of period 12,804,601 11,881,450 10,236,349 9,361,197 5,863,967 2,070,715 917,833 466,703 607,650 633,816
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH GRADE INCOME SERIES
(SERIES E)
Accumulation unit value:
Beginning of period $21.69 $22.11 $18.87 $20.52 $18.44 $17.37 $15.04 $14.26 $12.90 $12.17
End of period $23.58 $21.69 $22.11 $18.87 $20.52 $18.44 $17.37 $15.04 $14.26 $12.90
Accumulation units
outstanding at
the end of period 3,446,850 3,673,833 3,912,046 3,891,426 3,731,587 2,912,605 2,255,909 1,673,154 1,403,313 1,037,740
- ------------------------------------------------------------------------------------------------------------------------------------
EMERGING GROWTH SERIES
(SERIES J)
Accumulation unit value:
Beginning of period $18.03 $15.46 $13.10 $13.97 $12.44 $10.00 --- --- --- ---
End of period $21.37 $18.03 $15.46 $13.10 $13.97 $12.44 --- --- --- ---
Accumulation units
outstanding at
the end of period 6,738,379 5,563,881 4,387,739 3,947,047 2,131,858 455,105 --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL AGGRESSIVE BOND
SERIES (SERIES K)
Accumulation unit value:
Beginning of period $12.00 $10.69 $10.00 --- --- --- --- --- --- ---
End of period $12.50 $12.00 $10.69 --- --- --- --- --- --- ---
Accumulation units
outstanding at
the end of period 425,354 306,339 129,589 --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALIZED ASSET
ALLOCATION SERIES
(SERIES M)
Accumulation unit value:
Beginning of period $12.01 $10.64 $10.00 --- --- --- --- --- --- ---
End of period $12.59 $12.01 $10.64 --- --- --- --- --- --- ---
Accumulation units
outstanding at
the end of period 1,672,896 1,274,106 611,652 --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGED ASSET ALLOCATION
SERIES (SERIES N)
Accumulation unit value:
Beginning of period $11.87 $10.66 $10.00 --- --- --- --- --- --- ---
End of period $13.89 $11.87 $10.66 --- --- --- --- --- --- ---
Accumulation units
outstanding at
the end of period 1,057,271 626,179 295,053 --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME SERIES
(SERIES O)
Accumulation unit value:
Beginning of period $13.78 $11.62 $10.00 --- --- --- --- --- --- ---
End of period $17.49 $13.78 $11.62 --- --- --- --- --- --- ---
Accumulation units
outstanding at
the end of period 4,135,375 2,016,966 604,325 --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS SERIES
(SERIES S)
Accumulation unit value:
Beginning of period $18.75 $15.97 $12.65 $13.31 $12.04 $10.47 $10.00 --- --- ---
End of period $22.72 $18.75 $15.97 $12.65 $13.31 $12.04 $10.47 --- --- ---
Accumulation units
outstanding at
the end of period 2,531,119 2,083,090 1,615,845 1,344,063 993,233 513,953 127,699 --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
NON-QUALIFIED CONTRACTS
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH SERIES (SERIES A)
Accumulation unit value:
Beginning of period $45.74 $37.74 $27.92 $28.74 $25.58 $23.30 $17.32 $19.45 $14.59 $13.41
End of period $58.17 $45.74 $37.74 $27.92 $28.74 $25.58 $23.30 $17.32 $19.45 $14.59
Accumulation units
outstanding at
the end of period 2,652,767 2,575,426 2,306,163 1,578,797 1,483,618 1,766,896 1,328,865 952,806 594,856 493,463
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH-INCOME SERIES
(SERIES B)
Accumulation unit value:
Beginning of period $46.54 $39.84 $31.00 $32.34 $29.87 $28.44 $20.91 $22.16 $17.46 $14.80
End of period $58.17 $46.54 $39.84 $31.00 $32.34 $29.87 $28.44 $20.91 $22.16 $17.46
Accumulation units
outstanding at
the end of period 3,653,913 3,721,884 3,669,299 3,515,364 3,262,600 2,560,986 1,774,534 1,293,121 1,000,815 836,735
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET SERIES
(SERIES C)
Accumulation unit value:
Beginning of period $18.26 $17.59 $16.89 $16.48 $16.26 $15.94 $15.28 $14.32 $13.29 $12.55
End of period $18.98 $18.26 $17.59 $16.89 $16.48 $16.26 $15.94 $15.28 $14.32 $13.29
Accumulation units
outstanding at
the end of period 1,089,550 1,681,230 1,469,153 2,475,349 1,913,212 1,031,855 1,000,378 954,107 846,414 853,615
- ------------------------------------------------------------------------------------------------------------------------------------
WORLDWIDE EQUITY SERIES
(SERIES D)
Accumulation unit value:
Beginning of period $14.51 $12.51 $11.42 $11.25 $ 8.65 $8.99 $8.07 $10.57 $11.74 $11.33
End of period $15.26 $14.51 $12.51 $11.42 $11.25 $8.65 $8.99 $ 8.07 $10.57 $11.74
Accumulation units
outstanding at
the end of period 3,730,734 3,484,411 3,140,486 2,803,304 2,150,932 678,110 279,878 125,010 211,920 214,723
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH GRADE INCOME SERIES
(SERIES E)
Accumulation unit value:
Beginning of period $21.67 $22.09 $18.85 $20.50 $18.42 $17.36 $15.02 $14.25 $12.89 $12.17
End of period $23.56 $21.67 $22.09 $18.85 $20.50 $18.42 $17.36 $15.02 $14.25 $12.89
Accumulation units
outstanding at
the end of period 1,535,471 1,377,342 1,325,159 1,392,830 1,290,268 962,775 784,496 582,285 519,624 419,410
- ------------------------------------------------------------------------------------------------------------------------------------
EMERGING GROWTH SERIES
(SERIES J)
Accumulation unit value:
Beginning of period $18.03 $15.46 $13.09 $13.96 $12.44 $10.00 --- --- --- ---
End of period $21.36 $18.03 $15.46 $13.09 $13.96 $12.44 --- --- --- ---
Accumulation units
outstanding at
the end of period 2,019,008 1,559,302 1,248,987 1,211,099 610,801 68,338 --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL AGGRESSIVE BOND
SERIES (SERIES K)
Accumulation unit value:
Beginning of period $12.00 $10.69 $10.00 --- --- --- --- --- --- ---
End of period $12.49 $12.00 $10.69 --- --- --- --- --- --- ---
Accumulation units
outstanding at
the end of period 212,934 178,818 74,528 --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALIZED ASSET
ALLOCATION SERIES
(SERIES M)
Accumulation unit value:
Beginning of period $12.00 $10.64 $10.00 --- --- --- --- --- --- ---
End of period $12.59 $12.00 $10.64 --- --- --- --- --- --- ---
Accumulation units
outstanding at
the end of period 687,020 532,893 297,967 --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGED ASSET ALLOCATION
SERIES (SERIES N)
Accumulation unit value:
Beginning of period $11.87 $10.66 $10.00 --- --- --- --- --- --- ---
End of period $13.89 $11.87 $10.66 --- --- --- --- --- --- ---
Accumulation units
outstanding at
the end of period 459,560 374,276 226,555 --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME SERIES
(SERIES O)
Accumulation unit value:
Beginning of period $13.78 $11.62 $10.00 --- --- --- --- --- --- ---
End of period $17.48 $13.78 $11.62 --- --- --- --- --- --- ---
Accumulation units
outstanding at
the end of period 1,257,818 710,206 234,242 --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS SERIES
(SERIES S)
Accumulation unit value:
Beginning of period $18.75 $15.98 $12.66 $13.31 $12.04 $10.47 $10.00 --- --- ---
End of period $22.73 $18.75 $15.98 $12.66 $13.31 $12.04 $10.47 --- --- ---
Accumulation units
outstanding at
the end of period 904,831 746,852 612,235 543,287 389,861 226,145 98,344 --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Social Awareness Series of Variflex was first publicly offered on May 1,
1991.
(b) Effective May 1, 1991, the investment objective of Worldwide Equity Series
of Variflex was changed from high current income to long-term capital
growth through investment in common stocks and equivalents of companies
domiciled in foreign countries and the United States.
(c) Emerging Growth Series of Variflex was first publicly offered on October 1,
1992.
(d) Global Aggressive Bond, Specialized Asset Allocation, Managed Asset
Allocation and Equity Income Series were first publicly offered on June 1,
1995.
(e) Effective June 1, 1995, the investment objective of Growth-Income Series of
Variflex was changed from seeking to provide income with secondary emphasis
on capital appreciation to seeking long-term growth of capital with
secondary emphasis on income.
SECURITY BENEFIT LIFE INSURANCE COMPANY AND VARIFLEX
SECURITY BENEFIT LIFE INSURANCE COMPANY -- Security Benefit Life Insurance
Company ("SBL") is a mutual life insurance company. SBL, which was formed
originally as a fraternal benefit society under the laws of Kansas and commenced
business February 22, 1892, became a mutual life insurance company under its
present name on January 2, 1950. On July 31, 1998, SBL 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 SBL policyholders as of July 31, 1998,
became membership interests in Security Benefit Mutual Holding Company as of
that date. Persons who acquire policies from SBL after that date automatically
became members in the mutual holding company. SBL's home office is 700 Harrison
Street, Topeka, Kansas 66636-0001. SBL is licensed in the District of Columbia
and all states except New York.
YEAR 2000 COMPLIANCE -- Like other insurance companies, as well as other
financial and business organizations around the world, SBL could be adversely
affected if the computer systems used by SBL in performing its 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 SBL with
respect to the Contract, and (ii) the management services provided to the Fund
by the Investment Manager, as well as transfer agency, accounting, custody,
distribution and other services provided to the Fund.
SBL has adopted a plan to be "Year 2000 Compliant" with respect to both its
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. SBL's
overall approach to addressing the Year 2000 issue is as follows: (1) to
inventory its internal and external hardware, software, telecommunications and
data transmissions to customers and conduct a risk assessment with respect to
the impact that a failure of any such system would have on its business
operations; (2) to modify or replace its 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 its systems for Year 2000 compliance. SBL has completed the inventory of
its internal and external systems and has made substantial progress toward
completing the modification/replacement of its internal systems as well as
toward obtaining Year 2000 Compliant certifications from its external vendors.
Overall systems testing commenced in early 1998 and will extend into the first
six months of 1999.
Although SBL has taken steps to ensure that its systems will function
properly before, during and after the Year 2000, its key operating systems and
information sources are provided by or through external vendors which creates
uncertainty to the extent SBL is relying on the assurance of such vendors as to
whether its systems will be Year 2000 Compliant. The costs or consequences of
incomplete or untimely resolution of the Year 2000 issue are unknown to SBL at
this time but could have a material adverse impact on the operations of the
Separate Account and administration of the Contracts.
The Year 2000 Problem is also expected to impact companies, which may include
issuers of portfolio securities held by the Fund, to varying degrees based upon
various factors, including, but not limited to, industry sector and degree of
technological sophistication. SBL is unable to predict what impact, if any, the
Year 2000 Problem will have on issuers of portfolio securities held by the Fund.
VARIFLEX -- Variflex was established by SBL as a separate account on January 31,
1984, and is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940 (the "Act"). Variflex
is designed to provide the funding for Variable Annuities. Under Kansas law,
regulation of SBL by the Commissioner of Insurance includes regulation of
Variflex. The insurance laws of Kansas under which Variflex was established
provide that the assets of Variflex shall not be chargeable with liabilities
arising out of any other business which SBL may conduct (except to the extent
that the assets of Variflex exceed the reserves and other liabilities of the
separate account). Accordingly, Variflex Contracts provide that the income,
gains and losses from the assets allocated to Variflex, whether or not realized,
are credited to or charged against Variflex without regard to other income,
gains, or losses of SBL. The assets of Variflex will thus be held exclusively
for the benefit of Contractowners and Beneficiaries under the Contracts (and
other contracts which may be offered in the future under which net premiums are
placed in Variflex and which provide benefits varying in accordance with the
investment results of Variflex) to the extent they are entitled to benefits
based on Variflex.
The Series of Variflex available under the Contracts are: Growth Series,
Growth-Income Series, Money Market Series, Worldwide Equity Series, High Grade
Income Series, Emerging Growth Series, Global Aggressive Bond Series,
Specialized Asset Allocation Series, Managed Asset Allocation Series, Equity
Income Series, High Yield Series, Social Awareness Series, Value Series, and
Small Cap Series. Amounts allocated by Contractowners or Participants to each of
these Series are invested, respectively, in Series A, B, C, D, E, J, K, M, N, O,
P, S, V and X of SBL Fund (the "Fund"). Additional Series may be added to
Variflex at the discretion of SBL. Certain Series of Variflex are not available
in all states and are not available under certain Contracts as discussed under
"SBL Fund," below.
SBL FUND
The Fund is a diversified, open-end management investment company. The assets
of the Fund are managed by Security Management Company, LLC (the "Investment
Manager"), the investment adviser to the Fund, under the supervision of the
Fund's board of directors.
The Fund currently issues its shares in fourteen separate series: Series A,
Series B, Series C, Series D, Series E, Series J, Series K, Series M, Series N,
Series O, Series P, Series S, Series V and Series X ("Series"). The assets of
each series are held separate from the assets of the other series, and each
series has different investment objectives and policies. As a result, each
series operates as a separate investment fund.
The High Yield, Small Cap and Value Series of Variflex generally are not
available under Variflex Contracts issued prior to January 4, 1999. The Series
will be available to those Contracts upon their conversion to SBL's new
administrative system. The Series also are not available to certain types of
Contracts (regardless of issue date), including Contracts issued for use with
pension and profit sharing plans, deferred compensation plans, SIMPLE IRA and
401(k) plans, Roth IRAs, simplified employee pension plans and employer
sponsored annuity purchase plans and Contracts with outstanding loans or
receiving annuity payments. Please contact SBL to determine whether the High
Yield, Small Cap and Value Series are available under your Contract.
Each Series of Variflex invests solely in a corresponding series of the Fund,
as follows.
SERIES A -- Amounts allocated to the GROWTH SERIES of Variflex are invested in
Series A. The investment objective of Series A is to seek long-term capital
growth by investing in a broadly diversified portfolio of common stocks,
securities convertible into common stocks, preferred stocks, bonds and other
debt securities.
SERIES B -- Amounts allocated to the GROWTH-INCOME SERIES of Variflex are
invested in Series B. Series B seeks long-term growth of capital, with secondary
emphasis on income, by investing in various types of securities, including
common stocks, convertible securities, preferred stocks and debt securities.
Series B's investments in debt securities may include securities rated below
investment grade (commonly referred to as "junk bonds").
SERIES C -- Amounts allocated to the MONEY MARKET SERIES of Variflex are
invested in Series C. The investment objective of Series C is to provide as high
a level of current income as is consistent with preserving capital. It invests
in high quality money market instruments with maturities of not longer than
thirteen months.
SERIES D -- Amounts allocated to the WORLDWIDE EQUITY SERIES of Variflex are
invested in Series D. The investment objective of Series D is to seek long-term
growth of capital primarily through investment in common stocks and equivalents
of companies domiciled in foreign countries and the United States.
SERIES E -- Amounts allocated to the HIGH GRADE INCOME SERIES of Variflex are
invested in Series E. The investment objective of Series E is to provide current
income with security of principal. Series E seeks to achieve this investment
objective by investing in a broad range of debt securities, including U.S. and
foreign corporate debt securities and securities issued by the U.S. and foreign
governments.
SERIES J -- Amounts allocated to the EMERGING GROWTH SERIES of Variflex are
invested in Series J. The investment objective of Series J is to seek capital
appreciation through investment in a broadly diversified portfolio of securities
which may include common stocks, preferred stocks, debt securities and
securities convertible into common stocks.
SERIES K -- Amounts allocated to the GLOBAL AGGRESSIVE BOND SERIES of Variflex
are invested in Series K. The investment objective of Series K is to seek high
current income and, as a secondary objective, capital appreciation by investing
in a combination of foreign and domestic high-yield, lower rated debt securities
(commonly referred to as "junk bonds").
SERIES M -- Amounts allocated to the SPECIALIZED ASSET ALLOCATION SERIES of
Variflex are invested in Series M. The investment objective of Series M is to
seek high total return consisting of capital appreciation and current income.
Series M seeks this objective by following an asset allocation strategy that
contemplates shifts among a wide range of investment categories and market
sectors, including equity and debt securities of domestic and foreign issuers.
SERIES N -- Amounts allocated to the MANAGED ASSET ALLOCATION SERIES of Variflex
are invested in Series N. The investment objective of Series N is to seek a high
level of total return by investing primarily in a diversified portfolio of debt
and equity securities.
SERIES O -- Amounts allocated to the EQUITY INCOME SERIES of Variflex are
invested in Series O. The investment objective of Series O is to seek to provide
substantial dividend income and also capital appreciation by investing primarily
in dividend-paying common stocks of established companies.
SERIES P -- Amounts allocated to the HIGH YIELD SERIES of Variflex are invested
in Series P. The investment objective of Series P is to seek high current income
and as a secondary objective, capital appreciation by investing in a combination
of domestic and foreign high-yield, lower rated debt securities (commonly known
as "junk bonds").
