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VARIFLEX VARIABLE ANNUITY
ISSUED BY: MAILING ADDRESS:
SECURITY BENEFIT LIFE SECURITY BENEFIT LIFE
INSURANCE COMPANY INSURANCE COMPANY
700 SW HARRISON STREET P.O. BOX 750497
TOPEKA, KANSAS 66636-0001 TOPEKA, KANSAS 66675-0497
1-800-888-2461
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This Prospectus describes the Variflex Variable Annuity--a flexible purchase
payment deferred variable annuity contract or single purchase payment immediate
variable annuity contract (the "Contract") offered by Security Benefit Life
Insurance Company ("Security Benefit"). The Contract is available for
individuals and groups as a non-tax qualified retirement plan. The Contract is
also available for individuals and groups in connection with a retirement plan
qualified under Section 401, 403(a), 403(b), 408, 408A or 457 of the Internal
Revenue Code. The Contract is designed to give you flexibility in planning for
retirement and other financial goals.
You may allocate your purchase payments to one or more of the Subaccounts
that comprise a separate account of Security Benefit called Variflex, or to the
Fixed Account. Each Subaccount invests in a corresponding Series of SBL Fund.
The Subaccounts currently available under the Contract are:
* Equity (formerly Growth) * Capital Growth
* Large Cap Value * Global Total Return
(formerly Growth-Income) * Managed Asset Allocation
* Money Market * Equity Income
* Global (formerly Worldwide Equity) * High Yield
* Diversified Income * Small Cap Value
(formerly High Grade Income * Social Awareness
* Large Cap Growth * Technology
* Enhanced Index * Mid Cap Value (formerly Value)
* International * Main Street Growth and Income(R)
* Mid Cap Growth (formerly Mid Cap) * Small Cap Growth (formerly Small Cap)
* Global Strategic Income * Select 25
The Capital Growth, Enhanced Index, International, High Yield, Main Street
Growth and Income(R), Mid Cap Value, Select 25, Small Cap Growth, Small Cap
Value and Technology Subaccounts generally are not available to certain types of
the Contract, 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.
The Subaccounts will be available to all Contracts upon their conversion to
Security Benefit's new administration system. If you have questions about which
Subaccounts are available to you, please contact Security Benefit at the number
below.
Amounts allocated to the Fixed Account will accrue interest at rates that are
paid by Security Benefit as described in "The Fixed Account," page 28. Contract
Value in the Fixed Account is guaranteed by Security Benefit.
Amounts that you allocate to the Subaccounts under a Contract will vary based
on investment performance of the Subaccounts. No minimum amount of Contract
Value is guaranteed.
When you are ready to receive annuity payments, the Contract provides several
options for annuity payments. See "Annuity Options," page 26.
You may return a Contract according to the terms of its Free-Look Right. See
"Free-Look Right," page 21.
This Prospectus concisely sets forth information about the Contract and the
Separate Account that you should know before purchasing the Contract. The
"Statement of Additional Information," dated May 1, 2000, which has been filed
with the Securities and Exchange Commission contains certain additional
information. The Statement of Additional Information, as it may be supplemented
from time to time, is incorporated by reference into this Prospectus and is
available at no charge, by writing Security Benefit at 700 SW Harrison Street,
Topeka, Kansas 66636 or by calling 1-800-888-2461. The table of contents of the
Statement of Additional Information is set forth on page 41 of this Prospectus.
The SEC maintains a web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference and other
information regarding companies that file electronically with the SEC.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR SBL FUND. YOU
SHOULD READ THE PROSPECTUSES CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
THE CONTRACT IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE
VALUE OF YOUR CONTRACT WILL GO UP AND DOWN AND YOU COULD LOSE MONEY.
DATE: MAY 1, 2000 AS SUPPLEMENTED JANUARY 8, 2001
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TABLE OF CONTENTS
Page
DEFINITIONS............................................................... 4
SUMMARY................................................................... 5
PURPOSE OF THE CONTRACT................................................ 5
THE SEPARATE ACCOUNT AND THE SBL FUND.................................. 5
FIXED ACCOUNT.......................................................... 5
PURCHASE PAYMENTS...................................................... 5
CONTRACT BENEFITS...................................................... 5
FREE-LOOK RIGHT........................................................ 5
CHARGES AND DEDUCTIONS................................................. 6
Contingent Deferred Sales Charge..................................... 6
Mortality and Expense Risk Charge.................................... 6
Administration Charge................................................ 6
Premium Tax Charge................................................... 6
Other Expenses....................................................... 6
CONTACTING SECURITY BENEFIT............................................ 6
EXPENSE TABLE............................................................. 6
CONTRACTUAL EXPENSES................................................... 8
ANNUAL SEPARATE ACCOUNT EXPENSES....................................... 8
ANNUAL MUTUAL FUND EXPENSES............................................ 8
EXAMPLES............................................................... 8
CONDENSED FINANCIAL INFORMATION........................................... 10
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND SBL FUND.... 14
SECURITY BENEFIT LIFE INSURANCE COMPANY................................ 14
PUBLISHED RATINGS...................................................... 14
SEPARATE ACCOUNT....................................................... 14
SBL FUND............................................................... 14
Series A (Equity Series)............................................. 15
Series B (Large Cap Value Series).................................... 15
Series C (Money Market Series)....................................... 15
Series D (Global Series)............................................. 15
Series E (Diversified Income Series)................................. 15
Series G (Large Cap Growth Series)................................... 15
Series H (Enhanced Index Series)..................................... 15
Series I (International Series)...................................... 15
Series J (Mid Cap Growth Series)..................................... 15
Series K (Global Strategic Income Series)............................ 15
Series L (Capital Growth Series)..................................... 16
Series M (Global Total Return Series)................................ 16
Series N (Managed Asset Allocation Series)........................... 16
Series O (Equity Income Series)...................................... 16
Series P (High Yield Series)......................................... 16
Series Q (Small Cap Value Series).................................... 16
Series S (Social Awareness Series)................................... 16
Series T (Technology Series)......................................... 16
Series V (Mid Cap Value Series)...................................... 16
Series W (Main Street Growth and Income(R) Series)................... 16
Series X (Small Cap Growth Series)................................... 16
Series Y (Select 25 Series).......................................... 16
THE INVESTMENT ADVISER................................................. 16
THE CONTRACT.............................................................. 17
GENERAL................................................................ 17
TYPES OF VARIFLEX CONTRACTS............................................ 17
Single Purchase Payment Immediate Annuity............................ 17
Flexible Purchase Payment Deferred Annuity........................... 17
Group Flexible Purchase Payment Deferred Annuity..................... 17
APPLICATION FOR A CONTRACT............................................. 17
PURCHASE PAYMENTS...................................................... 17
ALLOCATION OF PURCHASE PAYMENTS........................................ 18
DOLLAR COST AVERAGING OPTION........................................... 18
ASSET REALLOCATION OPTION.............................................. 19
TRANSFERS OF CONTRACT VALUE............................................ 19
CONTRACT VALUE......................................................... 19
DETERMINATION OF CONTRACT VALUE........................................ 19
FULL AND PARTIAL WITHDRAWALS........................................... 20
SYSTEMATIC WITHDRAWALS................................................. 21
FREE-LOOK RIGHT........................................................ 21
DEATH BENEFIT.......................................................... 22
Death Benefit for Certain Florida Residents.......................... 22
Death Benefit for Group Unallocated Contracts........................ 22
DISTRIBUTION REQUIREMENTS.............................................. 22
DEATH OF THE ANNUITANT................................................. 23
CHARGES AND DEDUCTIONS.................................................... 23
CONTINGENT DEFERRED SALES CHARGE....................................... 23
WITHDRAWAL CHARGE FOR CERTAIN TEXAS PARTICIPANTS....................... 24
WAIVER OF WITHDRAWAL CHARGE............................................ 24
MORTALITY AND EXPENSE RISK CHARGE...................................... 24
ADMINISTRATION CHARGE.................................................. 24
PREMIUM TAX CHARGE..................................................... 25
OTHER CHARGES.......................................................... 25
VARIATIONS IN CHARGES.................................................. 25
GUARANTEE OF CERTAIN CHARGES........................................... 25
SBL FUND EXPENSES...................................................... 25
ANNUITY PERIOD............................................................ 25
GENERAL................................................................ 25
ANNUITY OPTIONS........................................................ 26
Option 1--Life Income................................................ 26
Option 2--Life Income with Guaranteed Payment of
5, 10, 15 or 20 Years............................................. 26
Option 3--Life with Installment Refund Option........................ 27
Option 4--Joint and Last Survivor.................................... 27
Option 5--Payments for a Specified Period............................ 27
Option 6--Payments of a Specified Amount............................. 27
Option 7--Deposit Option............................................. 27
Option 8--Age Recalculation.......................................... 27
Option 9--Period Certain............................................. 27
Option 10--Joint and Contingent Survivor Option...................... 27
Value of Variable Annuity Payments: Assumed Interest Rate............ 27