SERIES S -- Amounts allocated to the SOCIAL AWARENESS SERIES of Variflex are
invested in Series S. The investment objective of Series S is to seek capital
appreciation by investing in various types of securities which meet certain
social criteria established for the Series. Series S will invest in a
diversified portfolio of common stocks, convertible securities, preferred stocks
and debt securities.
SERIES V -- Amounts allocated to the VALUE SERIES of Variflex are invested in
Series V. The investment objective of Series V is to seek long-term growth of
capital by investing primarily in a diversified portfolio of common stocks,
securities convertible into common stocks, preferred stocks, and warrants which
the Investment Manager believes are undervalued.
SERIES X -- Amounts allocated to the SMALL CAP SERIES of Variflex are invested
in Series X. The investment objective of Series X is to seek long-term growth of
capital by investing primarily in domestic and foreign equity securities of
small capitalization companies (defined as companies with a market
capitalization of less than $1.2 billion at the time of purchase).
THE INVESTMENT MANAGER -- Security Management Company, LLC (the "Investment
Manager") located at 700 Harrison Street, Topeka, Kansas 66636 serves as
investment adviser to each Series of the Fund. The Investment Manager is
registered with the SEC as an investment adviser. The Investment Manager
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, N, O and X. With respect
to Series M, the foregoing responsibilities are divided between the Investment
Adviser and a Sub-Adviser. See the accompanying SBL Fund prospectus for details.
The Investment Manager has engaged OppenheimerFunds, Inc., Two World Trade
Center, New York, New York 10048-0203, to provide investment advisory services
to Series D; T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore,
Maryland 21202, to provide investment advisory services to Series N and O; and
Meridian Investment Management Corporation, 12835 East Arapahoe Road, Tower II,
7th Floor, Englewood, Colorado 80112, to provide investment advisory and
analytic research services to Series M. The Investment Manager has engaged
Strong Capital Management Corporation, 900 Heritage Reserve, Menomonee,
Wisconsin 53051 to provide investment advisory services to Series X.
THERE IS NO ASSURANCE THAT ANY OF THESE SERIES WILL ATTAIN THEIR RESPECTIVE
STATED OBJECTIVES.
ADDITIONAL INFORMATION CONCERNING THE INVESTMENT OBJECTIVES AND POLICIES OF
THE SERIES AND THE INVESTMENT ADVISORY SERVICES AND CHARGES CAN BE FOUND IN THE
CURRENT PROSPECTUS FOR THE FUND, WHICH IS ATTACHED TO AND SHOULD BE READ IN
CONJUNCTION WITH THIS PROSPECTUS BEFORE ANY DECISION IS MADE CONCERNING THE
ALLOCATION OF PURCHASE PAYMENTS. THE INVESTMENT PERFORMANCE OF THE SERIES OF THE
FUND WILL AFFECT CONTRACT VALUE.
VARIFLEX CONTRACTS
PURPOSE OF THE CONTRACTS -- The Contracts described in this Prospectus may be
issued for use with retirement plans and trusts qualified under the Internal
Revenue Code of 1986, as amended (the "Code"), for favorable tax treatment
("Qualified Contracts") and for use with plans and trusts that are not so
qualified ("Non-Qualified Contracts"). Retirement plans qualified for favorable
tax treatment include pension and profit sharing plans qualified under Section
401 or 403(a) of the Internal Revenue Code, annuity purchase plans of public
school systems and certain tax-exempt organizations which qualify for tax
deferred treatment under Section 403(b) or 403(c) of the Code, individual
retirement plans and individual retirement annuities under Section 408 of the
Code and deferred compensation plans under Section 457 of the Code. See section
entitled "Federal Tax Matters-Qualified Contracts," page 29 for further details.
The basic objective of the Contracts is to provide a Fixed or Variable
Annuity or a combination Fixed and Variable Annuity. Variable Annuities pursuant
to the Contracts are funded by Variflex. The objective of a Variable Annuity is
to provide benefits which will tend to a greater degree than a Fixed Annuity to
reflect the changes in the cost of living. There can be no assurance that this
objective will be attained. Annuity payments based on any of the Series of
Variflex are not guaranteed and entail more risk to the Annuitant than
traditional guaranteed insurance.
This Prospectus generally describes only the variable aspects of the Variflex
Contracts, except where guaranteed aspects are specifically mentioned. For a
discussion of the guaranteed investment option and guaranteed benefits available
in connection with Variflex Contracts, see "The General Account," page 36.
The terms of the Contracts may only be changed by mutual agreement between
SBL and each Contractowner, except as described in "Substituted Securities," and
except for changes required to make the contracts comply with, or give
Contractowners 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 or the laws of any state. In addition, SBL
may make changes to group Contracts upon 30 days notice to the Owner, which
changes will apply only to individuals who become Participants after the
effective date of the change.
TYPES OF VARIFLEX CONTRACTS -- Different types of the Contracts are offered by
SBL through this Prospectus. The Contracts vary in the amount and timing of the
minimum payments, and in various other respects. The different types of
Contracts are described below:
SINGLE PAYMENT IMMEDIATE ANNUITY CONTRACT. This type of contract is used for
an individual where a single Purchase Payment has been allocated to provide for
life contingent annuity payments to commence immediately.
SINGLE AND FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS. This type of contract
is used for an individual where either a single Purchase Payment (which may be
supplemented with additional payments within thirteen months) or periodic
Purchase Payments will be made with annuity payments to commence at a later
date.
GROUP FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACT. This type of contract may
be used when Purchase Payments under group plans are to be accumulated until the
retirement date of each Participant. Under a Group Allocated Contract, a
Participant Account is established for each Participant for whom payments are
being made and the benefit at retirement will be determined by the value of the
Participant Account at that time.
Under a Group Unallocated Contract, the Purchase Payments are not allocated
to the individual Participants but are credited to the Contractowner's account.
When a Participant becomes entitled to receive pension payments under the
provisions of the Plan, the appropriate amount of Contract Value may be
withdrawn by the Contractowner to provide the Participant with an annuity.
CONTRACT APPLICATION AND PURCHASE PAYMENTS -- Individuals wishing to purchase a
Contract must complete an application and provide an initial Purchase Payment
which will be sent to the SBL home office. If the application can be accepted in
the form received, the initial Purchase Payment will be credited within two
business days after receipt by the SBL home office. If an incomplete application
cannot be completed within five days of its receipt, the applicant will be
notified of the reasons for the delay and any payments received will be returned
immediately unless the applicant specifically consents to have SBL retain them
pending completion of the application.
The Contracts set certain minimum amounts for the initial and subsequent
Purchase Payments. For Qualified Contracts, the minimum initial and subsequent
payments are $25, except Group Unallocated Contracts, which require a minimum
initial payment of $500 and subsequent payments of $25. For Non-Qualified
Contracts, the minimum initial payment is $500 and subsequent payments must be
at least $25. For Single Payment Immediate Annuity Contracts, the minimum
initial payment is $2,500. The maximum amount of Purchase Payments under
Variflex Contracts is $1,000,000, without the prior approval of SBL. These
amounts may be changed at the sole discretion of SBL. In addition, SBL reserves
the right to terminate any individual or Group Contract for certain specified
reasons, including failure of the Contract Value to meet certain specified
minimums. (See "Termination of Contract" in the Statement of Additional
Information for a detailed listing of such circumstances.)
For a Flexible Payment Deferred Annuity, Purchase Payments may be made at
such intervals as desired, but are usually made on an annual, semiannual,
quarterly or monthly basis. The frequency of Purchase Payments may be changed by
the Contractowner. If Purchase Payments cease, they may be resumed at a future
date, subject to the Annuity Commencement Date requirements. The amount of
future Purchase Payments may be increased or decreased on any date a payment is
submitted. Submission of a Purchase Payment different from the previous payment
will automatically effect an increase or decrease. The number of changes
permitted and the maximum payments allowed under the Internal Revenue Code for
Qualified Plans vary depending on the type of plan. For a discussion of those
limitations see "Limits on Purchase Payments Paid Under Tax-Qualified Retirement
Plans" in the Statement of Additional Information. Failure to comply with those
limitations may subject the Contract to adverse tax treatment.
ALLOCATION OF PURCHASE PAYMENTS -- The Purchase Payments will be allocated to
each Series within Variflex in accordance with the written instructions
contained in the application. The Contractowner or Participant may by written
instruction to the home office indicate one or more Series to which a specified
portion or portions of the Purchase Payment should be applied. The amount
allocated to a Series may be a whole dollar amount or whole percentage. No
allocation is permitted which would result in less than $25 per payment being
allocated to any one Series within Variflex. Changes in allocation of future
Purchase Payments (with the same $25 minimum per Series) may be made at any time
by specific written instruction to the home office or by telephone instruction,
provided that a properly completed Telephone Transfer Authorization form is on
file with SBL or the Telephone Transfer section of the application has been
completed. (See "Transfer of Contract Value," page 17.)
CREDITING OF ACCUMULATION UNITS -- During the Accumulation Period, when a
Purchase Payment is received in its home office, SBL currently credits the
entire payment to the Variflex Contract. Amounts allocated to Series of Variflex
are credited in the form of Accumulation Units. The number of Accumulation Units
that may be purchased for any Series is found by dividing the Purchase Payment
allocated to that Series by the price for that Series determined as of the end
of the Valuation Period in which the Purchase Payment is credited. The price of
each Series is determined as of the close of the New York Stock Exchange
(generally 3:00 p.m. Central time) on each Valuation Date and on any other day
in which there is a sufficient degree of trading in the portfolio securities of
a series of the Fund that the price of an applicable Series of Variflex might be
materially affected.
The price of each Series' Accumulation Unit is expected to increase or
decrease, reflecting the investment experience of the corresponding series of
the underlying Fund less any deductions for charges or taxes. The Statement of
Additional Information contains a detailed description of how the Accumulation
Units are valued.
DOLLAR COST AVERAGING OPTION -- SBL currently offers an option under which a
Contractowner or Participant may dollar cost average their allocations in the
Series under the Contract by authorizing SBL to make periodic allocations of
Contract Value from any one Series to one or more of the other Series. Dollar
cost averaging is a systematic method of investing in which securities are
purchased at regular intervals in fixed dollar amounts so that the cost of the
securities gets averaged over time and possibly over various market cycles. The
option will result in the allocation of Contract Value to one or more Series,
and these amounts will be credited at the price of the affected Series as of the
end of the Valuation Dates on which the transfers are effected. Since the price
of an interest in a Series will vary, the amounts allocated to a Series will
result in the crediting of a greater number of units when the price of the
Series is low and a lesser number of units when the price is high. Similarly,
the amounts transferred from a Series will result in a debiting of a greater
number of units when the price of the Series 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 a Contractowner or Participant will not have losses.
A Dollar Cost Averaging Request form is available upon request. On the form,
the Contractowner or Participant must designate whether a specific dollar
amount, percentage of Contract Value or earnings only are to be transferred, the
Series to and from which the transfers will be made, the desired frequency of
the transfers, which may be on a monthly or quarterly basis, and the length of
time during which the transfers shall continue or the total amount to be
transferred over time.
After SBL has received a Dollar Cost Averaging Request in proper form at its
home office, SBL will transfer Contract Value in amounts designated by the
Contractowner or Participant from the Series from which transfers are to be made
to the Series chosen by the Contractowner or Participant. The minimum amount
that may be transferred to any one Series is $25. Each transfer will be effected
on the monthly or quarterly anniversary, whichever corresponds to the period
selected by the Contractowner, of the date of receipt at SBL's home office of a
Dollar Cost Averaging Request in proper form, until the total amount elected has
been transferred, or until Contract Value in the Series from which transfers are
made has been depleted. Amounts periodically transferred under this option are
not currently subject to any transfer charges.
A Contractowner or Participant may instruct SBL at any time to terminate the
option by written request to SBL's home office. In that event, the Contract
Value in the Series from which transfers were being made that has not been
transferred will remain in that Series unless the Contractowner or Participant
instructs otherwise. If a Contractowner or Participant wishes to continue
transferring on a dollar cost averaging basis after the expiration of the
applicable period, the total amount elected has been transferred, or the Series
has been depleted, or after the Dollar Cost Averaging Option has been canceled,
a new Dollar Cost Averaging Request must be completed and sent to SBL's home
office. SBL may discontinue, modify, or suspend the Dollar Cost Averaging Option
at any time.
Contract Value also may be dollar cost averaged to or from the General
Account, provided that such transfers do not violate the restrictions on
transfers as described in "The General Account," page 36.
ASSET REALLOCATION OPTION -- SBL currently offers an option under which a
Contractowner or Participant may authorize SBL to automatically transfer their
Contract Value quarterly, semiannually or annually to maintain a particular
percentage allocation among the Series as selected by the Contractowner or
Participant. The Contract Value allocated to each Series will grow or decline in
value at different rates during the selected period, and Asset Reallocation
automatically reallocates the Contract Value in the Series to the allocation
selected by the Contractowner or Participant on a quarterly, semiannual or
annual basis, as selected by the Owner or Participant. Asset Reallocation is
intended to transfer Contract Value from those Series that have increased in
value to those Series that have declined in value. Over time, this method of
investing may help a Contractowner or Participant buy low and sell high. This
investment method does not guarantee profits, nor does it assure that a
Contractowner or Participant will not have losses.
To elect the Asset Reallocation Option, an Asset Reallocation Request in
proper form must be received by SBL at its home office. An Asset Reallocation
Request form is available upon request. On the form, the Contractowner or
Participant must indicate the applicable Series, the applicable time period, and
the percentage of Contract Value which should be allocated to each of the
applicable Series each period ("Asset Reallocation Program"). If the Asset
Reallocation Option is elected, all Contract Value invested in the Series must
be included in the Asset Reallocation Program.
This option will result in the transfer of Contract Value to one or more of
the Series on the date of SBL's receipt of the Asset Reallocation Request in
proper form and each quarterly, semiannual or annual anniversary of that date
thereafter. The amounts transferred will be credited at the price of the
affected Series as of the end of the Valuation Dates on which the transfers are
effected. Amounts periodically transferred under this option are not currently
subject to any transfer charges.
A Contractowner or Participant may instruct SBL at any time to terminate this
option by written request to SBL's home office. In that event, the Contract
Value in the Series that has not been transferred will remain in those Series
regardless of the percentage allocation unless the Contractowner or Participant
instructs otherwise. If a Contractowner or Participant wishes to continue Asset
Reallocation after it has been canceled, a new Asset Reallocation Request form
must be completed and sent to SBL's home office. SBL may discontinue, modify, or
suspend, and reserves the right to charge a fee for the Asset Reallocation
Option at any time. Asset Reallocation is not available for Group Unallocated
Contracts.
Contract Value invested in the General Account may be included in the Asset
Reallocation Program, provided that transfers from the General Account do not
violate the restrictions on transfers as described in "The General Account,"
page 36.
TRANSFER OF CONTRACT VALUE -- During the Accumulation Period, the Contractowner
or Participant may elect by written notice to the SBL home office to transfer
all or any part of the Contract Value invested in a particular Variflex Series
to any other Variflex Series. The minimum transfer amount is $500, or the amount
remaining in a given Series. The minimum transfer amount does not apply to
transfers under the Dollar Cost Averaging or Asset Reallocation Options.
Such transfers (and changes to an existing Dollar Cost Averaging or Asset
Reallocation Option) may be made by telephone unless the Contractowner or
Participant elected not to have Telephone Transfer privileges in the
application. Contractowners or Participants that elected not to have Telephone
Transfer privileges in the application may subsequently establish such privilege
by properly completing, signing and filing at SBL's home office a Telephone
Transfer Authorization form. SBL reserves the right to deny any telephone
transfer request. SBL has established procedures to confirm that instructions
communicated by telephone are genuine and may be liable for any losses due to
fraudulent or unauthorized instructions if it fails to comply with its
procedures. SBL`s procedures require that any person requesting a telephone
transfer provide the account and contract number and the Owner`s tax
identification number, and such instructions must be received on a recorded
line. Neither SBL nor any of its affiliates will be liable for any claim, loss
or expense resulting from any alleged error or mistake in connection with a
telephone transfer which was authorized by the Contractowner or Participant, or
by anyone else who purports to give instructions on his or her behalf, provided
that SBL complied with its procedures. The telephone transfer privilege may be
suspended, modified or discontinued at any time without notice. SBL's policy
concerning telephone transfers may require a Contractowner or Participant who
authorizes telephone transfers to bear the risk of loss from a fraudulent or
unauthorized telephone transfer.
The frequency of transfers generally is not limited, although SBL reserves
the right to limit them as to any individual, or in the future, in general, to
not more than 14 transfers per Contract Year. SBL reserves the right to limit
the size and frequency of transfers. Transfers from the General Account to the
Series are restricted as discussed under "The General Account," page 36. For a
discussion of transfers after the Annuity Commencement Date, see "Allocation of
Benefits," page 25.
CONTRACT VALUE -- The Contract Value is the sum of the amounts under the
Contract (or Participant Account) held in each Series of Variflex and in the
General Account, including amounts set aside in the General Account to secure
loans.
On each Valuation Date, the portion of the Contract Value allocated to any
particular Series will be adjusted to reflect the investment experience of that
Series. See "Determination of Contract Value," below. No minimum amount of
Contract Value is guaranteed. The Contractowner or Participant bears the entire
investment risk relating to the investment performance of Contract Value
allocated to the Variflex Series. For Contracts issued on or after January 4,
1999, SBL reserves the right to pay the Owner or Participant the Contract Value
as a lump sum if it is below $2,000.