SELECTION OF AN OPTION................................................. 27
THE FIXED ACCOUNT......................................................... 28
INTEREST............................................................... 28
DEATH BENEFIT.......................................................... 28
CONTRACT CHARGES....................................................... 28
TRANSFERS AND WITHDRAWALS FROM THE FIXED ACCOUNT....................... 28
PAYMENTS FROM THE FIXED ACCOUNT........................................ 29
MORE ABOUT THE CONTRACT................................................... 29
OWNERSHIP.............................................................. 29
Joint Owners......................................................... 29
DESIGNATION AND CHANGE OF BENEFICIARY.................................. 29
DIVIDENDS.............................................................. 29
PAYMENTS FROM THE SEPARATE ACCOUNT..................................... 30
PROOF OF AGE AND SURVIVAL.............................................. 30
MISSTATEMENTS.......................................................... 30
LOANS.................................................................. 30
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS....................... 31
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM............... 31
FEDERAL TAX MATTERS....................................................... 31
INTRODUCTION........................................................... 31
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT................ 32
General.............................................................. 32
Charge for Security Benefit Taxes.................................... 32
Diversification Standards............................................ 32
INCOME TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS........... 33
Surrenders or Withdrawals Prior to the Annuity Commencement Date..... 33
Surrenders or Withdrawals on or after Annuity Commencement Date...... 33
Penalty Tax on Certain Surrenders and Withdrawals.................... 33
ADDITIONAL CONSIDERATIONS.............................................. 33
Distribution-at-Death Rules.......................................... 33
Gift of Annuity Contracts............................................ 34
Contracts Owned by Non-Natural Persons............................... 34
Multiple Contract Rule............................................... 34
Possible Tax Changes................................................. 34
Transfers, Assignments or Exchanges of a Contract.................... 34
QUALIFIED PLANS........................................................ 34
Section 401.......................................................... 35
Section 403(b)....................................................... 36
Section 408 and 408A................................................. 36
Simple Individual Retirement Annuities............................... 36
Roth IRAs............................................................ 37
Section 457.......................................................... 37
Rollovers............................................................ 37
Tax Penalties........................................................ 38
Withholding.......................................................... 38
OTHER INFORMATION......................................................... 38
VOTING OF SBL FUND SHARES.............................................. 38
SUBSTITUTION OF INVESTMENTS............................................ 39
CHANGES TO COMPLY WITH LAW AND AMENDMENTS.............................. 39
REPORTS TO OWNERS...................................................... 39
TELEPHONE TRANSFER PRIVILEGES.......................................... 39
LEGAL PROCEEDINGS...................................................... 40
LEGAL MATTERS.......................................................... 40
PERFORMANCE INFORMATION................................................... 40
ADDITIONAL INFORMATION.................................................... 41
REGISTRATION STATEMENT................................................. 41
FINANCIAL STATEMENTS................................................... 41
STATEMENT OF ADDITIONAL INFORMATION....................................... 41
APPENDIX A - IRA Disclosure Statement
APPENDIX B - Roth IRA Disclosure Statement
APPENDIX C - Simple IRA Disclosure Statement
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YOU MAY NOT BE ABLE TO PURCHASE THE CONTRACT IN YOUR STATE. YOU SHOULD NOT
CONSIDER THIS PROSPECTUS TO BE AN OFFERING IF THE CONTRACT MAY NOT BE LAWFULLY
OFFERED IN YOUR STATE. YOU SHOULD ONLY RELY UPON INFORMATION CONTAINED IN THIS
PROSPECTUS OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
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DEFINITIONS
Various terms commonly used in this Prospectus are defined as follows:
ACCUMULATION PERIOD -- The period commencing on the Contract Date and ending
on the Annuity Commencement Date or, if earlier, when you terminate the
Contract, either through a full withdrawal, payment of charges, or payment of
the death benefit proceeds.
ACCUMULATION UNIT -- A unit of measure used to calculate Contract Value.
ANNUITANT -- The person that you designate to receive annuity payments. If
you designate Joint Annuitants, "Annuitant" means both Annuitants unless
otherwise stated.
ANNUITY -- A series of periodic income payments made by Security Benefit to
an Annuitant, Joint Annuitant, or Designated Beneficiary during the period
specified in the Annuity Option.
ANNUITY COMMENCEMENT DATE -- The date when annuity payments are to begin.
ANNUITY OPTIONS -- Options under the Contract that prescribe the provisions
under which a series of annuity payments are made.
ANNUITY PERIOD -- The period beginning on the Annuity Commencement Date
during which annuity payments are made.
CONTRACT -- Your individual Contract issued to you by Security Benefit or
your certificate under a Group Contract.
CONTRACT DATE -- The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually the
date that your initial purchase payment is credited to the Contract.
CONTRACT DEBT -- The unpaid loan balance including loan interest.
CONTRACTOWNER OR OWNER -- The person entitled to the ownership rights under
the Contract and in whose name the Contract is issued. The term "Contractowner"
or "Owner" is used in this Prospectus to refer to the Owner of an individual
Contract or Participant under a Group Contract.
CONTRACT VALUE -- The total value of your Contract which includes amounts
allocated to the Subaccounts and the Fixed Account as well as any amount set
aside in the loan account to secure loans as of any Valuation Date.
CONTRACT YEAR -- Each twelve-month period measured from the Contract Date.
DESIGNATED BENEFICIARY -- The Designated Beneficiary is the first person on
the following list who is alive on the date of death of the Owner or the Joint
Owner: the Owner; the Joint Owner; the Primary Beneficiary; the Secondary
Beneficiary; the Annuitant; or if none of the above are alive, the Owner's
Estate. If you purchased your Contract prior to January 4, 1999, the Designated
Beneficiary is the Primary Beneficiary; the Secondary Beneficiary; or if none of
the above are alive, the Annuitant's estate.