DETERMINATION OF CONTRACT VALUE -- The Contract Value will vary to a degree that
depends upon several factors, including investment performance of the Series to
which Contract Value has been allocated, payment of Purchase Payments, the
amount of any outstanding Contract Debt, partial withdrawals, and the charges
assessed in connection with the Contract. The amounts allocated to the Series
will be invested in shares of the corresponding series of the SBL Fund. The
investment performance of the Series will reflect increases or decreases in the
net asset value per share of the corresponding series of SBL Fund and any
dividends or distributions declared by such series.
Assets in the Series are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's (or
Participant's) interest in a Series. When a Contractowner or Participant
allocates Purchase Payments to a Series, the Contract (or Participant Account)
is credited with Accumulation Units. The number of Accumulation Units to be
credited is determined by dividing the dollar amount allocated to the particular
Series by the price for that Series 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 or Participant Account. 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 Series. The price
of each Series is determined on each Valuation Date. The number of Accumulation
Units credited to a Contract shall not be changed by any subsequent change in
the price of the Series' Accumulation Unit, but the price of an Accumulation
Unit may vary from Valuation Date to Valuation Date depending upon the
investment experience of the Series and charges against the Series.
The price of each Series' unit initially was $10. The price of a Series on
any Valuation Date takes into account the following: (1) the investment
performance of the Series, which is based upon the investment performance of the
corresponding series of the SBL Fund, (2) any dividends or distributions paid by
the corresponding Fund series, (3) the charges, if any, that may be assessed by
SBL for taxes attributable to the operation of the Series, and (4) the Mortality
and Expense Risk Charge under the Contract.
CONTRACTOWNER INQUIRIES -- Contractowner inquiries and Purchase Payments should
be addressed to Security Benefit Life Insurance Company at its home office, P.O.
Box 750497, Topeka, Kansas 66675-0497, or made by calling (785) 431-3112 or
(800) 888-2461, extension 3112.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE -- No deduction for a sales charge is made from
the Purchase Payments for Variflex Contracts. However, except as set forth
below, a contingent deferred sales charge (which may also be referred to as a
withdrawal charge), may be assessed by SBL on a full or partial withdrawal from
the Contracts. During the first Contract Year, the withdrawal charge applies to
the total amount withdrawn to the extent that the amount withdrawn does not
exceed the amount of total Purchase Payments. Each Contract Year thereafter, a
withdrawal charge will not be assessed upon the first withdrawal in the Contract
Year of up to 10 percent of the Contract Value, as of the date of the withdrawal
(the "free withdrawal"). All or any part of the free withdrawal for that
Contract Year that is not applied to the first withdrawal is forfeited. The free
withdrawal is not available to Contractowners receiving "free systematic
withdrawals" as discussed under "Systematic Withdrawals," page 21.
The free withdrawal for certain Contracts funding charitable remainder trusts
is available immediately and allows free withdrawals to the extent that such
withdrawals do not in any Contract Year exceed 10 percent of the Contract Value
on the date of the first withdrawal in that Contract Year. For Group Unallocated
Contracts, after the first Contract Year the Contractowner shall be allowed one
free withdrawal per calendar month. (Any partial month immediately following a
Contract Year anniversary shall be treated as a calendar month for this
purpose.) The free withdrawal for such Contracts applies only to the first
withdrawal in any calendar month. In any Contract Year, the total free
withdrawals from Group Unallocated Contracts cannot exceed 10 percent of the
Contract Value as of the beginning of such Contract Year. All or any part of the
free withdrawal for a month that is not applied to the first withdrawal in that
month is forfeited and once the 10 percent level described in the previous
sentence is met, the right to any further monthly free withdrawals is forfeited
for the remainder of the Contract Year.
For purposes of determining the withdrawal charge, a withdrawal will be
attributed first to Purchase Payments and then will be attributed to earnings,
even if the Contractowner elects to redeem amounts allocated to an Account
(including the General Account) other than an Account to which Purchase Payments
were allocated. The amount of the charge will depend upon the Contract Year in
which the withdrawal is made.
The withdrawal charge applies to the portion of a withdrawal that exceeds any
free withdrawal amount to the extent that portion of the withdrawal does not
exceed total purchase payments, reduced by any previous withdrawals (not
including free withdrawals). The applicable withdrawal charges are as follows,
based on the Contract Year in which the withdrawal is made:
---------------------------------------------------
Withdrawal Charge
---------------------------------
Variflex Variflex Contracts-
Contract Year Contracts 401(k) and 408(k)
---------------------------------------------------
1 8% 8%
2 7% 8%
3 6% 8%
4 5% 8%
5 4% 7%
6 3% 6%
7 2% 5%
8 1% 4%
9 and later 0% 0%
---------------------------------------------------
In no event will the amount of any withdrawal charge, when added to any such
charge previously assessed against any amount withdrawn from the Contract,
exceed 8 percent of the Purchase Payments paid under a Contract. In addition, no
charge will be imposed (1) upon payment of the death benefit under the Contract;
(2) upon annuity payments under Annuity Options 1, 2, 3, 4, 10 or any similar
life contingent payment option that is mutually agreed upon between the
Contractowner and SBL; (3) upon withdrawals that qualify for the
hospital/nursing home waiver, discussed below; or (4) upon certain systematic
withdrawals. The contingent deferred sales charge will be deducted, to the
extent applicable, from withdrawals and annuity payments under Annuity Options 5
through 9 and other non-life contingent payment options, unless annuity payments
extend over a period of at least seven years (five years for Contracts issued
prior to January 4, 1999) and are made in substantially equal amounts.
Security Benefit pays sales commissions to broker-dealers and other expenses
associated with the promotion and sales of the Contracts. The withdrawal charge
is designed to reimburse Security Benefit for these costs, although it is
expected that actual expenses will be greater than the amount of the charge. To
the extent that all sales expenses are not recovered from the charge, such
expenses may be recovered from other charges, including amounts derived
indirectly from the charge for mortality and expense risk. Broker-dealers may
receive aggregate commissions of up to 6 percent of aggregate purchase payments
and an annual trail commission of up to 0.25 percent of Contract Value
considered in connection with the trail commission. 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.
HOSPITAL/NURSING HOME WAIVER. SBL will waive the withdrawal charge on any
full or partial withdrawal upon request for such a waiver, provided that the
Contractowner or Participant: (1) has been confined to a "hospital" or
"qualified skilled nursing facility" for at least 90 consecutive days prior to
the date of the withdrawal; (2) is so confined when SBL receives the withdrawal
request; and (3) became so confined after the date the Contract was issued. (See
"Definitions," page 4.) Any request for the hospital/nursing home waiver must be
accompanied by a properly completed claim form which may be obtained from SBL
and a written physician's statement acceptable to SBL certifying that such
confinement is a medical necessity and is due to illness or infirmity. SBL
reserves the right to have the Contractowner or Participant examined by a
physician of SBL's choice and at SBL's expense to determine if the Contractowner
or Participant is eligible for the hospital/nursing home waiver. The
hospital/nursing home waiver is not available in certain states pending
department of insurance approval. If the waiver is later approved by the
insurance department of a state, SBL intends to make the waiver available to all
Contractowners and Participants in that state at that time, but there can be no
assurance that the waiver will be approved. Prospective Contractowners should
contact their agent concerning availability of the waiver in their state.
OTHER CHARGES --
ADMINISTRATIVE FEE. SBL deducts an annual Administrative Fee of $30 from each
Contract and Participant Account on each Contract Anniversary (at calendar
year-end for Contracts issued prior to January 4, 1999) to cover expenses
relating to maintenance of the Contract or Participant Account. For Variflex
Contracts-401(k) and 408(k), the fee is the lesser of 2 percent of Contract
Value valued as of the calendar year-end or $30. SBL will waive the
Administrative Fee during a Contract Year for any Contract that has been in
force for eight Contract Years or more and the Contract Value of which is
$25,000 or more as of the date the fee is deducted. A pro rata Administrative
Fee is deducted upon: (1) a full withdrawal of Contract Value; (2) payment of a
death benefit; (3) the Annuity Commencement Date if one of Annuity Options 1
through 4, 9 or 10 is elected; and (4) a Contract has been in force for less
than a full Contract Year (or calendar year, if applicable).
STATE PREMIUM TAXES. An amount for state premium taxes (which presently range
from 0 percent to 3.5 percent) customarily will be deducted when assessed by a
given state. In most cases, if the Contract is to be annuitized, the dollar
amount of any such tax is assessed and deducted from the Contract Value at the
time annuity payments commence. In some states, premium taxes are assessed by
the state at the time Purchase Payments are made rather than at the time annuity
payments commence. In such states, SBL will pay the tax when assessed and will
deduct a pro rata share of the amount of any such tax from any partial
withdrawal and any remaining amount of tax from the Contract Value at the time
the contract is surrendered or annuity payments commence. SBL, however, reserves
the right to deduct the premium tax when assessed.
MORTALITY AND EXPENSE RISK CHARGE. SBL assumes a number of risks under the
Contracts. While Variable Annuity payments will vary in accordance with the
investment performance of the selected Series, the amount of such payments will
not be decreased because of adverse mortality experience of Annuitants as a
class or because of an increase in actual expenses of SBL over the expense
charges provided for in the Contracts. SBL assumes the risk that Annuitants as a
class may live longer than expected (necessitating a greater number of annuity
payments) and that fees deducted may not prove sufficient to cover its actual
costs. In assuming these risks, SBL agrees to continue annuity payments under
life-contingent annuity options, determined in accordance with the annuity
tables and other provisions of the Variflex Contracts, to the Annuitant or other
payee for as long as he or she may live. In addition, SBL is at risk for the
death benefits payable under the Variflex Contracts, to the extent that the
death benefit in such cases exceeds the Contract Value.
For SBL's contractual promise to accept these risks, a Mortality and Expense
Risk Charge will be assessed daily against each Series of Variflex based on the
value of its net assets, at an annual rate of 1.2 percent. This fee is assessed
during the Accumulation Period and the Annuity Period against life-contingent
and non-life-contingent options, even though certain of the covered risks are
not present in the latter case. SBL may ultimately realize a profit from this
fee to the extent it is not needed to cover mortality and administrative
expenses, but SBL may realize a loss to the extent the fee is not sufficient.
SBL may use any profit derived from this fee for any lawful purpose, including
distribution expenses.
CHARGES FOR TAXES. SBL may charge Variflex or the Series for the federal,
state, or local taxes incurred by SBL that are attributable to Variflex or the
Series, or to the operations of SBL 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 "Charge for SBL Taxes," page 27.
SEQUENTIAL DEDUCTION OF FEES -- When the Administrative Fee is deducted from a
Contract or Participant Account, it is deducted from the Contract Value in the
Variflex Series in the following order: Money Market Series, High Grade Income
Series, High Yield Series, Global Aggressive Bond Series, Growth-Income Series,
Equity Income Series, Managed Asset Allocation Series, Specialized Asset
Allocation Series, Growth Series, Value Series, Worldwide Equity Series, Social
Awareness Series, Emerging Growth Series, and Small Cap Series, and then from
the General Account. The value in each Variflex Series will be depleted before
the next Series is charged. This sequence is designed to charge first those
account assets which are more liquid or tend to experience less capital
fluctuation.
VARIATIONS IN CHARGES -- SBL may reduce or waive the amount of the contingent
deferred sales charge and administrative charge for a Contract where the
expenses associated with the sale of the Contract or the administrative and
maintenance costs associated with the Contract are reduced for reasons such as
the amount of the initial Purchase Payment, the amounts of projected Purchase
Payments, or that the Contract is sold in connection with a group or sponsored
arrangement. SBL may also reduce or waive the contingent deferred sales charge
and administrative charge on Contracts sold to directors, officers and bona fide
full-time employees of SBL and its affiliated companies; the spouses,
grandparents, parents, children, grandchildren and siblings of such directors,
officers and employees and their spouses; and salespersons (and their spouses
and minor children) who are licensed with SBL to sell variable annuities.
SBL will only reduce or waive such charges where expenses associated with the
sale of the Contract or the costs associated with administering and maintaining
the Contract are reduced. Additional information about reductions in charges is
contained in the Statement of Additional Information.
GUARANTEE OF CERTAIN CHARGES -- SBL guarantees that the charge for mortality and
expense risks will not exceed an annual rate of 1.2 percent of each Series'
average daily net assets and the Administrative Fee will not exceed $30. SBL may
increase expenses under Group Allocated Contracts under certain circumstances
for individuals who become Participants after the effective date of the
increase. See "Variflex Contracts," page 14.
SBL FUND EXPENSES -- Each Series of Variflex 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
Variflex Series, but are paid from the assets of the corresponding series of the
Fund. As a result, the Owner or Participant indirectly bears a pro rata portion
of such fees and expenses. The advisory fees and other expenses, if any, which
are more fully described in the SBL Fund prospectus, are not specified or fixed
under the terms of the Contract.
DISTRIBUTIONS UNDER THE CONTRACT
ACCUMULATION PERIOD --
FULL AND PARTIAL WITHDRAWALS. Contract Value may be withdrawn, in full or
partially, during the Accumulation Period, subject to the limitations discussed
herein. For Contracts issued prior to January 4, 1999, if any partial withdrawal
exceeds 90 percent of the then current Contract Value of a Participant Account
or an individual Contract, the then current full value may be paid and the
account closed or the Contract canceled, respectively. A request for a partial
withdrawal under a Contract should specify the allocation of that withdrawal, as
applicable, from the General Account and each Series of Variflex. In the absence
of specification, SBL will, without further instruction, take the amounts needed
to satisfy the withdrawal from the Series in the manner set forth in "Sequential
Deduction of Fees," above.
The proceeds received upon a full withdrawal will be equal to the Contract
Value as of the end of the Valuation Period during which a proper withdrawal
request is received by SBL at its home office, less any pro rata Administrative
Fee, any applicable contingent deferred sales charge, and any outstanding
Contract Debt. SBL requires the signature of all Owners on any request for
withdrawal, and a guarantee of all such signatures to effect the transfer or
exchange of 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. To the extent possible,
upon a partial withdrawal, any charges will be deducted from the value remaining
in the Contract after the Contractowner has received the amount requested.
Upon receipt of a request for a partial or full withdrawal of Contract Value
signed by the Contractowner or Participant, the applicable price will be that
determined as of the end of the Valuation Period that a proper written request
is received in SBL's home office.
A full or partial withdrawal may subject a Contractowner or Participant to
adverse tax consequences, including the 10 percent penalty tax that may be
imposed on withdrawals made prior to the Contractowner or Participant attaining
age 59 1/2. For a discussion of the tax consequences of withdrawals, see
"Constraints on Distributions from Certain Section 403(b) Annuity Contracts,"
page 24 and "Federal Tax Matters," page 27.
Payment of any withdrawal will be made in cash as soon as practicable, but in
no event later than seven days after a request is received in SBL's home office,
subject to postponement (i) for any period during which the New York Stock
Exchange is closed other than customary weekend and holiday closings or when
trading on such exchange is restricted, (ii) for any period during which an
emergency exists as a result of which disposal by Variflex of securities owned
by it is not reasonably practicable or it is not reasonably practicable for
Variflex fairly to determine the value of its net assets, or (iii) for such
other periods as the Securities and Exchange Commission may by order permit for
the protection of Contractowners and Participants. The Securities and Exchange
Commission shall, by rules and regulations, determine the conditions under which
trading shall be deemed to be restricted, and an emergency shall be deemed to
exist.
Except as specified with respect to partial withdrawals exceeding 90 percent,
no partial withdrawal will directly affect future requirements to make Purchase
Payments or the Annuity Commencement Date of the Contract or Participant
Account. Contracts have other provisions which encourage the Contractowner or
Participant to continue the Contract in times of emergency, including the right
to discontinue Purchase Payments for such periods as may be permitted by the
Plan and to resume payments at a later date without penalty.
SYSTEMATIC WITHDRAWALS. SBL currently offers a feature under which systematic
withdrawals may be elected, generally after the first Contract Year. Under this
feature, a Contractowner may elect to receive systematic withdrawals while the
Owner is living and before the Annuity Commencement Date by sending a properly
completed Systematic Withdrawal Request form to SBL at its home office. This
option may be elected after the first Contract Year, or if Contract Value is
$40,000 or more on the date the Systematic Withdrawal Request is received,
during the first Contract Year. A Contractowner may designate the systematic
withdrawal amount as a percentage of Contract Value allocated to the Series
and/or General Account, as a fixed period, as a specified dollar amount, as all
earnings in the Contract, or based upon the life expectancy of the Owner or the
Owner and a Beneficiary. A Contractowner also may designate the desired
frequency of the systematic withdrawals, which may be monthly, quarterly,
semiannually or annually. Systematic withdrawals may be stopped or modified upon
proper written request by the Contractowner received by SBL at its home office
at least 30 days in advance of the requested date of termination or
modification. A proper request must include the written consent of any effective
assignee or irrevocable Beneficiary, if applicable.
Each systematic withdrawal must be at least $25. Upon payment, 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.
Each systematic withdrawal will be effected as of the end of the Valuation
Period during which the withdrawal is scheduled. The deduction caused by the
systematic withdrawal, including any applicable withdrawal charge, will be
deducted from the Contractowner's Contract Value in the Series and the General
Account, as directed by the Contractowner. If a Contractowner does not specify
the allocation, the systematic withdrawal will be deducted from the Contract
Value in the Series and the General Account in the following order: Money Market
Series, High Grade Income Series, High Yield Series, Global Aggressive Bond
Series, Growth-Income Series, Equity Income Series, Managed Asset Allocation
Series, Specialized Asset Allocation Series, Growth Series, Value Series,
Worldwide Equity Series, Social Awareness Series, Emerging Growth Series, and
Small Cap Series and then from the General Account. The value of each Series
will be depleted before the next is charged.