FIXED ACCOUNT -- An account that is part of Security Benefit's General
Account to which you may allocate all or a portion of your Contract Value to be
held for accumulation at fixed rates of interest (which may not be less than 3
percent) declared periodically by Security Benefit.
GENERAL ACCOUNT -- All assets of Security Benefit other than those allocated
to the Separate Account or to any other separate account of Security Benefit.
GROUP CONTRACT -- A Contract issued to a group in connection with a Qualified
Plan or a non-tax qualified retirement plan.
HOME OFFICE -- The Annuity Administration Department of Security Benefit,
P.O. Box 750497, Topeka, Kansas 66675-0497.
HOSPITAL -- An institution that is licensed as such by the Joint Commission
of Accreditation of Hospitals, or any lawfully operated institution that
provides in-patient treatment of sick and injured persons through medical,
diagnostic and surgical facilities directed by physicians and 24 hour nursing
services.
PARTICIPANT -- A Participant under a Qualified Plan, a Group Contract or
both.
PURCHASE PAYMENT -- An amount paid to Security Benefit as consideration for
the Contract.
QUALIFIED SKILLED NURSING FACILITY -- A facility licensed by the state to
provide on a daily basis convalescent or chronic care for in-patients who, by
reason of infirmity or illness, are not able to care for themselves.
SBL FUND -- An open-end management investment company commonly referred to as
a mutual fund.
SEPARATE ACCOUNT -- Variflex, a separate account of Security Benefit that
consists of accounts, referred to as Subaccounts, each of which invests in a
corresponding Series of SBL Fund.
SUBACCOUNT -- A division of the Separate Account of Security Benefit which
invests in a corresponding series of SBL Fund. Currently, twenty-two Subaccounts
are available under the Contract.
VALUATION DATE -- Each date on which the Separate Account is valued, which
currently includes each day that the New York Stock Exchange is open for
trading. The New York Stock Exchange is closed on weekends and on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
VALUATION PERIOD -- A period used in measuring the investment experience of
each Subaccount of the Separate Account. The Valuation Period begins at the
close of one Valuation Date and ends at the close of the next succeeding
Valuation Date.
VARIFLEX CONTRACT-401(K) AND 408(K) -- A version of the Contract offered
prior to May 1, 1990, to plans qualified under Section 401(k) or 408(k)(6) of
the Internal Revenue Code. The differences between this Contract and the
currently offered versions of the Contract qualifying under Section 401(k) and
408(k)(6) of the code are noted where appropriate.
WITHDRAWAL VALUE -- The amount you will receive upon full withdrawal of the
Contract. It is equal to Contract Value less any Contract Debt, any applicable
withdrawal charge, a pro rata administration charge, and any uncollected premium
taxes.
SUMMARY
This summary provides a brief overview of the more significant aspects of the
Contract. Further detail is provided in this Prospectus, the Statement of
Additional Information, and the Contract. Unless the context indicates
otherwise, the discussion in this summary and the remainder of the Prospectus
relates to the portion of the Contract involving the Separate Account. The Fixed
Account is briefly described under "The Fixed Account," page 28 and in the
Contract.
PURPOSE OF THE CONTRACT -- The flexible purchase payment deferred variable
annuity contract or single purchase payment immediate variable annuity contract
(the "Contract") described in this Prospectus is designed to give you
flexibility in planning for retirement and other financial goals.
You may purchase the Contract as a non-tax qualified retirement plan for an
individual or group ("Non-Qualified Plan"). You may also purchase the Contract,
on a group or individual basis, in connection with a retirement plan qualified
under Section 401, 403(a), 403(b), 408, 408A, or 457 of the Internal Revenue
Code of 1986, as amended. These plans are sometimes referred to in this
Prospectus as "Qualified Plans."
THE SEPARATE ACCOUNT AND SBL FUND -- The Separate Account is currently divided
into twenty-two accounts referred to as Subaccounts. See "Separate Account,"
page 14. Each Subaccount invests exclusively in shares of a corresponding Series
of SBL Fund. The Series of SBL Fund, each of which has a different investment
objective or objectives, are as follows: Equity Series, Large Cap Value Series,
Money Market Series, Global Series, Diversified Income Series, Large Cap Growth
Series, Enhanced Index Series, International Series, Mid Cap Growth Series,
Global Strategic Income Series, Capital Growth Series, Global Total Return
Series, Managed Asset Allocation Series, Equity Income Series, High Yield
Series, Small Cap Value Series, Social Awareness Series, Technology Series, Mid
Cap Value Series, Main Street Growth and Income(R) Series, Small Cap Growth
Series and Select 25 Series. See "SBL Fund," page 14.
You may allocate all or part of your purchase payments to the Subaccounts.
Amounts that you allocate to the Subaccounts will increase or decrease in dollar
value depending on the investment performance of the Series of SBL Fund in which
such Subaccount invests. You bear the investment risk for amounts allocated to a
Subaccount.