Systematic withdrawals generally are subject to any applicable withdrawal
charges. Systematic withdrawals may be made without a withdrawal charge,
provided that the free withdrawal has not been exercised during the Contract
Year and to the extent systematic withdrawals do not exceed an amount determined
as follows: 10 percent of Contract Value on the Valuation Date the first
systematic withdrawal request is received during the Contract Year ("free
systematic withdrawals"). Systematic withdrawals that exceed the foregoing
amount are subject to any applicable withdrawal charge.
SBL may, at any time, discontinue, modify or suspend systematic withdrawals.
The tax consequences of a systematic withdrawal, including the 10 percent
penalty tax which may be imposed on withdrawals made prior to the Owner
attaining age 59 1/2, should be carefully considered. See "Federal Tax Matters,"
page 27.
FREE-LOOK RIGHT. A Contractowner or Participant may return a Contract within
the Free-Look Period, which is generally a ten-day period beginning when the
Contractowner or Participant receives the Contract. The returned Contract will
then be deemed void and SBL will refund any Purchase Payments allocated to the
General Account plus the Contract Value in the Variflex Series plus any charges
deducted from the Series and premium taxes, if any. SBL will refund Purchase
Payments allocated to the Series rather than Contract Value in those states and
under those circumstances which require it to do so.
DEATH BENEFIT DURING ACCUMULATION PERIOD. If the Owner (or for Contracts
issued prior to January 4, 1999, the Annuitant) under a Variflex Contract dies
during the Accumulation Period, SBL will pay the death benefit proceeds to the
Beneficiary upon receipt of due proof of the Owner's (or if applicable, the
Annuitant's) death and instructions regarding payment. The death benefit
proceeds will be the death benefit reduced by any outstanding Contract Debt and
any uncollected premium taxes. If the Owner (or if applicable, the Annuitant)
dies during the Accumulation Period and the age of the Owner (or Annuitant) was
75 or younger on the Contract Date, the amount of the death benefit will be the
greatest of: (1) the sum of all Purchase Payments made reduced by any partial
withdrawals; (2) the Contract Value on the date due proof of death and
instructions regarding payment are received by SBL at its home office; or (3)
the stepped-up death benefit. The stepped-up death benefit is: (a) the largest
death benefit on any Contract anniversary that is both an exact multiple of six
and occurs prior to the Owner (or Annuitant) reaching age 76, plus (b) any
Purchase Payments received since the applicable Contract anniversary, less (c)
any reductions caused by partial withdrawals since the applicable Contract
anniversary. For Contracts in effect for six Contract Years or more as of May 1,
1991, the Contract Value on the Contract anniversary immediately preceding May
1, 1991, will be used as the sixth Contract anniversary in determining the
stepped-up death benefit.
If the Owner (or if applicable, the Annuitant) dies during the Accumulation
Period and the age of the Owner (or Annuitant) was 76 or greater on the Contract
Date, the amount of the death benefit will be the greater of: (1) the sum of all
Purchase Payments made reduced by any partial withdrawals; or (2) the Contract
Value on the date due proof of death and instructions regarding payment are
received by SBL at its home office.
The death benefit for Contracts issued in Florida prior to January 4, 1999,
is as follows. If the Annuitant was 75 or younger on the date of death, the
death benefit is the greatest of (1) or (2) above or (3) the largest Contract
Value on any Contract anniversary that is an exact multiple of six, less any
partial withdrawals since that anniversary. If the Annuitant was 76 or older on
the date of death, the death benefit is the Contract Value on the date due proof
of death and instructions regarding payment are received, less any applicable
withdrawal charges. SBL currently waives any withdrawal charges applicable to
the death benefit. Beginning January 4, 1999, the maximum issue age for
Contracts issued in Florida is age 75.
In lieu of payment in one lump sum, an individual Contractowner or a
Participant may elect that the death benefit be applied under any one of the
optional annuity forms described under "Optional Annuity Forms," page 25. If the
Contractowner or Participant did not make such an election, the Beneficiary may
do so. The person selecting the optional annuity settlement also may designate
contingent Beneficiaries to receive any further amounts due, should the first
Beneficiary die before completion of the specified payments. The manner in which
annuity payments to the Beneficiary are determined and in which they may vary
from month to month are described under "Annuity Period," page 24.
Notwithstanding the foregoing, the death benefit under a Group Unallocated
Contract will be an amount not greater than that under the provisions of the
Plan to be paid in the case of the death of the Participant. The death benefit
for a Participant under such a Contract cannot exceed the present value of the
current accrued portion of the pension benefit payable at the normal retirement
date under the Plan for the Participant. If the Plan is being funded by more
than one method and/or contract, the maximum death benefit payable under a
Variflex Contract will be reduced. In this case of multiple funding, the maximum
death benefit will be reduced by multiplying it by the following ratio of "a"
divided by "b" where:
a. is the total value under the Variflex Contract.
b. is the total of the contract values and/or funds accumulated under all
funding methods and/or contracts.
The Contractowner must provide the information to calculate the death benefit
before it will be paid and the death benefit amount will be paid as a partial
surrender under the Group Unallocated Contract. The partial surrender will be
paid without imposition of a contingent deferred sales charge and will not be
considered a free withdrawal.
For Non-Qualified Contracts, the death benefit described herein will be paid
in the event of the death of the Contractowner to meet the requirements of
Section 72(s) of the Internal Revenue Code. The amount of the death benefit in
the event of the Contractowner's death will be based on the age of the
Contractowner on the Contract Date. For Non-Qualified Contracts, if the
surviving spouse of the deceased Contractowner is the sole Beneficiary, such
spouse may elect to continue the Contract in force until the earliest of the
surviving spouse's death or the Annuity Commencement Date or receive the death
benefit proceeds. For any Beneficiary other than a surviving spouse, only those
options may be chosen that provide for complete distribution of the
Contractowner's interest in the Contract within five years of the death of the
Owner. If the Beneficiary is a natural person, that person alternatively can
elect to begin receiving annuity payments within one year of the Contractowner's
death over a period not extending beyond the Beneficiary's life or life
expectancy. The Beneficiary of the death benefit payable upon the death of the
Contractowner prior to maturity is the same Beneficiary as that designated for
the Annuitant's death benefit, unless another Beneficiary is designated.
DEATH OF THE ANNUITANT. For Contracts issued on and after January 4, 1999, if
the Annuitant dies prior to the Annuity Commencement Date, and the Owner or
Participant is a natural person and is not the Annuitant, no death benefit
proceeds will be payable under the Contract. The Owner or Participant may name a
new Annuitant within 30 days of the Annuitant's death. If a new Annuitant is not
named, SBL will designate the Owner or Participant as Annuitant. On the death of
the Annuitant after the Annuity Commencement Date, any guaranteed payments
remaining unpaid will continue to be paid to the Beneficiary pursuant to the
Annuity Option in force at the date of death.
LOANS AVAILABLE FROM CERTAIN QUALIFIED CONTRACTS. For Contracts issued in
connection with a retirement plan that is qualified under Section 403(b) of the
Internal Revenue Code, the Owner or Participant may borrow money from his or her
Contract using the Contract Value as the only security for the loan. A loan may
be taken by submitting a written request to SBL while the Owner or Participant
is living and prior to the Annuity Commencement Date.
The minimum loan that may be taken is $1,000 ($500 for Contracts issued in
New Jersey). The maximum loan that can be taken is generally equal to the lesser
of: (1) $50,000 reduced by the excess of: (a) the highest outstanding loan
balance within the preceding 12-month period ending on the day before the date
the loan is made; over (b) the outstanding loan balance on the date the loan is
made; or (2) 50 percent of the Contract Value or $10,000, whichever is greater.
However, an amount may not be borrowed which exceeds the annuity's total value
minus the amount needed as security for the loan as described below. The
Internal Revenue Code requires aggregation of all loans made to an individual
employee under a single employer plan. However, because SBL has no information
concerning outstanding loans with other providers, SBL will use only information
available under annuity contracts issued by SBL. In addition, reference should
be made to the terms of the particular Qualified Plan for any additional loan
restrictions.
When an eligible Contractowner or Participant takes a loan, Contract Value in
an amount equal to the loan amount is transferred from the Variflex Series
and/or the General Account into an account called the "Loan Account." In
addition, 10 percent of the loaned amount will be held in the General Account as
security for the loan. Amounts allocated to the Loan Account earn 3 percent (3.5
percent for Contracts issued prior to January 4, 1999), the minimum rate of
interest guaranteed under the General Account. Amounts acting as security for
the loan in the General Account will earn the current rate of interest.
Interest will be charged for the loan and will accrue on the loan balance
from the effective date of any loan. The loan interest rate will be 5 percent
(5.50 percent for Contracts issued prior to January 4, 1999). Because the
Contract Value maintained in the Loan Account will always be equal in amount to
the outstanding loan balance, the net cost of a loan is 2 percent.
Loans must be repaid within five years, unless SBL determines that the loan
is to be used to acquire a principal residence of the Owner or Participant, in
which case the loan must be repaid within 30 years. Loan payments must be made
at least quarterly and may be prepaid at any time. Upon receipt of a loan
payment, SBL will transfer Contract Value from the Loan Account to the General
Account and/or the Series according to the Contractowner's or Participant's
current instructions with respect to Purchase Payments in an amount equal to the
amount by which the payment reduces the amount of the loan outstanding. The
amount held as security for the loan also will be reduced by each loan payment
so that the security is again equal to 10 percent of the outstanding loan
balance immediately after the loan payment is made. However, amounts which are
no longer needed as security for the loan will not automatically be allocated
back among the General Account and/or Series in accordance with the
Contractowner's or Participant's Purchase Payment instructions.
If any required loan payment is not made, within 30 days of the due date for
loans with a monthly repayment schedule or within 90 days of the due date for
loans with a quarterly repayment schedule, the TOTAL OUTSTANDING LOAN BALANCE
will be deemed to be in default for tax purposes, and 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, and no new loans will be allowed while a loan is in
default. Interest will continue to accrue on a loan in default and if such
interest is not paid by December 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 or Participant's
attained age 59 1/2. The Contract will be automatically terminated if the
outstanding loan balance on a loan in default equals or exceeds the amount for
which the Contract may be surrendered, plus any withdrawal charge. The proceeds
from the Contract will be used to repay the debt and any applicable withdrawal
charge. Because of the adverse tax consequences associated with defaulting on a
loan, a Contractowner or Participant should carefully consider his or her
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 General Account and the
amount of the outstanding loan balance is held in the Loan Account, the Owner or
Participant forgoes the investment experience of the Series and the current rate
of interest on the Loan Account. Outstanding Contract Debt will reduce the
amount of proceeds paid upon full withdrawal or upon payment of the death
benefit.
A Contractowner or Participant should consult with his or her tax adviser on
the effect of a loan.
The foregoing discussion of Contract loans is general and does not address
the tax consequences resulting from all situations in which a person may receive
a Contract loan. For plans that are subject to the Employee Retirement Income
Security Act ("ERISA"), loans may not be available or may be subject to certain
restrictions. A competent tax adviser should be consulted before obtaining a
Contract loan.
CONSTRAINTS ON DISTRIBUTIONS FROM CERTAIN SECTION 403(B) ANNUITY CONTRACTS.
The Internal Revenue Code imposes restrictions on certain distributions from
tax-sheltered annuity contracts meeting the requirements of Section 403(b).
Section 403(b) of the Code permits public school employees and employees of
certain types of charitable, educational and scientific organizations specified
in Section 501(c)(3) of the Code to purchase annuity contracts and, subject to
certain limitations, exclude the amount of purchase payments from gross income
for tax purposes. Section 403(b)(11) requires that distributions from Section
403(b) annuities that are attributable to employee contributions under a salary
reduction agreement not begin before the employee (i) reaches age 59 1/2, (ii)
separates from service, (iii) dies, (iv) becomes disabled or (v) incurs a
hardship. SBL reserves the right to require satisfactory written proof of the
events in items (i) through (v) prior to any distribution from the Contract.
Furthermore, distributions of income attributable to such contributions may not
be made on account of hardship. Hardship, for this purpose, is generally defined
as an immediate and heavy financial need, such as for paying medical expenses,
the purchase of a principal residence, or paying certain tuition expenses. The
Owner or Participant of a Variflex Contract purchased as a Section 403(b)
annuity contract will not, therefore, be entitled to exercise the right of
withdrawal, including systematic withdrawals, as described in this Prospectus,
in order to receive amounts attributable to elective contributions credited to
such Owner or Participant after December 31, 1988 under the Contract unless one
of the foregoing conditions has been satisfied. An Owner or Participant's value
in a Contract may be able to be transferred to certain other investment
alternatives meeting the requirements of Section 403(b) that are available under
an employer's Section 403(b) arrangement.
ANNUITY PERIOD --
ANNUITY PROVISIONS. Life-contingent Variable Annuity payments are determined
on the basis of (a) the mortality table (1983 Table a) specified in the contract
(except for single payment immediate contracts which contain no tables, but for
which annuity rates are available upon request) which generally reflects the age
and sex of the Annuitant and the type of annuity payment option selected, and
(b) the investment performance of Variflex.
Pursuant to the U.S. Supreme Court decision in Arizona Governing Committee
for Tax Deferral Annuity and Deferred Compensation Plans v. Norris, which held
that an employer subject to Title VI of the Civil Rights Act of 1964 may not
offer its employees the option of receiving retirement benefits calculated on
the basis of sex, Variflex Contracts for Participants in such Plans will offer
retirement benefits calculated only on a unisex basis. To the extent that future
legislation expands requirements for unisex rates, Variflex Contracts will
conform to such requirements.
ELECTION OF ANNUITY COMMENCEMENT DATE AND FORM OF ANNUITY.
NON-QUALIFIED CONTRACTS. The date on which annuity payments are to begin and
the form of option are elected by the Owner prior to the Annuity Commencement
Date. A Contract may not be purchased after age 90 and annuity payments must
begin no later than age 95, except that for Contracts purchased prior to January
4, 1999, payments must begin no later than age 90 and for Contracts purchased on
or before June 1, 1986, payments must begin no later than age 85. If no Annuity
Option and Annuity Commencement Date are selected, SBL reserves the right to
automatically begin payments at age 65 (or if age at purchase was over 55, then
10 years after issue) under Option 2 below, with 120 monthly payments certain.
The Annuity Commencement Date of individual and Group Allocated Contracts may
not be prior to the third Contract Anniversary, except for Single Payment
Immediate Annuity Contracts.
QUALIFIED CONTRACTS. For Qualified Contracts, the Annuity Commencement Date
may not be prior to the third Contract Anniversary, except for Single Payment
Immediate Annuity Contracts.
Contracts purchased in accordance with Plans qualifying under Section 401 or
403(a) of the Internal Revenue Code provide for annuity payments to begin on the
date and under the annuity options provided for in the Plan. Contracts
qualifying under Section 408 of the Code provide that annuity payments may not
commence without penalty until after the Participant attains age 59 1/2, but no
later than age 70 1/2, and that the optional annuity form selected must conform
to the distribution requirements of Section 408.
For contracts qualifying under Section 403(b) of the Code, the date on which
annuity payments are to begin and the form of option are elected in the
application. The option may be any one of Options 1 through 5 or Options 8
through 10 as shown below (provided that distributions under the option comply
with the minimum distribution rules of the Code), and the Annuity Commencement
Date must be no later than that allowed by law. Distributions from 403(b)
contracts must generally begin by the April 1 following the year in which the
Annuitant reaches age 70 1/2.
For Contracts qualifying under Section 403(c) or 457 of the Code, the date on
which annuity payments are to begin and the form of option are provided for in
the Plan agreement. Changes in such election of option may be made at any time
up to 30 days prior to the date on which annuity payments are to begin. Payments
under a Contract qualifying under Section 457 of the Code must comply with
minimum distribution rules generally applicable to qualified retirement plans.
If no election of an Annuity Commencement Date is made, SBL reserves the
right to automatically begin payments at age 65 (or if age at purchase was over
55, then 10 years after issue) under Option 2, with 120 monthly payments
certain.
ALLOCATION OF BENEFITS. For the Annuity Period, if no election is made to the
contrary, the amount of Contract Value allocated to each Series of Variflex
(held on the Annuity Commencement Date) will be applied to provide a Variable
Annuity based on that Series.
In lieu of this automatic allocation of annuity benefits, the Contractowner
or Participant may elect to transfer his or her Contract Value to any other
Series of Variflex. After the Annuity Commencement Date, further changes
affecting the allocation of Contract Value may be made only among the Variflex
Series as described under "Transfer of Contract Value," page 17. Each
Contractowner or Participant may transfer among Series as discussed above at any
time other than the 30-day period prior to the Annuity Commencement Date.
No election may be made for any individual unless such election would produce
a periodic payment of at least $50 ($25 for Contracts issued prior to January 4,
1999) to that individual and if a combination benefit is elected, no election
may be made unless the guaranteed and variable payments would each be at least
$25 for Contracts issued prior to January 4, 1999.
OPTIONAL ANNUITY FORMS. The following optional annuity forms are available.
Although Options 7 through 10 may not be described, or are numbered differently,
in some Contracts, SBL makes these Options available to all Owners and
Participants. Owners and Participants, however, should carefully review the
Annuity Options with their financial or tax advisers, and 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.
OPTION 1 -- LIFE INCOME. Monthly payments will be made during the lifetime of
the Annuitant with payments ceasing upon death, regardless of the number of
payments received. There is no minimum number of payments guaranteed under this
option and it is possible for an Annuitant to receive only one annuity payment
if the Annuitant's death occurred prior to the due date of the second annuity
payment, or only two if death occurred prior to the due date of the third
annuity payment, etc.
OPTION 2 -- LIFE INCOME WITH GUARANTEED PAYMENTS OF 5, 10, 15, OR 20 YEARS.
Monthly payments will be made during the lifetime of the Annuitant with payments
made for a stated period of not less than 5, 10, 15, or 20 years, as elected.
If, at the death of the Annuitant, payments have been made for less than the
stated period, annuity payments will be continued during the remainder of such
period to the Beneficiary.
OPTION 3 -- UNIT REFUND LIFE INCOME. Monthly payments will be made during the
lifetime of the Annuitant. If, at the death of the Annuitant, payments have been
made for less than the number of months determined by dividing the amount
applied under this Option by the first monthly payment, the remainder of such
payments will continue to the Beneficiary. The Option guarantees that the
annuity units but not necessarily the dollar value applied under a variable
payout will be repaid to the Annuitant or his or her Beneficiary.
OPTION 4 -- JOINT AND SURVIVOR ANNUITY. Monthly payments will be made during
the lifetime of the Annuitant and another named Annuitant and thereafter during
the lifetime of the survivor, ceasing upon the death of the survivor. There is
no minimum number of payments guaranteed under this option and it is possible
for only one annuity payment to be made if both Annuitants under the Option died
prior to the due date of the second annuity payment, or only two payments if
both died prior to the due date of the third annuity payment, etc.
OPTION 5 -- INSTALLMENT PAYMENTS FOR A FIXED PERIOD. Monthly payments will be
made for a specified number of years. The amount of each payment will be
determined by multiplying (a) the price for the day the payment is made, times
(b) the result of dividing the number of Accumulation Units applied under this
Option by the number of remaining monthly payments. If at the death of the
Annuitant, payments have been made for less than the specified number of years,
the remaining unpaid payments will be paid to the Beneficiary.
OPTION 6 -- INSTALLMENT PAYMENTS FOR A FIXED AMOUNT. Equal monthly payments
of the amount selected by the Owner will be made until Contract Value is
exhausted. The final payment will be the amount remaining with SBL.
OPTION 7 -- DEPOSIT OPTION. The amount due under the Contract on the Annuity
Commencement Date may be left on deposit with SBL for placement in its General
Account with interest at the rate of not less than 2 percent per year. Interest
will be paid annually, semiannually, quarterly or monthly as elected. This
option may not be available under certain Qualified Contracts.
OPTION 8 -- IRC AGE RECALCULATION. Monthly payments will be made until the
amount applied to this Option, adjusted daily by the investment results, is
exhausted. The amount of monthly payments will be based upon the Annuitant's
life expectancy, or the joint life expectancies of the Annuitant and his or her
Beneficiary, at the Annuitant's attained age (and the Beneficiary's attained or
adjusted age, if applicable) each year as computed by reference to actuarial
tables prescribed by the Treasury Secretary.
OPTION 9 -- PERIOD CERTAIN. Periodic annuity payments will be made for a
stated period which may be five, ten, fifteen or twenty years, as elected. If
the Annuitant dies prior to the end of the period, the remaining payments will
be made to the Designated Beneficiary.
OPTION 10 -- JOINT AND CONTINGENT SURVIVOR OPTION. Periodic annuity payments
will be made during the life of the primary Annuitant. Upon the death of the
primary Annuitant, payments will be made to the contingent Annuitant during his
or her life. If the contingent Annuitant is not living upon the death of the
primary Annuitant, no payments will be made to the contingent Annuitant. It is
possible under this Option for only one annuity payment to be made if both
Annuitants died prior to the second annuity payment due date, two if both died
prior to the third annuity payment due date, etc. AS IN THE CASE OF OPTIONS 1
AND 4, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION.
PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
The contingent deferred sales charge, where applicable, will be deducted from
annuity payments under Annuity Options 5 through 9 and other non-life contingent
payment options mutually agreed upon with SBL, except that the contingent
deferred sales charge is waived if annuity payments extend over a period of at
least seven years (five years for Contracts issued prior to January 4, 1999) and
are made in substantially equal amounts.
OTHER ANNUITY FORMS. Provision may be made for annuity payments in any
reasonable arrangement mutually agreed upon.
If the Beneficiary dies while receiving payments certain under Option 2, 3,
5, 6 or 8 above, the present value may be paid in a lump sum to the estate of
the Beneficiary.
VALUE OF VARIABLE ANNUITY PAYMENTS: ASSUMED INVESTMENT RATES. The annuity
tables in the Contract which are used to calculate the annuity payments are
based on an "assumed investment rate" of 3.5 percent. If the actual investment
performance of the particular Series selected is such that the net investment
return to Variflex is 3.5 percent per annum, payments will remain constant. If
the net investment return exceeds 3.5 percent, the payments will increase and if
the return is less than 3.5 percent, the payments will decline. Use of a higher
investment rate assumption would mean a higher initial payment but a more slowly
rising series of subsequent payments in a rising market (or a more rapidly
falling series of subsequent payments in a declining market). A lower assumption
would have the opposite effect. Generally, one might expect an equity investment
to experience more significant market fluctuations than a debt investment, and a
longer term debt investment to experience more market fluctuation than a shorter
term debt investment. Thus, while there can be no certainty, more fluctuation
might be expected in the value of Growth, Growth-Income, Worldwide Equity,
Emerging Growth, Global Aggressive Bond, Equity Income, Specialized Asset
Allocation, Managed Asset Allocation, High Yield, Social Awareness, Value and
Small Cap Series. The High Grade Income Series should experience a lesser amount
of fluctuation, and the Money Market Series should experience the least
fluctuation.
The payment amount will be greater for shorter guaranteed periods than for
longer guaranteed periods, and greater for life annuities than for joint and
survivor annuities, because the life annuities are expected to be paid for a
shorter period.
At the election of the Contractowner, where state law permits, a Single
Payment Immediate Annuity Contract with annuity payments commencing immediately
may provide annuity benefits based on an assumed investment rate other than 3.5
percent. The annuity rates for Single Payment Immediate Annuity Contracts are
available upon request from the home office.
The method of computing the Variable Annuity payment is described in more
detail in the Statement of Additional Information.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM. Plans for
Participants in the Texas Optional Retirement Program contain restrictions
required under the Texas Education Code. In accordance with those restrictions,
a Participant in such a Plan will not be permitted to make withdrawals prior to
such Participant's retirement, death or termination of employment in a Texas
public institution of higher education.
FEDERAL TAX MATTERS
INTRODUCTION -- The Contract described in this Prospectus is designed for use by
individuals in retirement plans which may or may not be Qualified Plans under
the provisions of the Internal Revenue Code ("Code"). The ultimate effect of
federal income taxes on the amounts held under a Contract, on annuity payments,
and on the economic benefits to the Owner or 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 SBL's understanding of the
present federal income tax laws as currently interpreted by the Internal Revenue
Service ("IRS"), and is not intended as tax advice. No representation is made
regarding the likelihood of continuation of the present federal income tax laws
or of the current interpretations by the IRS or the courts. Future legislation
may affect annuity contracts adversely. Moreover, no attempt has been made to
consider any applicable state or other laws. Because of the inherent complexity
of the tax laws and the fact that tax results will vary according to the
particular circumstances of the individual involved and, if applicable, the
Qualified Plan, a person should consult with a qualified tax adviser regarding
the purchase of a Contract, the selection of an Annuity Option under a Contract,
the receipt of annuity payments under a Contract or any other transaction
involving a Contract. SBL DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS
OF, OR TAX CONSEQUENCES ARISING FROM, ANY CONTRACT OR ANY TRANSACTION INVOLVING
THE CONTRACTS.
TAX STATUS OF SBL AND THE SEPARATE ACCOUNT --
GENERAL. SBL intends to be taxed as a life insurance company under Part I,
Subchapter L of the Code. Because the operations of the Separate Account form a
part of SBL, SBL will be responsible for any federal income taxes that become
payable with respect to the income of the Separate Account and its Series.
CHARGE FOR SBL TAXES. A charge may be made for any federal taxes incurred by
SBL that are attributable to the Separate Account, the Series or to the
operations of SBL with respect to the Contracts or attributable to payments,
premiums, or acquisition costs under the Contracts. SBL will review the question
of a charge to the Separate Account, the Series or the Contracts for SBL's
federal taxes periodically. Charges may become necessary if, among other
reasons, the tax treatment of SBL or of income and expenses under the Contracts
is ultimately determined to be other than what SBL currently believes it to be,
if there are changes made in the federal income tax treatment of variable
annuities at the insurance company level, or if there is a change in SBL's tax
status.
DIVERSIFICATION STANDARDS. Each series of 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 of the Fund, intends to comply with the
diversification requirements of Section 817(h).
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contractowner's gross income. The IRS has stated in published rulings that a
variable contractowner will be considered the owner of separate account assets
if the contractowner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the policyowner), rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example, the Contractowner or Participant has additional flexibility in
allocating purchase payments and Contract Values. These differences could result
in a Contractowner or Participant being treated as the owner of a pro rata
portion of the assets of the Separate Account. In addition, SBL does not know
what standards will be set forth, if any, in the regulations or rulings which
the Treasury Department has stated it expects to issue. SBL therefore reserves
the right to modify the Contract, as it deems appropriate, to attempt to prevent
a Contractowner or 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
Fund will not have to change any series' investment objective or investment
policies.
INCOME TAXATION OF ANNUITIES IN GENERAL --
NON-QUALIFIED CONTRACTS. Section 72 of the Code governs the taxation of
annuities. In general, a Contractowner or Participant is not taxed on increases
in value under an annuity contract until some form of distribution is made under
the contract. However, the increase in value may be subject to tax currently
under certain circumstances. See "Contracts Owned by Non-Natural Persons," page
29 and "Diversification Standards," page 27. Withholding of federal income taxes
on all distributions may be required unless a recipient who is eligible elects
not to have any amounts withheld and properly notifies SBL of that election.
SURRENDERS OR WITHDRAWALS PRIOR TO THE ANNUITY COMMENCEMENT DATE. Code
Section 72 provides that amounts received upon a total or partial withdrawal
(including systematic withdrawals) from a Contract prior to the Annuity
Commencement Date generally will be treated as gross income to the extent that
the cash value of the Contract immediately before the withdrawal (determined
without regard to any surrender charge in the case of a partial withdrawal)
exceeds the "investment in the contract." The "investment in the contract" is
that portion, if any, of purchase payments paid under a Contract less any
distributions received previously under the Contract that are excluded from the
recipient's gross income. The taxable portion is taxed at ordinary income tax
rates. For purposes of this rule, a pledge or assignment of a contract is
treated as a payment received on account of a partial withdrawal of a Contract.
SURRENDERS OR WITHDRAWALS ON OR AFTER THE ANNUITY COMMENCEMENT DATE. Upon a
complete surrender, the receipt is taxable to the extent that the cash value of
the Contract exceeds the investment in the Contract. The taxable portion of such
payments will be taxed at ordinary income tax rates.
For fixed annuity payments, the taxable portion of each payment generally is
determined by using a formula known as the "exclusion ratio," which establishes
the ratio that the investment in the Contract bears to the total expected amount
of annuity payments for the term of the Contract. That ratio is then applied to
each payment to determine the non-taxable portion of the payment. The remaining
portion of each payment is taxed at ordinary income rates. For variable annuity
payments, the taxable portion of each payment is determined by using a formula
known as the "excludable amount," which establishes the non-taxable portion of
each payment. The non-taxable portion is a fixed dollar amount for each payment,
determined by dividing the investment in the Contract by the number of payments
to be made. The remainder of each variable annuity payment is taxable. Once the
excludable portion of annuity payments to date equals the investment in the
Contract, the balance of the annuity payments will be fully taxable.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS. With respect to amounts
withdrawn or distributed before the taxpayer reaches age 59 1/2, a penalty tax
is imposed equal to 10 percent of the portion of such amount which is includable
in gross income. However, the penalty tax is not applicable to withdrawals: (i)
made on or after the death of the owner (or where the owner is not an
individual, the death of the "primary annuitant," who is defined as the
individual the events in whose life are of primary importance in affecting the
timing and amount of the payout under the Contract); (ii) attributable to the
taxpayer's becoming totally disabled within the meaning of Code Section
72(m)(7); (iii) which are part of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancies) of
the taxpayer and his or her beneficiary; (iv) from certain qualified plans; (v)
under a so-called qualified funding asset (as defined in Code Section 130(d));
(vi) under an immediate annuity contract; or (vii) which are purchased by an
employer on termination of certain types of qualified plans and which are held
by the employer until the employee separates from service.
If the penalty tax does not apply to a surrender or withdrawal as a result of
the application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the first
year in which the modification occurs will be increased by an amount (determined
by the regulations) equal to the tax that would have been imposed but for item
(iii) above, plus interest for the deferral period, if the modification takes
place (a) before the close of the period which is five years from the date of
the first payment and after the taxpayer attains age 59 1/2, or (b) before the
taxpayer reaches age 59 1/2.
ADDITIONAL CONSIDERATIONS.
DISTRIBUTION-AT-DEATH RULES. In order to be treated as an annuity contract, a
contract must provide the following two distribution rules: (a) if any owner
dies on or after the Annuity Commencement Date, and before the entire interest
in the Contract has been distributed, the remainder of the owner's interest will
be distributed at least as quickly as the method in effect on the owner's death;
and (b) if any owner dies before the Annuity Commencement Date, the entire
interest in the Contract must generally be distributed within five years after
the date of death, or, if payable to a designated beneficiary, must be
annuitized over the life of that designated beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, commencing within one
year after the date of death of the owner. If the sole designated beneficiary is
the spouse of the deceased owner, the Contract (together with the deferral of
tax on the accrued and future income thereunder) may be continued in the name of
the spouse as owner.
Generally, for purposes of determining when distributions must begin under
the foregoing rules, where an owner is not an individual, the primary annuitant
is considered the owner. In that case, a change in the primary annuitant will be
treated as the death of the owner. Finally, in the case of joint owners, the
distribution-at-death rules will be applied by treating the death of the first
owner as the one to be taken into account in determining generally when
distributions must commence, unless the sole Beneficiary is the deceased owner's
spouse.
GIFT OF ANNUITY CONTRACTS. Generally, gifts of non-tax qualified Contracts
prior to the Annuity Commencement Date will trigger tax on the gain on the
Contract, with the donee getting a stepped-up basis for the amount included in
the donor's income. The 10 percent penalty tax and gift tax also may be
applicable. This provision does not apply to transfers between spouses or
incident to a divorce.
CONTRACTS OWNED BY NON-NATURAL PERSONS. If the Contract is held by a
non-natural person (for example, a corporation) the income on that Contract
(generally the increase in net surrender value less the purchase payments) is
includable in taxable income each year. The rule does not apply where the
Contract is acquired by the estate of a decedent, where the Contract is held by
certain types of retirement plans, where the Contract is a qualified funding
asset for structured settlements, where the Contract is purchased on behalf of
an employee upon termination of a qualified plan, and in the case of an
immediate annuity. An annuity contract held by a trust or other entity as agent
for a natural person is considered held by a natural person.
MULTIPLE CONTRACT RULE. For purposes of determining the amount of any
distribution under Code Section 72(e) (amounts not received as annuities) that
is includable in gross income, all Non-Qualified annuity contracts issued by the
same insurer to the same Contractowner during any calendar year are to be
aggregated and treated as one contract. Thus, any amount received under any such
contract prior to the contract's Annuity Commencement Date, such as a partial
surrender, dividend, or loan, will be taxable (and possibly subject to the 10
percent penalty tax) to the extent of the combined income in all such contracts.
In addition, the Treasury Department has broad regulatory authority in
applying this provision to prevent avoidance of the purposes of this rule. It is
possible that, under this authority, the Treasury Department may apply this rule
to amounts that are paid as annuities (on and after the Annuity Commencement
Date) under annuity contracts issued by the same company to the same owner
during any calendar year. In this case, annuity payments could be fully taxable
(and possibly subject to the 10 percent penalty tax) to the extent of the
combined income in all such contracts and regardless of whether any amount would
otherwise have been excluded from income because of the "exclusion ratio" under
the contract.
POSSIBLE TAX CHANGES. In recent years, legislation has been proposed that
would have adversely modified the federal taxation of certain annuities, and
President Clinton's fiscal-year 1999 Budget proposal includes a provision that,
adopted, would impose new taxes on owners of variable annuities. There is always
the possibility that the tax treatment of annuities could change by legislation
or other means (such as IRS regulations, revenue rulings, and judicial
decisions). Moreover, although unlikely, it is also possible that any
legislative change could be retroactive (that is, effective prior to the date of
such change).