FIXED ACCOUNT -- You may allocate all or part of your purchase payments to the
Fixed Account, which is part of Security Benefit's General Account. Amounts that
you allocate to the Fixed Account earn interest at rates determined at the
discretion of Security Benefit and are guaranteed to be at least an effective
annual rate of 3 percent (or higher for certain Contracts issued prior to
January 4, 1999). See "The Fixed Account," page 28.
PURCHASE PAYMENTS -- The minimum initial purchase payment is $500 for a Contract
funding a Non-Qualified Plan or Group Unallocated Contract, $25 for a Contract
funding a Qualified Plan and $2,500 for a single purchase payment immediate
annuity. Thereafter, you may choose the amount and frequency of purchase
payments, except that the minimum subsequent purchase payment is $25. Subsequent
purchase payments are not permitted for a single purchase payment immediate
annuity. See "Purchase Payments," page 17.
CONTRACT BENEFITS -- You may transfer Contract Value among the Subaccounts and
to and from the Fixed Account, subject to certain restrictions as described in
"The Contract," page 17 and "The Fixed Account," page 28.
At any time before the Annuity Commencement Date, you may surrender a
Contract for its Withdrawal Value, and you may make partial withdrawals,
including systematic withdrawals, from Contract Value, subject to certain
restrictions described in "The Fixed Account," page 28. See "Full and Partial
Withdrawals," page 20 and "Federal Tax Matters," page 31 for more information
about withdrawals, including the 10 percent penalty tax that may be imposed upon
full and partial withdrawals (including systematic withdrawals) made prior to
the Owner attaining age 59 1/2.
The Contract provides for a death benefit upon the death of the Owner prior
to the Annuity Commencement Date. See "Death Benefit," page 22 for more
information. The Contract provides for several Annuity Options on either a
variable basis, a fixed basis, or both. Security Benefit guarantees annuity
payments under the fixed Annuity Options. See "Annuity Period," page 25.
FREE-LOOK RIGHT -- You may return the Contract within the Free-Look Period,
which is generally a ten-day period beginning when you receive the Contract. In
this event, Security Benefit will refund to you purchase payments allocated to
the Fixed Account plus the Contract Value in the Subaccounts plus any charges
deducted from Contract Value in the Subaccounts. Security Benefit will refund
purchase payments allocated to the Subaccounts rather than the Contract Value in
those states and circumstances where it is required to do so.
CHARGES AND DEDUCTIONS -- Security Benefit does not deduct sales load from
purchase payments before allocating them to Contract Value. Certain charges will
be deducted in connection with the Contract as described below.
CONTINGENT DEFERRED SALES CHARGE. If you withdraw Contract Value, Security
Benefit may deduct a contingent deferred sales charge (which may also be
referred to as a withdrawal charge). The amount of the withdrawal charge depends
on the Contract Year in which the withdrawal is made. We will waive the
withdrawal charge on the first withdrawal in any Contract Year after the first
Contract Year, to the extent that your withdrawal does not exceed the free
withdrawal amount. The free withdrawal amount in any Contract Year is 10 percent
of Contract Value as of the date of the first withdrawal in that Contract Year.
You forfeit any free withdrawal amount not used on the first withdrawal in a
Contract Year. The withdrawal charge does not apply to withdrawals of earnings.
The amount of the charge will depend on the Contract Year in which the
withdrawal is made, according to the following schedule:
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WITHDRAWAL CHARGE
-------------------------------
THE VARIFLEX CONTRACT-
CONTRACT YEAR CONTRACT 401(K) AND 408(K)
-------------------------------------------------
1 8% 8%
2 7% 8%
3 6% 8%
4 5% 8%
5 4% 7%
6 3% 6%
7 2% 5%
8 1% 4%
9 and later 0% 0%
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The amount of the withdrawal charge assessed against your Contract will never
exceed 8 percent of purchase payments paid under the Contract. In addition, no
withdrawal charge will be assessed upon: (1) payment of death benefit proceeds;
(2) certain systematic withdrawals; or (3) annuity options that provide for
payments for life, or a period of at least seven years (five years for Contracts
issued prior to January 4, 1999). Subject to insurance department approval,
Security Benefit will also waive the withdrawal charge on a full or partial
withdrawal if the Owner has been confined to a Hospital or Qualified Skilled
Nursing Facility for 90 consecutive days or more.
A different withdrawal charge schedule applies if your Contract was issued
after August 14, 2000, under a Section 403(b) retirement plan sponsored by a
Texas institution of higher education (as defined in the Texas Education Code).
See "Contingent Deferred Sales Charge," page 23.
MORTALITY AND EXPENSE RISK CHARGE. Security Benefit deducts a daily charge
from the assets of each Subaccount for mortality and expense risks equal to an
annual rate of 1.2 percent of each Subaccount's average daily net assets. See
"Mortality and Expense Risk Charge," page 24.