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT. A transfer of ownership of
a Contract, the designation of an Annuitant, Payee or other Beneficiary who is
not also the Owner, the selection of certain Annuity Commencement Dates or the
exchange of a Contract may result in certain tax consequences to the Owner that
are not discussed herein. An Owner contemplating any such transfer, assignment,
selection or exchange should contact a competent tax adviser with respect to the
potential effects of such a transaction.
QUALIFIED CONTRACTS. The Contract may be used with Qualified Plans that meet
the requirements of Section 401, 403(b), 408 or 457 of the Code. The tax rules
applicable to participants in such Qualified Plans vary according to the type of
plan and the terms and conditions of the plan itself. No attempt is made herein
to provide more than general information about the use of the Contract with the
various types of Qualified Plans. These Qualified Plans may permit the purchase
of the Contracts to accumulate retirement savings under the plans. Adverse tax
or other legal consequences to the plan, to the participant or to both may
result if this Contract is assigned or transferred to any individual as a means
to provide benefit payments, unless the plan complies with all legal
requirements applicable to such benefits prior to transfer of the Contract.
Contractowners, 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, SBL may accept beneficiary designations and
payment instructions under the terms of the Contract without regard to any
spousal consents that may be required under the Employee Retirement Income
Security Act of 1974 (ERISA). Consequently, a Contractowner's Beneficiary
designation or elected payment option may not be enforceable.
The amounts that may be contributed to Qualified Plans are subject to
limitations that vary depending on the type of Plan. In addition, early
distributions from most Qualified Plans may be subject to penalty taxes, or in
the case of distributions of amounts contributed under salary reduction
agreements, could cause the Plan to be disqualified. Furthermore, distributions
from most Qualified Plans are subject to certain minimum distribution rules.
Failure to comply with these rules could result in disqualification of the Plan
or subject the Owner or Annuitant to penalty taxes. As a result, the minimum
distribution rules may limit the availability of certain Annuity Options to
certain Annuitants and their Beneficiaries. These requirements may not be
incorporated into SBL's Contract administration procedures. Owners, Participants
and Beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts comply with
applicable law.
The following are brief descriptions of the various types of Qualified Plans
and the use of the Contract therewith:
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 or her entire investment, the unrecovered
investment will be allowed as a deduction on the employee's final return. If the
employee made no contributions that were taxable when made, the full amount of
each annuity payment is taxable as ordinary income.
A "lump-sum" distribution from a retirement plan qualified under Code Section
401 is eligible for favorable tax treatment. A "lump-sum" distribution means the
distribution within one taxable year of the balance to the credit of the
employee which becomes payable: (i) on account of the employee's death, (ii)
after the employee attains age 59 1/2, (iii) on account of the employee's
termination of employment (in the case of a common law employee only) or (iv)
after the employee has become disabled (in the case of a self-employed person
only).
As a general rule, a lump-sum distribution is fully taxable as ordinary
income except for an amount equal to the employee's investment, if any, which is
recovered tax-free. However, special five-year averaging may be available,
provided the employee has reached age 59 1/2 and has not previously elected to
use income averaging. (Special five-year averaging has been repealed for
distributions after 1999.) Special ten-year averaging and capital-gains
treatment may be available to an employee who reached age 50 before 1986.
Distributions from a retirement plan qualified under Code Section 401 may be
eligible for a tax-free rollover to either another qualified retirement plan or
to an individual retirement account or annuity (IRA). See "Rollovers" on page
33.
SECTION 403(B). Code Section 403(b) permits public school employees and
employees of certain types of charitable, educational and scientific
organizations specified in Section 501(c)(3) of the Code to purchase annuity
contracts, and, subject to certain limitations, to exclude the amount of
purchase payments from gross income for tax purposes. The Contract may be
purchased in connection with a Section 403(b) annuity program.
Section 403(b) annuities must generally be provided under a plan which meets
certain minimum participation, coverage, and nondiscrimination requirements.
Section 403(b) annuities are generally subject to minimum distribution
requirements similar to those applicable to retirement plans qualified under
Section 401 of the Code. See "Section 401" on page 30.
A Section 403(b) annuity contract may be purchased with employer
contributions, employee contributions or a combination of both. An employee's
rights under a Section 403(b) contract must be nonforfeitable. Numerous
limitations apply to the amount of contributions that may be made to a Section
403(b) annuity contract. The applicable limit will depend upon, among other
things, whether the annuity contract is purchased with employer or employee
contributions.
Amounts used to purchase Section 403(b) annuities generally are excludable
from the taxable income of the employee. As a result, all distributions from
such annuities are normally taxable in full as ordinary income to the employee.
A Section 403(b) annuity contract must prohibit the distribution of employee
contributions (including earnings thereon) until the employee: (i) attains age
59 1/2, (ii) terminates employment; (iii) dies; (iv) becomes disabled; or (v)
incurs a financial hardship (earnings may not be distributed in the event of
hardship).
Distributions from a Section 403(b) annuity contract may be eligible for a
tax-free rollover to either another Section 403(b) annuity contract or to an
individual retirement account or annuity (IRA). See "Rollovers" on page 33.
SECTION 408 AND SECTION 408A. INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of
the Code permits eligible individuals to establish individual retirement
programs through the purchase of Individual Retirement Annuities ("traditional
IRAs"). The Contract may be purchased as an IRA. The IRAs described in this
paragraph are called "traditional IRAs" to distinguish them from the new "Roth
IRAs" which became available in 1998. Roth IRAs are described below.
IRAs are subject to limitations on the amount that may be contributed, the
persons who may be eligible and on the time when distributions must commence.
Depending upon the circumstances of the individual, contributions to a
traditional IRA may be made on a deductible or non-deductible basis. IRAs may
not be transferred, sold, assigned, discounted or pledged as collateral for a
loan or other obligation. The annual premium for an IRA may not be fixed and may
not exceed $2,000 (except in the case of a rollover contribution). Any refund of
premium must be applied to the payment of future premiums or the purchase of
additional benefits.
Sale of the Contract for use with IRAs may be subject to special requirements
imposed by the Internal Revenue Service. Purchasers of the Contract for such
purposes will be provided with such supplementary information as may be required
by the Internal Revenue Service or other appropriate agency, and will have the
right to revoke the Contract under certain circumstances.
In general, traditional IRAs are subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code; however, the required beginning date for traditional IRAs is generally
the date that the Contractowner reaches age 70 1/2--the Contractowner's
retirement date, if any, will not affect his or her required beginning date. See
"Section 401" on page 30. Distributions from IRAs are generally taxed under Code
Section 72. Under these rules, a portion of each distribution may be excludable
from income. The amount excludable from the individual's income is the amount of
the distribution which bears the same ratio as the individual's nondeductible
contributions bears to the expected return under the IRA.
Distributions from a traditional IRA may be eligible for a tax-free rollover
to another traditional IRA. In certain cases, a distribution from a traditional
IRA may be eligible to be rolled over to a retirement plan qualified under Code
Section 401(a) or a Section 403(b) annuity contract. See "Rollovers" on page 33.
The Internal Revenue Service has not reviewed the Contract for qualification
as an IRA, and has not addressed in a ruling of general applicability whether a
death benefit provision such as the provision in the Contract comports with IRA
qualification requirements.
SIMPLE INDIVIDUAL RETIREMENT ANNUITIES. The Small Business Job Protection Act
of 1996 created a new retirement plan, the Savings Incentive Match Plan for
Employees of Small Employers (SIMPLE plans). Depending upon the type of SIMPLE
plan, employers may deposit the plan contributions into a single trust or into
SIMPLE Individual Retirement Annuities ("SIMPLE IRA") established by each
participant.
Information on eligibility to participate in an employer's SIMPLE Plan will
be included in the summary description of the plan furnished to the participants
by their employer. Contributions to a SIMPLE IRA may be either salary deferral
contributions or employer contributions. On a pre-tax basis, participants may
elect to contribute (through salary deferrals) up to $6,000 of their
compensation to a SIMPLE IRA. In addition, employers are required to make either
(1) a dollar-for-dollar matching contribution or (2) a nonelective contribution
to their account each year. Finally, participants may roll over or transfer
contributions to their SIMPLE IRA from another SIMPLE IRA.
In general, SIMPLE IRAs are subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code; however, the required beginning date for SIMPLE IRAs is generally the
date that the Contractowner reaches age 70 1/2--the Contractowner's retirement
date will not affect his or her required beginning date. Amounts used to
purchase SIMPLE IRAs generally are excludable from the taxable income of the
participant. As a result, all distributions from such annuities are normally
taxable in full as ordinary income to the participant.
Distributions from a SIMPLE IRA may be eligible for a tax-free rollover or
transfer to another SIMPLE IRA. However, a distribution from a SIMPLE IRA is
never eligible to be rolled over to a retirement plan qualified under Code
Section 401(a) or a Section 403(b) annuity contract.
The Internal Revenue Service has not reviewed the Contract for qualification
as a SIMPLE IRA, and has not addressed in a ruling of general applicability
whether the death benefit provision such as the provision in the Contract
comports with SIMPLE IRA qualification requirements.
ROTH IRAS. Section 408A of the Code permits eligible individuals to establish
a Roth IRA, a new type of IRA which became available in 1998. The Contract may
be purchased as a Roth IRA. Contributions to a Roth IRA are not deductible, but
withdrawals that meet certain requirements are not subject to federal income
tax. Sale of the contract for use with Roth IRAs may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the Contract
for such purposes will be provided with such supplementary information as may be
required by the Internal Revenue Service or other appropriate agency, and will
have the right to revoke the Contract under certain circumstances. Unlike a
traditional IRA, Roth IRAs are not subject to minimum required distribution
rules during the Contractowner's life time. Generally, however, the amount in a
remaining Roth IRA must be distributed by the end of the fifth year after the
death of the Contractowner.
The Internal Revenue Service has not reviewed the Contract for qualification
as a Roth IRA and has not addressed in a ruling of general applicability whether
a death benefit provision such as the provision in the Contract comports with
Roth IRA qualification requirements.
SECTION 457. Section 457 of the Code permits employees of state and local
governments and units and agencies of state and local governments as well as
tax-exempt organizations described in Section 501(c)(3) of the Code to defer a
portion of their compensation without paying current taxes if those employees
are participants in an eligible deferred compensation plan. A Section 457 plan
may permit the purchase of Contracts to provide benefits thereunder.
Although a participant under a Section 457 plan may be permitted to direct or
choose methods of investment in the case of a tax-exempt employer sponsor, all
amounts deferred under the plan, and any income thereon, remain solely the
property of the employer and subject to the claims of its general creditors,
until paid to the participant. The assets of a Section 457 plan maintained by a
state or local government employer must be held in trust (or custodial account
or an annuity contract) for the exclusive benefit of plan participants, who will
be responsible for taxes upon distribution. A Section 457 plan must not permit
the distribution of a participant's benefits until the participant attains age
70 1/2, terminates employment or incurs an "unforeseeable emergency."
Section 457 plans are generally subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code. See "Section 401" on page 30. Since under a Section 457 plan,
contributions are generally excludable from the taxable income of the employee,
the full amount received will usually be taxable as ordinary income when annuity
payments commence or other distributions are made. Distributions from a Section
457 plan are not eligible for tax-free rollovers.
ROLLOVERS. A "rollover" is the tax-free transfer of a distribution from one
Qualified Plan to another. Distributions which are rolled over are not included
in the employee's gross income until some future time.
If any portion of the balance to the credit of an employee in a Section 401
plan or Section 403(b) plan is paid to the employee in an "eligible rollover
distribution" and the employee transfers any portion of the amount received to
an "eligible retirement plan," then the amount so transferred is not includable
in income. An "eligible rollover distribution" generally means any distribution
that is not one of a series of periodic payments made for the life of the
distributee or for a specified period of at least ten years. In addition, a
required minimum distribution will not qualify as an eligible rollover
distribution. A rollover must be completed within 60 days after receipt of the
distribution.
In the case of a Section 401 plan, an "eligible retirement plan" will be
another retirement plan qualified under Code Section 401 or an individual
retirement account or annuity under Code Section 408. With respect to a Section
403(b) plan, an "eligible retirement plan" will be another Section 403(b) plan
or an individual retirement account or annuity described in Code Section 408.
A Section 401 plan and a Section 403(b) plan must generally provide a
participant receiving an eligible rollover distribution, the option to have the
distribution transferred directly to another eligible retirement plan.
The owner of an IRA may make a tax-free rollover of any portion of the IRA.
The rollover must be completed within 60 days of the distribution and generally
may only be made to another IRA. However, an individual may receive a
distribution from his or her IRA and within 60 days roll it over into a
retirement plan qualified under Code Section 401(a) if all of the funds in the
IRA are attributable to a rollover from a Section 401(a) plan. Similarly, a
distribution from an IRA may be rolled over to a Section 403(b) plan only if all
of the funds in the IRA are attributable to a rollover from a Section 403(b)
annuity.
Beginning in 1998 the owner of a traditional IRA may convert the traditional
IRA into a Roth IRA under certain circumstances. The conversion of a traditional
IRA to a Roth IRA will subject the amount of the converted traditional IRA to
federal income tax. If a traditional IRA is converted to a Roth IRA, the taxable
amount in the owner's traditional IRA will be considered taxable income for
federal income tax purposes for the year of the conversion. Generally, all
amounts in a traditional IRA are taxable except for the owner's prior
non-deductible contributions to the traditional IRA.
TAX PENALTIES. PREMATURE DISTRIBUTION TAX. Distributions from a Qualified
Plan before the participant reaches age 59 1/2 are generally subject to an
additional tax equal to 10 percent of the taxable portion of the distribution.
The 10 percent penalty tax does not apply to distributions: (i) made on or after
the death of the employee; (ii) attributable to the employee's disability; (iii)
which are part of a series of substantially equal periodic payments made (at
least annually) for the life (or life expectancy) of the employee or the joint
lives (or joint life expectancies) of the employee and a designated beneficiary
and which begin after the employee terminates employment; (iv) made to an
employee after termination of employment after reaching age 55; (v) made to pay
for certain medical expenses; (vi) that are exempt withdrawals of an excess
contribution; (vii) that are rolled over or transferred in accordance with Code
requirements; or (viii) that are transferred pursuant to a decree of divorce or
separate maintenance or written instrument incident to such a decree.
The exception to the 10 percent penalty tax described in item (iv) above is
not applicable to IRAs. However, distributions from an IRA to unemployed
individuals can be made without application of the 10 percent penalty tax to pay
health insurance premiums in certain cases. In addition, the 10 percent penalty
tax is generally not applicable to distributions from a Section 457 plan.
Starting January 1, 1998, there are two additional exceptions to the 10 percent
penalty tax on withdrawals from IRAs before age 59 1/2: withdrawals made to pay
"qualified" higher education expenses and withdrawals made to pay certain
"eligible first-time home buyer expenses."
MINIMUM DISTRIBUTION TAX. If the amount distributed from a Qualified Plan is
less than the minimum required distribution for the year, the participant is
subject to a 50 percent tax on the amount that was not properly distributed.
EXCESS DISTRIBUTION/ACCUMULATION TAX. The penalty tax of 15 percent which was
imposed (in addition to any ordinary income tax) on large plan distributions and
the "excess retirement accumulations" of an individual has been repealed
effective January 1, 1997.
WITHHOLDING. Periodic distributions (e.g., annuities and installment
payments) from a Qualified Plan that will last for a period of ten or more years
are generally subject to voluntary income tax withholding. The amount withheld
on such periodic distributions is determined at the rate applicable to wages.
The recipient of a periodic distribution may generally elect not to have
withholding apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than ten years) from a Qualified Plan (other than IRAs and
Section 457 plans) are generally subject to mandatory 20 percent income tax
withholding. However, no withholding is imposed if the distribution is
transferred directly to another eligible Qualified Plan. Nonperiodic
distributions from an IRA are subject to income tax withholding at a flat 10
percent rate. The recipient of such a distribution may elect not to have
withholding apply.
The above description of the federal income tax consequences of the different
types of Qualified Plans which may be funded by the Contract offered by this
Prospectus is only a brief summary and is not intended as tax advice. The rules
governing the provisions of Qualified Plans are extremely complex and often
difficult to comprehend. Anything less than full compliance with the applicable
rules, all of which are subject to change, may have adverse tax consequences. A
prospective Contractowner considering adoption of a Qualified Plan and purchase
of a Contract in connection therewith should first consult a qualified and
competent tax adviser, with regard to the suitability of the Contract as an
investment vehicle for the Qualified Plan.
DISTRIBUTOR OF THE CONTRACTS
Subject to arrangements with SBL, the Contracts will be sold by independent
broker/dealers who are members of the National Association of Securities
Dealers, Inc. and who become licensed to sell life insurance and variable
annuities for SBL, and by national banks. Variflex Contracts may also be sold by
individuals who in addition to being licensed as agents for SBL, are associated
persons of Security Distributors, Inc., which is registered as a broker/dealer
under the Securities Exchange Act of 1934.
SBL anticipates it will pay the selling broker-dealer or any national bank
that sells Variflex a sales commission or fee of not more than 6 percent of all
Purchase Payments. In addition, under certain circumstances, SBL may pay certain
broker-dealers persistency bonuses which will take into account, among other
things, the length of time and the amount of Purchase Payments held under
Variflex Contracts invested in certain Series of Variflex. A persistency bonus
is not anticipated to exceed .25 percent, on an annual basis, of the Contract
Values considered in connection with the bonus.
OTHER INFORMATION
VOTING OF SBL FUND SHARES -- SBL is the legal owner of the shares of SBL Fund
held by the Series of the Separate Account. SBL will exercise voting rights
attributable to the shares of each series of the Fund held in the Series 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, SBL will exercise these voting rights based on
instructions received from persons having the voting interest in corresponding
Series of the Separate Account. However, if the 1940 Act or any regulations
thereunder should be amended, or if the present interpretation thereof should
change, and as a result SBL determines that it is permitted to vote the shares
of the 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 SBL is determined by
dividing a Contractowner's Contract Value in a Series on a particular date by
the net asset value per share of that Series as of the same date. Fractional
votes will be counted. The number of votes as to which voting instructions may
be given will be determined as of the date coincident with the date established
by the Fund for determining shareholders eligible to vote at the meeting of the
Fund. If required by the SEC, SBL reserves the right to determine in a different
fashion the voting rights attributable to the shares of the Fund. Voting
instructions may be cast in person or by proxy.
Voting rights attributable to the Contractowner's Contract Value in a Series
for which no timely voting instructions are received will be voted by SBL in the
same proportion as the voting instructions that are received in a timely manner
for all Contracts participating in that Series. SBL will also exercise the
voting rights from assets in each Series 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 Series
and generally will exercise voting rights attributable to shares of the series
of the 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.
SUBSTITUTED SECURITIES -- SBL 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
Series or that the Separate Account or any Series may purchase. If shares of any
or all of the series of the Fund should no longer be available for investment,
or if, in the judgment of SBL management, further investment in shares of any or
all of the series of the Fund should become inappropriate in view of the
purposes of the Contract, SBL may substitute shares of another series of the
Fund or of a different fund for shares already purchased, or to be purchased in
the future under the Contract. SBL may also purchase, through the Series, 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 Series or the Separate Account, SBL 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.
SBL also reserves the right to establish additional Series of the Separate
Account that would invest in a new series of the Fund or in shares of another
investment company, a series thereof, or other suitable investment vehicle. New
Series may be established in the sole discretion of SBL, and any new Series will
be made available to existing Owners on a basis to be determined by SBL. SBL may
also eliminate or combine one or more Series if, in its sole discretion,
marketing, tax, or investment conditions so warrant.
Subject to compliance with applicable law, SBL may transfer assets to its
General Account. SBL also reserves the right, subject to any required regulatory
approvals, to transfer assets of any Series of the Separate Account to another
separate account or Series.
In the event of any such substitution or change, SBL 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 deemed by SBL 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; it 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 SBL or an affiliate thereof. Subject to
compliance with applicable law, SBL also may combine one or more Series and may
establish a committee, board, or other group to manage one or more aspects of
the operation of the Separate Account.
REPORTS TO OWNERS -- A statement will be sent annually to each Contractowner or
Participant 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 General
Account and the Series and any other information required by law. Confirmations
will also be sent out upon purchase payments, transfers, loans, loan repayments,
and full and partial withdrawals. Certain transactions may be confirmed on a
quarterly basis. These transactions include purchases made automatically from
the Owner's bank account or pursuant to a salary reduction agreement, transfers
under the Dollar Cost Averaging and Asset Reallocation Options, systematic
withdrawals and annuity payments.
Each Contractowner will also receive an annual and semiannual report
containing financial statements for the Fund, which will include a list of the
portfolio securities of the Fund, as required by the 1940 Act, and/or such other
reports as may be required by federal securities laws.
PERFORMANCE INFORMATION -- Performance information for the Series of Variflex
may appear in advertisements, sales literature or reports to Contractowners or
prospective purchasers. All Series except the Money Market Series may advertise
"average annual total return" and "total return." The Money Market Series may
advertise "yield" and "effective yield." Each of these figures is based upon
historical results and is not necessarily representative of the future
performance of the Series.
Average annual total return and total return calculations measure both the
net income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the investments underlying the Series for the
designated period. Average annual total return will be quoted for periods of 1,
5 and 10 years (up to the life of the Series) ending with a recent calendar
quarter. Average annual total return figures are annualized and, therefore,
represent the average annual percentage change in the value of an investment in
a Series over the designated period. Total return figures are not annualized and
represent the actual percentage change over the designated period. Yield is a
measure of the net dividend and interest income earned over a specific seven-day
period for the Money Market Series expressed as a percentage of the offering
price of the Series' units. Yield is an annualized figure, which means that it
is assumed that the Series generates the same level of net income over a one
year period. The effective yield for the Money Market Series is calculated
similarly but includes the effect of assumed compounding calculated under rules
prescribed by the Securities and Exchange Commission. The Money Market Series'
effective yield will be slightly higher than its yield due to this compounding
effect.
Purchase payments are allocated to the Series without deduction of a sales
charge. The Series' performance figures and prices will fluctuate. An investor
may withdraw Contract Value at the price next determined after receipt of the
withdrawal request, which price may be more or less than the investor's original
cost. The performance figures include the deduction of all expenses and fees,
including a prorated portion of the Administrative Fee, except total return
figures, which do not reflect deduction of the Administrative Fee. Redemptions
within the first eight years after purchase may be subject to a contingent
deferred sales charge that ranges from 8 percent the first year to 0 percent
after eight years. Yield, effective yield and total return figures do not
include the effect of any contingent deferred sales charge that may be imposed
upon the withdrawal of Contract Value, and thus may be higher than if such
charges were deducted. Average annual total return figures include the effect of
the applicable sales charge that may be imposed at the end of the designated
period.
Although the Contracts were not available for purchase until 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 total return for periods beginning prior to the
availability of Variflex contracts that incorporate the performance of the SBL
Fund.
From time to time, performance information for a Series may be compared to
the Standard & Poor's 500 Stock Index, the Dow Jones Industrial Average or other
unmanaged indices; other variable annuity separate accounts or other investment
products tracked by Lipper Analytical Services, Morningstar and the Variable
Annuity Research and Data Service ("VARDS(R)"), widely used independent research
firms that rank variable annuities and in the case of Lipper and Morningstar,
other investment companies by overall performance, and investment objectives, or
tracked by other ratings services, companies, publications, or persons who rank
separate accounts or other investment products on overall performance or other
criteria; and the Consumer Price Index (measure for inflation). Additional
information concerning the Series' performance appears in the Statement of
Additional Information.
THE GENERAL ACCOUNT
In addition to the fourteen Series of Variflex, the Contracts provide a
General Account option for Qualified and Non-Qualified Contracts during the
Accumulation Period and a Guaranteed Annuity Option for Qualified and
Non-Qualified Contracts during the Annuity Period. Allocations and transfers to
the General Account become part of SBL's General Account, which supports its
insurance and annuity obligations.
Interests in the General Account are not registered under the Securities Act
of 1933 ("1933 Act") nor is the General Account registered as an investment
company under the Investment Company Act of 1940 ("1940 Act"). Accordingly,
neither the General Account nor any interests therein are generally subject to
the 1933 and 1940 Acts and SBL has been advised that the staff of the Securities
and Exchange Commission has not reviewed the disclosure in this Prospectus which
relates to the General Account or Guaranteed Annuity. Disclosures regarding the
General Account and Guaranteed Annuities, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
Amounts allocated to the General Account for a Guaranteed Annuity are
guaranteed with a fixed rate of interest declared in advance. Excess interest
for a period is declared at the discretion of SBL. Pursuant to Qualified and
Non-Qualified Contracts, amounts may be allocated to the General Account in
addition to, or in lieu of, allocation to Series of Variflex, subject to the
same $25 minimum allocation as applicable in the case of Variflex. Amounts
allocated to the General Account or for a Guaranteed Annuity are also subject to
the annual Administrative Fee. (See "Administrative Fees," page 19).
Annuity options available for Variable Annuities (see "Optional Annuity
Forms," page 25) are also available for Guaranteed Annuities as well as for
combined Variable and Guaranteed Annuities.
Any amounts allocated to the General Account during the Accumulation Period
will automatically be allocated to provide a Guaranteed Annuity unless an
alternative allocation to one or more Series of Variflex is made at least 30
days prior to the Annuity Commencement Date. The right to transfer among Series
during the Annuity Period (see "Allocation of Benefits," page 25) does not
include the right to convert Variable Annuity Units of any Series into
Guaranteed Annuity Units, nor Guaranteed Annuity Units into any Variable Annuity
Unit.
During the Accumulation Period, a Contractowner or Participant in a Qualified
or Non-Qualified Contract may elect, during any Contract Year, to transfer
amounts from the General Account to the various Series of Variflex. The amount
which may be transferred during any Contract Year is the greatest of (1) $5,000,
(2) 1/3 of the Contract Value in the General Account at the time of the first
transfer in the Contract Year, or (3) 120 percent of the dollar amount
transferred from the General Account in the prior Contract Year. SBL reserves
the right for a period of time to allow transfers from the General Account in
amounts that exceed the limits set forth above ("Waiver Period"). In any
Contract Year following such a Waiver Period, the total dollar amount that may
be transferred from the General Account is the greatest of: (1) above; (2)
above; or (3) 120 percent of the lesser of: (i) the dollar amount transferred
from the General Account in the prior Contract Year; or (ii) the maximum dollar
amount that would have been allowed in the prior Contract Year under the
transfer provisions above absent the Waiver Period.
The frequency of transfers from the General Account is not currently limited;
however, SBL reserves the right to limit them to no more frequently than 14 per
Contract Year. All of the Contract Value of the General Account may be
transferred at the final conversion prior to the Annuity Commencement Date.
FINANCIAL STATEMENTS -- Consolidated financial statements of Security Benefit
Life Insurance Company and Subsidiaries at December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, and the financial
statements of the Separate Account at December 31, 1997 and for each of the two
years in the period ended December 31, 1997 are contained in the Statement of
Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this Prospectus. The following is a
Table of Contents for that Statement:
TABLE OF CONTENTS --
Page
THE CONTRACT............................................................... 1
Valuation of Accumulation Units.......................................... 1
Computation of Variable Annuity Payments................................. 1
Illustration............................................................. 2
Variations in Charges.................................................... 3
Termination of Contract.................................................. 3
Group Contracts.......................................................... 3
PERFORMANCE INFORMATION.................................................... 3
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX QUALIFIED RETIREMENT PLANS...... 5
Section 401.............................................................. 5
Section 403(b)........................................................... 6
Section 408.............................................................. 6
Section 457.............................................................. 7
ASSIGNMENT................................................................. 7
DISTRIBUTION OF THE CONTRACTS.............................................. 7
SAFEKEEPING OF VARIFLEX ACCOUNT ASSETS..................................... 7
STATE REGULATION........................................................... 7
RECORDS AND REPORTS........................................................ 7
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
VARIABLE ANNUITY CONTRACTS
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 4, 1999
RELATING TO THE PROSPECTUS DATED JANUARY 4, 1999,
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME
(785) 431-3112
(800) 888-2461
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies
700 SW Harrison, Topeka, Kansas 66636-0001
VARIFLEX
VARIABLE ANNUITY CONTRACTS
STATEMENT OF
ADDITIONAL INFORMATION
January 4, 1999
This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Variflex Variable Annuity Contracts (the
"Contract") offered by Security Benefit Life Insurance Company. You may obtain a
copy of the Prospectus dated January 4, 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............................................................... 1
Valuation of Accumulation Units.......................................... 1
Computation of Variable Annuity Payments................................. 1
Illustration............................................................. 1
Variations in Charges.................................................... 2
Termination of Contract.................................................. 2
Group Contracts.......................................................... 2
Performance Information.................................................... 2
Limits on Purchase Payments Paid Under Tax-Qualified Retirement Plans...... 5
Section 401.............................................................. 5
Section 403(b)........................................................... 5
Section 408.............................................................. 5
Section 457.............................................................. 5
Assignment................................................................. 6
Distribution of the Contracts.............................................. 6
Safekeeping of Variflex Account Assets..................................... 6
State Regulation........................................................... 6
Legal Matters.............................................................. 6
Experts.................................................................... 6
Other Information.......................................................... 6
Financial Statements....................................................... 6
<PAGE>
THE CONTRACT
The following provides additional information about the Contracts which
supplements the description in the Prospectus and which may be of interest to
some Contractowners.
VALUATION OF ACCUMULATION UNITS -- The objective of a Variable Annuity is to
provide level payments during periods when the market is relatively stable and
to reflect as increased payments only the excess investment results following
from inflation or an increase in productivity.
The Accumulation Unit value for a Series on any day is equal to (a) divided
by (b), where (a) is the net asset value of the underlying Fund shares of the
Series less the Actuarial Risk Fee and any deduction for provision for federal
income taxes and (b) is the number of Accumulation Units of that Series at the
beginning of that day.
The value of a contract on any Valuation Date during the Accumulation Period
can be determined by subtracting (b) from (a), where (a) is determined by
multiplying the total number of Accumulation Units of each Series within
Variflex credited to the Contract by the applicable Accumulation Unit value of
each such Series, and (b) is any pro rata Annual Administrative Fee. During the
Accumulation Period, all cash dividends and other cash distributions made to
each Variflex Series will be reinvested in additional shares of the appropriate
Series of SBL Fund.
COMPUTATION OF VARIABLE ANNUITY PAYMENTS --
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 as of the close of
the Annuity Commencement Date (or for Contracts issued prior to January 4, 1999,
as of the end of the second day preceding the Annuity Commencement Date). For
Annuities under these options, any pro rata Administrative Fee is assessed prior
to the first annuity payment under such option. 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) as of the close of the Annuity Commencement Date to
determine the number of Annuity Units represented by the first payment. This
number of Annuity Units remains fixed during the Annuity Period, unless Annuity
Units are transferred among Series. The dollar amount of the annuity payment is
determined by multiplying the fixed number of Annuity Units by the Annuity Unit
value for the day the payment is due.
ANNUITY UNIT. The value of an Annuity Unit originally was set at $1.00. The
value of an Annuity Unit for any subsequent day is determined by multiplying the
value for the immediately preceding day by the product of (a) the Net Investment
Factor for the day for which the value is being calculated and (b) .9999057540,
the interest neutralization factor (the factor required to neutralize the
assumed investment rate of 3 1/2% built into the annuity rates specified in the
Contract). The Net Investment Factor of any Series is determined by subtracting
0.00003307502, the Actuarial Risk Fee, from the ratio of (a) to (b) where (a) is
the value of a share of the underlying series of SBL Fund at the end of the day
plus the value of any dividends or other distributions attributable to such
share during a day and minus any applicable income tax liabilities as determined
by SBL, and (b) is the value of a share of the underlying series of SBL Fund at
the end of the previous day.
ILLUSTRATION -- The Annuity Unit and the Annuity payment may be illustrated by
the following hypothetical example: Assume an annuitant at the Annuity
Commencement Date has credited to his or her Contract 4,000 Accumulation Units
and that the value of an Accumulation Unit was $5.13, producing a total value
for the Contract of $20,520. Any premium taxes due would reduce the total value
of the Contract that could be applied towards the Annuity; however, in this
illustration it is assumed no premium taxes are applicable. Assume also the
Annuitant elects an option for which the annuity table specified in the Contract
indicates the first monthly payment is $6.40 per $1,000 of value applied; the
resulting first monthly payment would be 20.520 multiplied by $6.40 or $131.33.
Assume the Annuity Unit value for the day on which the first payment was due
was $1.0589108749. When this is divided into the first monthly payment the
number of Annuity Units represented by that payment is 124.0236578101. The value
of the same number of Annuity Units will be paid in each subsequent month
Assume further the value of a Series share was $5.15 at the end of the day
preceding the date of the second annuity payment, that it was $5.17 at the end
of the due date of the second Annuity payment and that there was no cash income
during such second day. The Net Investment Factor for that second day was
1.0038504201 ($5.17 divided by $5.15 minus .00003307502). Multiplying this
factor by 0.9999057540 to neutralize the assumed investment rate (the 3 1/2% per
annum built into the number of Annuity Units as determined above) produces a
result of 1.0037558112. The Annuity Unit value for the valuation period is
therefore 1.0639727137 which is 1.0037558112 x $1.0599915854 (the value at the
beginning of the day).
The current monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value or 124.0236578101 times
$1.0639727137 which produces a current monthly payment of $131.96.
VARIATIONS IN CHARGES -- The contingent deferred sales charges or other charges
or deductions may be reduced or waived for sales of Variflex Contracts where the
expenses associated with the sale of the Contract or the administrative and
maintenance costs associated with the Contract are reduced for reasons such as
the amount of the initial Purchase Payment, the amounts of projected Purchase
Payments, or that the Contract is sold in connection with a group or sponsored
arrangement. SBL will only reduce or waive such charges where expenses
associated with the sale of the Contract or the costs associated with
administering and maintaining the Contract are reduced.
Directors, officers and bona fide full-time employees of Security Management
Company, LLC, SBL, Security Benefit Group, Inc., SBL Fund, or Security
Distributors, Inc.; the spouses, grandparents, parents, children, grandchildren
and siblings of such directors, officers and employees and their spouses; any
trust, pension, profit-sharing or other benefit plan established by any of the
foregoing corporations for persons described above; and salespersons (and their
spouses and minor children) who are licensed with SBL to sell variable annuities
are permitted to purchase contracts with substantial reduction of the contingent
deferred sales charges or other administrative charges or deductions. Contracts
so purchased are for investment purposes only and may not be resold except to
SBL. No sales commission will be paid on such contracts.