ADMINISTRATION CHARGE. Security Benefit will deduct from your Contract Value
an administration charge of $30 at each calendar year end. The administration
charge for the Variflex Contract - 401(k) and 408(k) is the lesser of $30 or 2
percent of Contract Value as of the calendar year end. Security Benefit does not
assess the administration charge against Contract Value which has been applied
under Annuity Options 1 through 4, 9 and 10. See "Administration Charge," page
24.
PREMIUM TAX CHARGE. Security Benefit assesses a premium tax charge to
reimburse itself for any premium taxes that it incurs with respect to your
Contract. This charge will usually be deducted on the Annuity Commencement Date
or upon full withdrawal if a premium tax was incurred by Security Benefit and is
not refundable. Partial withdrawals, including systematic withdrawals, may be
subject to a premium tax charge if a premium tax is incurred on the withdrawal
by Security Benefit and is not refundable. Security Benefit reserves the right
to deduct such taxes when due or anytime thereafter. Premium tax rates currently
range from 0 percent to 3.5 percent. See "Premium Tax Charge," page 25.
OTHER EXPENSES. Security Benefit pays the operating expenses of the Separate
Account. Investment advisory fees and operating expenses of SBL Fund are paid by
the Fund and are reflected in the net asset value of the Fund shares. For a
description of these charges and expenses, see the prospectus for SBL Fund.
CONTACTING SECURITY BENEFIT -- You should direct all written requests, notices,
and forms required by the Contract, and any questions or inquiries to Security
Benefit Life Insurance Company, P.O. Box 750497, Topeka, Kansas 66675-0497 or by
phone by calling (785) 431-3112 or 1-800-888-2461, extension 3112.
EXPENSE TABLE
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly and indirectly if you allocate Contract
Value to the Subaccounts. The table reflects any contractual charges, expenses
of the Separate Account, and charges and expenses of SBL Fund. The table does
not reflect premium taxes that may be imposed by various jurisdictions. See
"Premium Tax Charge," page 25. The information contained in the table is not
generally applicable to amounts allocated to the Fixed Account.
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," page 23. For a more complete description of SBL Fund's costs
and expenses, see the SBL Fund prospectus, which accompanies this Prospectus.
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CONTRACTUAL EXPENSES
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Sales Load on Purchase Payments ........................................ None
Contingent Deferred Sales Charge (as a percentage of
amount withdrawn attributable to Purchase Payments) .................. 8%(1)
Transfer Fee (per transfer) ............................................ None
Annual Administration Charge ........................................... $302
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ANNUAL SEPARATE ACCOUNT EXPENSES
(as a percentage of each Subaccount's average daily net assets)
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Annual Mortality and Expense Risk Charge ............................... 1.20%
Total Separate Account Annual Expenses ................................. 1.20%
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ANNUAL SBL FUND EXPENSES
(as a percentage of each Series' average daily net assets)
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ESTIMATED TOTAL SBL
BROKERAGE PLAN FUND EXPENSES
ADVISORY DISTRIBUTION OTHER (AFTER EXPENSE
FEE (3) (12B-1) FEES(4) EXPENSES(5) REIMBURSEMENTS)(6)
Equity (Series A) ... 0.75% 0.01% 0.06% 0.82%
Large Cap Value
(Series B) ........ 0.75% 0.02% 0.07% 0.84%
Money Market
(Series C) ........ 0.50% 0.00% 0.07% 0.57%
Global (Series D) ... 1.00% 0.00% 0.21% 1.21%
Diversified Income
(Series E) ........ 0.75% 0.00% 0.07% 0.82%
Large Cap Growth
(Series G) ........ 1.00% 0.00% 0.36% 1.36%
Enhanced Index
(Series H) ........ 0.75% 0.00% 0.29% 1.04%
International
(Series I) ........ 1.10% 0.00% 1.15% 2.25%
Mid Cap Growth
(Series J) ........ 0.75% 0.01% 0.07% 0.83%
Global Strategic
Income (Series K) . 0.75% 0.00% 0.87% 1.62%
Capital Growth
(Series L) ........ 1.00% 0.00% 0.36% 1.36%
Global Total Return
(Series M) ........ 1.00% 0.00% 0.36% 1.36%
Managed Asset
Allocation
(Series N) ........ 1.00% 0.00% 0.17% 1.17%
Equity Income
(Series O) ........ 1.00% 0.00% 0.09% 1.09%
High Yield (Series P) 0.75% 0.00% 0.11% 0.86%
Small Cap Value
(Series Q) ........ 1.00% 0.00% 0.36% 1.36%
Social Awareness
(Series S) ........ 0.75% 0.01% 0.07% 0.83%
Technology (Series T) 1.00% 0.00% 0.95% 1.95%
Mid Cap Value
(Series V) ........ 0.75% 0.02% 0.09% 0.86%
Main Street Growth
and Income(R)
(Series W) ......... 1.00% 0.00% 0.22% 1.22%
Small Cap Growth
(Series X) ........ 1.00% 0.00% 0.33% 1.33%
Select 25 (Series Y) 0.75% 0.01% 0.22% 0.98%
------------------------------------------------------------------------------------------
1. The amount of the contingent deferred sales charge is determined by reference to the
Contract Year in which the withdrawal is made. Withdrawals in the first Contract Year
are subject to a charge of 8 percent declining to 0 percent in Contract Year 9 and
later. The contingent deferred sales charge schedule is different for the Variflex
Contract - 401(k) and 408(k) and for a Contract issued to a Participant under a
Section 403(b) retirement plan sponsored by an institution of higher education as
defined in the Texas Education Code. See "Full and Partial Withdrawals," page 20 and
"Contingent Deferred Sales Charge," page 23 for more information.
2. The annual administration charge for the Variflex Contract - 401(k) and 408(k) is the
lesser of $30 or 2% of Contract Value as of the calendar year end.
3. During the fiscal year ended December 31, 1999, the Investment Adviser waived the
advisory fees of Series P and Series X. The Investment Adviser ceased waiving the
advisory fee of Series X effective December 1, 1999. There can be no assurance that
the Investment Adviser will continue to waive Series P's advisory fee. Expense
information for Series P and X has been restated to reflect the fees that would have
been applicable had there been no fee waiver.
4. Amounts included as distribution expenses under this caption are estimates of the
amounts to be received by the Fund's distributor under the Brokerage Plan in the
current fiscal year in connection with the purchase and sale of securities held by the
Fund.
5. "Other Expenses" for Series G, Series H, Series I, Series L, Series Q, Series T,
Series W and Series Y are based on estimated amounts for the current fiscal year.
6. Total expenses for Series I reflect fee waivers and/or reimbursement of expenses. In
the absence of such waivers or reimbursements, Series I's actual expenses would have
been 4.2%.
------------------------------------------------------------------------------------------
EXAMPLES -- The following examples show the expenses that you would pay at the
end of one, three, five or ten years (except for the Large Cap Growth, Enhanced
Index, International, Capital Growth, Small Cap Value, Technology, Main Street
Growth and Income(R), and Select 25 Subaccounts which show expenses for only the
one and three year periods). The information presented applies if, at the end of
those time periods, the Contract is (1) surrendered, or (2) annuitized or
otherwise not surrendered. The examples show expenses based upon an allocation
of $1,000 to each of the Subaccounts and a hypothetical return of 5 percent.
YOU SHOULD NOT CONSIDER THE EXAMPLES BELOW A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE 5
PERCENT RETURN ASSUMED IN THE EXAMPLES IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ACTUAL RETURNS, WHICH MAY BE
GREATER OR LESSER THAN THE ASSUMED AMOUNT.
Example -- You would pay the expenses shown below assuming full withdrawal of
your Contract at the end of the applicable time period:
--------------------------------------------------------------------------------
1 3 5 10
YEAR YEARS YEARS YEARS
--------------------------------------------------------------------------------
Equity Subaccount ............................... $102 $126 $155 $247
Large Cap Value Subaccount ...................... 102 127 156 249
Money Market Subaccount ......................... 100 119 142 221
Global Subaccount ............................... 106 137 175 286
Diversified Income Subaccount ................... 102 126 155 247
Large Cap Growth Subaccount ..................... 107 141 --- ---
Enhanced Index Subaccount ....................... 104 132 --- ---
International Subaccount ........................ 116 166 --- ---
Mid Cap Growth Subaccount ....................... 102 126 156 248
Global Strategic Income Subaccount .............. 110 149 195 326
Capital Growth Subaccount ....................... 107 141 --- ---
Global Total Return Subaccount .................. 107 141 182 301
Managed Asset Allocation Subaccount ............. 105 136 173 283
Equity Income Subaccount ........................ 104 134 169 274
High Yield Subaccount ........................... 102 127 157 251
Small Cap Value Subaccount ...................... 107 141 --- ---
Social Awareness Subaccount ..................... 102 126 156 248
Technology Subaccount ........................... 113 158 --- ---
Mid Cap Value Subaccount ........................ 102 127 157 251
Main Street Growth and Income(R) Subaccount ..... 106 137 --- ---
Small Cap Growth Subaccount ..................... 107 141 181 298
Select 25 Subaccount ............................ 103 131 --- ---
--------------------------------------------------------------------------------
Example -- You would pay the expenses shown below assuming NO withdrawals
from your Contract:
--------------------------------------------------------------------------------
1 3 5 10
YEAR YEARS YEARS YEARS
--------------------------------------------------------------------------------
Equity Subaccount ............................... $22 $ 67 $115 $247
Large Cap Value Subaccount ...................... 22 68 116 249
Money Market Subaccount ......................... 19 60 102 221
Global Subaccount ............................... 26 79 135 286
Diversified Income Subaccount ................... 22 67 115 247
Large Cap Growth Subaccount ..................... 27 84 --- ---
Enhanced Index Subaccount ....................... 24 74 --- ---
International Subaccount ........................ 36 110 --- ---
Mid Cap Growth Subaccount ....................... 22 68 116 248
Global Strategic Income Subaccount .............. 30 91 155 326
Capital Growth Subaccount ....................... 27 84 --- ---
Global Total Return Subaccount .................. 27 84 142 301
Managed Asset Allocation Subaccount ............. 25 78 133 283
Equity Income Subaccount ........................ 24 75 129 274
High Yield Subaccount ........................... 22 69 117 251
Small Cap Value Subaccount ...................... 27 84 --- ---
Social Awareness Subaccount ..................... 22 68 116 248
Technology Subaccount ........................... 33 101 --- ---
Mid Cap Value Subaccount ........................ 22 69 117 251
Main Street Growth and Income(R) Subaccount ..... 26 79 --- ---
Small Cap Growth Subaccount ..................... 27 83 141 298
Select 25 Subaccount ............................ 23 72 --- ---
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Examples for the Variflex Contract-401(k) and 408(k) are set forth on the
following page.