TERMINATION OF CONTRACT -- SBL reserves the right to terminate any Group
Unallocated Contract under the following circumstances: (1) the contract value
is less than $10,000 after the end of the first contract year, or $20,000 after
the end of the third contract year; (2) the Plan pursuant to which the contract
is issued is terminated for any reason or becomes disqualified under Section 401
or 403 of the Internal Revenue Code; or (3) for any reason after the eighth
policy year. For Contracts issued on or after January 4, 1999, SBL also reserves
the right to terminate an individual Contract or Participant Account if Account
Value is less then $2,000 at any time after the first Contract Year and prior to
the Annuity Commencement Date. For Contracts issued prior to January 4, 1999,
SBL may terminate a Contract or Participant Account if the following conditions
exist during the accumulation period: (1) no purchase payments have been
received by SBL for the Contract or Account for two full years; (2) the combined
value of the Contract or Account in the Separate and General Accounts is less
than $2,000; and (3) the value of the Contract or Account which is allocated to
the General Account, projected to the maturity date, would produce installments
of less than $20 per month using contractual guarantees. Termination of a
Variflex Contract may have adverse tax consequences. (See the Prospectus at
"Full and Partial Withdrawals," page 19, "Constraints on Distributions from
Certain Section 403(b) Annuity Contracts," page 23, and "Federal Tax Matters,"
page 26.)
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 Account, each
participant receives a certificate which summarizes the provisions of the master
group contract and evidences participation in the Plan established by the
organization. A Group Unallocated Contract is a contract between the
Contractowner and the insurance company and individual accounts are not
established for Participants.
PERFORMANCE INFORMATION
Performance information for the Series of the Variflex Separate Account may
appear in advertisements, sales literature or reports to Contractowners or
prospective purchasers. Performance information in advertisements or sales
literature may be expressed as yield and effective yield of the Money Market
Series, and yield, average annual total return and total return of all Series
except the Money Market Series. Current yield for the Money Market Series will
be based on the change in the value of a hypothetical investment (exclusive of
capital changes and income other than investment income) over a particular
seven-day period, less a hypothetical charge reflecting deductions from
Contractowner accounts during the period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of 1%.
"Effective yield" for the Money Market Series assumes that all dividends
received during an annual period have been reinvested. Calculation of "effective
yield" begins with the same "base period return" used in the calculation of
yield, which is then annualized to reflect weekly compounding pursuant to the
following formula:
Effective Yield = ((Base Period Return + 1)^365/7) - 1
For the seven-day period ended December 31, 1997, the yield of the Money
Market Series was 3.00% and the effective yield of the Series was 3.04%.
Quotations of yield for the Series, other than the Money Market Series, will
be based on all investment income per Accumulation Unit earned during a
particular 30-day period, less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income by
the value of the Accumulation Unit on the last day of the period, according to
the following formula:
YIELD = 2[(a-b + 1)^6 - 1]
---
cd
where a = net investment income earned during the period by the Series of the
Fund attributable to shares owned by the Series,
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, 1997, the yield for the High Grade
Series was 6.19%.
Quotations of average annual total return for any Series of the Separate
Account will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Series over certain periods that will
include periods of 1, 5 and 10 years (up to the life of the Series), calculated
pursuant to the following formula:
P(1 + T)^n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). Such total
return figures reflect the deduction of the applicable contingent deferred sales
charge and other recurring Variflex fees and charges on an annual basis,
including charges for 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 or the annual administrative fee.
For the 1-, 5- and 10-year periods ended December 31, 1997, the average
annual total return for each Series was the following:
<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 Series.......................... 16.16% 14.83% 13.82% 27.16% 17.86% 15.81%
Growth-Income Series................... 13.99% 11.00% 12.77% 24.99% 14.26% 14.67%
Worldwide Equity Series................ -5.83% 9.09% -0.78% 5.17% 12.02% 8.75%
High Grade Income Series............... -2.29% 1.40% 4.40% 8.71% 5.04% 6.83%
Emerging Growth Series................. 7.52% 13.52% 12.81%(1) 18.52% 11.43% 15.56%(1)
Global Aggressive Bond Series.......... -6.12% 3.67%(2) --- 4.17% 9.02%(2) ---
Specialized Asset Allocation Series.... -5.50% 4.76%(2) --- 4.83% 9.32%(2) ---
Managed Asset Allocation Series........ 6.02% 8.36%(2) --- 17.02% 13.56%(2) ---
Equity Income Series................... 15.92% 19.48%(2) --- 26.92% 24.16%(2) ---
High Yield Series...................... 0.88% 5.20%(3) --- 11.88% 13.03%(3) ---
Social Awareness Series................ 10.17% 10.51% 10.79%(4) 21.17% 13.54% 13.09%(4)
Value Series........................... 19.30%(5) --- --- 29.29%(5) --- ---
Small Cap Series....................... -12.60%(6) --- --- -4.40%(6) --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
1. From October 1, 1992 (date of inception) to December 31, 1997.
2. From June 1, 1995 (date of inception) to December 31, 1997.
3. From August 5, 1996 (date of inception) to December 31, 1997.
4. From May 1, 1991 (date of inception) to December 31, 1997.
5. From May 1, 1997 (date of inception) to December 31, 1997.
6. From October 15, 1997 (date of inception) to December 31, 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Quotations of total return for any Series of the Separate Account will be
based on a hypothetical investment in an Account over a certain period and will
be computed by subtracting the initial value of the investment from the ending
value and dividing the remainder by the initial value of the investment. Such
quotations of total return will reflect the deduction of all applicable charges
to the contract and the separate account (on an annual basis) except the Annual
Administrative fee and the applicable contingent deferred sales charge.
For the fiscal years ended 1997 through 1987, the total return for each
Series was the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Series.................... 27.16% 21.22% 35.11% (2.82)% 12.35% 9.83% 34.45% (10.90)% 33.31% 8.80%
Growth-Income Series............. 24.99% 16.80% 28.52% (4.14)% 8.30% 4.99% 36.16% (5.60)% 26.86% 17.89%
Money Market Series.............. 3.89% 3.81% 4.14% 2.49% 1.35% 2.01% 4.39% 6.56% 7.74% 5.89%
Worldwide Equity Series.......... 5.17% 15.99% 9.55% 1.51% 30.06% (3.78)% 3.01%(1) --- --- ---
High Grade Income Series......... 8.71% (1.90)% 17.17% (8.04)% 11.28% 6.16% 15.57% 5.40% 10.54% 5.91%
Emerging Growth Series........... 18.52% 16.62% 18.02% (6.23)% 12.30% 24.40%(2) --- --- --- ---
Global Aggressive Bond Series.... 4.17% 12.25% 6.90%(3) --- --- --- --- --- --- ---
Specialized Asset
Allocation Series.............. 4.83% 12.88% 6.40%(3) --- --- --- --- --- ---
Managed Asset Allocation Series.. 17.02% 11.35% 6.60%(3) --- --- --- --- --- --- ---
Equity Income Series............. 26.92% 18.59% 16.20%(3) --- --- --- --- --- --- ---
High Yield Series................ 11.88% 6.10%(4) --- --- --- --- --- --- --- ---
Social Awareness Series.......... 21.17% 17.41% 26.25% (4.96)% 10.55% 15.00% 4.70%(5) --- --- ---
Value Series..................... 29.29%(5) --- --- --- --- --- --- --- --- ---
Small Cap Series................. (4.40)%(6) --- --- --- --- --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
1. On May 1, 1991 the Worldwide Equity Series changed its investment objective
from high current income to long-term capital growth through investment in
common stocks and equivalents of companies domiciled in foreign countries
and the United States. The performance information set forth above reflects
performance after the change in investment objective.
2. From October 1, 1992 to December 31, 1992.
3. From June 1, 1995 to December 31, 1995.
4. From August 5, 1996 to December 31, 1996.
5. From May 1, 1991 to December 31, 1991.
6. From May 1, 1997 to December 31, 1997.
7. From October 15, 1997 to December 31, 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Although Variflex Contracts were not available for purchase until June 8,
1984, the underlying investment vehicle of Variflex, the SBL Fund, has been in
existence since May 26, 1977. Performance information for Variflex may also
include quotations of average annual total return and total return for periods,
beginning prior to the availability of Variflex contracts, that incorporate the
performance of the SBL Fund. 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 Series may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare a Series' results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of variable annuity separate accounts or
other investment products tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or tracked
by The Variable Annuity Research and Data Service ("VARDS"), an independent
service which monitors and ranks the performance of variable annuity issuers by
investment objectives on an industry-wide basis or tracked by other services,
companies, publications, or persons who rank such investment companies on
overall performance or other criteria; and (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an investment in
the Variable Account. Unmanaged indices may assume the reinvestment of dividends
but generally do not reflect deductions for administrative and management costs
and expenses. Such investment company rating services include the following:
Lipper Analytical Services; VARDS; Morningstar, Inc.; Investment Company Data;
Schabacker Investment Management; Wiesenberger Investment Companies Service;
Computer Directions Advisory (CDA); and Johnson's Charts.
Performance information for any Series reflects only the performance of a
hypothetical investment in the Series during the particular time period on which
the calculations are based. Performance information should be considered in
light of the investment objectives and policies, characteristics and quality of
the portfolio of the Series of the Fund in which the Series of the Separate
Account invests, and the market conditions during the given time period, and
should not be considered as a representation of what may be achieved in the
future.
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS
SECTION 401 -- The applicable annual limits on purchase payments for a Contract
used in connection with a retirement plan that is qualified under Section 401 of
the Internal Revenue Code depend upon the type of plan. Total purchase payments
on behalf of a participant to all defined contribution plans maintained by an
employer are limited under Section 415(c) of the Internal Revenue Code to the
lesser of (a) $30,000, or (b) 25% of the participant's annual compensation.
Salary reduction contributions to a cash-or-deferred arrangement under a profit
sharing plan are subject to additional annual limits. Contributions to a defined
benefit pension plan are actuarially determined based upon the amount of
benefits the participants will receive under the plan formula. The maximum
annual benefit any individual may receive under an employer's defined benefit
plan is limited under Section 415(b) of the Internal Revenue Code. The limits
determined under Section 415(b) and (c) of the Internal Revenue Code are further
reduced for an individual who participates in a defined contribution plan and a
defined benefit plan maintained by the same employer. Rollover contributions are
not subject to the annual limitations described above.
SECTION 403(B) -- Contributions to 403(b) annuities are excludable from an
employee's gross income if they do not exceed the smallest of the limits
calculated under Sections 402(g), 403(b)(2), and 415 of the Code. The applicable
limit will depend upon whether the annuities are purchased with employer or
employee contributions. Rollover contributions are not subject to these annual
limits.
Section 402(g) generally limits an employee's salary reduction contributions
to a 403(b) annuity to $10,000 a year. The $10,000 limit will be reduced by
salary reduction contributions to other types of retirement plans. An employee
with at least 15 years of service for a "qualified employer" (i.e., an
educational organization, hospital, home health service agency, health and
welfare service agency, church or convention or association of churches)
generally may exceed the $10,000 limit by $3,000 per year, subject to an
aggregate limit of $15,000 for all years.
Section 403(b)(2) provides an overall limit on employer and employee salary
reduction contributions that may be made to a 403(b) annuity. Section 403(b)(2)
generally provides that the maximum amount of contributions an employee may
exclude from his or her gross income in any taxable year is equal to the excess,
if any, of:
(i) the amount determined by multiplying 20% of the employee's includable
compensation by the number of his or her years of service with the
employer, over
(ii) the total amount contributed to retirement plans sponsored by the
employer, that were excludable from his gross income in prior years.
Section 415(c) also provides an overall limit on the amount of employer and
employee salary reduction contributions to a Section 403(b) annuity that will be
excludable from an employee's gross income in a given year. The Section 415(c)
limit is the lesser of (i) $30,000, or (ii) 25% of the employee's annual
compensation.
SECTION 408 -- Premiums (other than rollover contributions) paid under a
Contract used in connection with an individual retirement annuity (IRA) that is
described in Section 408 of the Internal Revenue Code are subject to the limits
on contributions to IRA's under Section 219(b) of the Internal Revenue Code.
Under Section 219(b) of the Code, contributions (other than rollover
contributions) to an IRA are limited to the lesser of $2,000 per year or the
Owner's annual compensation. Spousal IRAs allow an Owner and his or her spouse
to contribute up to $2,000 to their respective IRAs so long as a joint tax
return is filed and joint income is $4,000 or more. The maximum amount the
higher compensated spouse may contribute for the year is the lesser of $2,000 or
100% of that spouse's compensation. The maximum the lower compensated spouse may
contribute is the lesser of (i) $2,000 or (ii) 100% of that spouse's
compensation plus the amount by which the higher compensated spouse's
compensation exceeds the amount the higher compensated spouse contributes to his
or her IRA. The extent to which an Owner may deduct contributions to an IRA
depends on the gross income of the Owner and his or her spouse for the year and
whether either participate in an employer-sponsored retirement plan.
Premiums under a Contract used in connection with a simplified employee
pension plan described in Section 408 of the Internal Revenue Code are subject
to limits under Section 402(h) of the Internal Revenue Code. Section 402(h)
currently limits employer contributions and salary reduction contributions (if
permitted) under a simplified employee pension plan to the lesser of (a) 15% of
the compensation of the participant in the Plan, or (b) $30,000. Salary
reduction contributions, if any, are subject to additional annual limits.
SECTION 457 -- Contributions on behalf of an employee to a Section 457 plan
generally are limited to the lesser of (i) $8,000 or (ii) 33 1/3% of the
employee's includable compensation. The $8,000 limit is indexed for inflation
(in $500 increments) for tax years beginning after December 31, 1996; thus the
dollar limit is adjusted only when the sum of the inflation adjustments equals
or exceeds $500. If the employee participates in more than one Section 457 plan,
the $8,000 limit applies to contributions to all such programs. The $8,000 limit
is reduced by the amount of any salary reduction contribution the employee makes
to a 403(b) annuity, an IRA or a retirement plan qualified under Section 401.
The Section 457 limit may be increased during the last three years ending before
the employee reaches his or her normal retirement age. In each of these last
three years, the plan may permit a "catch-up" amount in addition to the regular
amount to be deferred. The maximum combined amount which may be deferred in each
of these three years is $15,000 reduced by any amount excluded from the
employee's income for the taxable year as a contribution to another plan.
ASSIGNMENT
Variflex Contracts may be assigned by the Contractowner except when issued to
plans or trusts qualified under Section 403(b) or 408 of the Internal Revenue
Code or the plans of self-employed individuals (either under the HR-10 Act or
later acts).
DISTRIBUTION OF THE CONTRACTS
Subject to arrangements with SBL, Variflex contracts are sold by independent
broker-dealers who are members of the National Association of Security Dealers,
Inc., and who become licensed to sell variable annuities for SBL and by national
banks. Security Distributors, Inc., acts as the principal underwriter on behalf
of SBL for the distribution of the Variflex contracts.
The Variflex offering is continuous. During the years ended December 31,
1997, 1996 and 1995, SBL received contingent deferred sales charges from
Variflex as follows: $1,653,942, $1,285,380 and $1,182,820, respectively.
SAFEKEEPING OF VARIFLEX ACCOUNT ASSETS
All assets of Variflex are held in the custody and safekeeping of SBL.
Additional protection for such assets is offered by SBL's blanket fidelity bond
presently covering all officers and employees for a total of $6,875,000 per
loss.
STATE REGULATION
As a life insurance company organized under the laws of Kansas, SBL
(including Variflex) is subject to regulation by the Commissioner of Insurance
of the State of Kansas. An annual statement is filed with the Kansas
Commissioner of Insurance on or before March 1 each year covering the operations
of SBL for the prior year and its financial condition on December 31 of that
year. SBL is subject to a complete examination of its operations, including an
examination of the liabilities and reserves of SBL and Variflex, by the Kansas
Commissioner of Insurance whenever such examination is deemed necessary by the
Commissioner. Such regulation and examination does not, however, involve any
supervision of the investment policies applicable to Variflex.
In addition, SBL is subject to insurance laws and regulations of the other
jurisdictions in which it is or may become licensed to operate. Generally, the
insurance department of any such other jurisdiction applies the laws of the
state of domicile in determining permissible investments.
LEGAL MATTERS
Matters of Kansas law pertaining to the validity of the Contracts, including
SBL's right to issue the Contracts under Kansas insurance law and its
qualification to do so under applicable regulations issued thereunder, have been
passed upon by Amy J. Lee, Associate General Counsel of SBL.
EXPERTS
The consolidated financial statements of Security Benefit Life Insurance
Company and Subsidiaries at December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997 and the financial statements
of Variflex at December 31, 1997, and for each of the two years in the period
ended December 31, 1997, included in this Statement of Additional Information
have been audited by Ernst & Young LLP, independent auditors, for the periods
indicated in their reports thereon appearing elsewhere herein, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
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 the Prospectus and this
Statement of Additional Information relating to Variflex and the Variflex
Contracts are summaries only. For further information, reference is made to the
Registration Statement and the exhibits filed as part thereof. Copies of the
Variflex Contracts also will be on file with the Insurance Commissioner of each
state in which SBL is authorized to issue such Contracts.
FINANCIAL STATEMENTS
The consolidated financial statements of Security Benefit Life Insurance
Company and Subsidiaries at December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, and the financial statements
of Variflex at December 31, 1997, and for each of the two years in the period
ended December 31, 1997, are set forth herein, starting on page 9.
The consolidated financial statements of SBL, 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.