--------------------------------------------------------------------------------
Example - You would pay the expenses shown below assuming full withdrawal of
your Variflex Contract - 401(k) and 408(k) at the end of the applicable time
period:
--------------------------------------------------------------------------------
1 3 5 10
YEAR YEARS YEARS YEARS
--------------------------------------------------------------------------------
Equity Subaccount ............................... $102 $146 $185 $247
Large Cap Value Subaccount ...................... 102 146 186 249
Money Market Subaccount ......................... 99 139 172 221
Global Subaccount ............................... 105 157 205 286
Diversified Income Subaccount ................... 102 146 185 247
Large Cap Growth Subaccount ..................... 107 161 --- ---
Enhanced Index Subaccount ....................... 104 152 --- ---
International Subaccount ........................ 116 185 --- ---
Mid Cap Growth Subaccount ....................... 102 146 186 248
Global Strategic Income Subaccount .............. 110 168 225 327
Capital Growth Subaccount ....................... 107 161 --- ---
Global Total Return Subaccount .................. 107 161 212 301
Managed Asset Allocation Subaccount ............. 105 155 203 283
Equity Income Subaccount ........................ 105 153 199 274
High Yield Subaccount ........................... 102 147 187 251
Small Cap Value Subaccount ...................... 107 161 --- ---
Social Awareness Subaccount ..................... 102 146 186 248
Technology Subaccount ........................... 113 177 --- ---
Mid Cap Value Subaccount ........................ 102 147 187 251
Main Street Growth and Income(R) Subaccount ..... 106 157 --- ---
Small Cap Growth Subaccount ..................... 107 160 211 298
Select 25 Subaccount ............................ 103 150 --- ---
--------------------------------------------------------------------------------
Example -- You would pay the expenses shown below assuming No withdrawals from
your Variflex Contract - 401(k) and 408(k):
--------------------------------------------------------------------------------
1 3 5 10
YEAR YEARS YEARS YEARS
--------------------------------------------------------------------------------
Equity Subaccount ............................... $22 $67 $115 $247
Large Cap Value Subaccount ...................... 22 68 116 249
Money Market Subaccount ......................... 19 60 102 221
Global Subaccount ............................... 26 79 135 286
Diversified Income Subaccount ................... 22 67 115 247
Large Cap Growth Subaccount ..................... 27 84 --- ---
Enhanced Index Subaccount ....................... 24 74 --- ---
International Subaccount ........................ 36 110 --- ---
Mid Cap Growth Subaccount ....................... 22 68 116 248
Global Strategic Income Subaccount .............. 30 91 155 326
Capital Growth Subaccount ....................... 27 84 --- ---
Global Total Return Subaccount .................. 27 84 142 301
Managed Asset Allocation Subaccount ............. 25 78 133 283
Equity Income Subaccount ........................ 24 75 129 274
High Yield Subaccount ........................... 22 69 117 251
Small Cap Value Subaccount ...................... 27 84 --- ---
Social Awareness Subaccount ..................... 22 68 116 248
Technology Subaccount ........................... 33 101 --- ---
Mid Cap Value Subaccount ........................ 22 69 117 251
Main Street Growth and Income(R) Subaccount ..... 26 79 --- ---
Small Cap Growth Subaccount ..................... 27 83 141 298
Select 25 Subaccount ............................ 23 72 --- ---
--------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
The following condensed financial information presents accumulation unit values
for each of the years in the ten-year period ended December 31, 1999, as well as
ending accumulation units outstanding for Qualified and Non-Qualified Contracts
under the Subaccounts.
------------------------------------------------------------------------------------------
QUALIFIED CONTRACTS 1999(f) 1998 1997 1996 1995(d)(e)
------------------------------------------------------------------------------------------
EQUITY SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $72.11 $58.19 $45.76 $37.75 $27.94
End of period .............. $77.04 $72.11 $58.19 $45.76 $37.75
Accumulation units outstanding
at the end of period ....... 12,075,377 11,996,953 11,293,953 10,310,079 9,203,332
------------------------------------------------------------------------------------------
LARGE CAP VALUE SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $61.86 $58.22 $46.58 $39.88 $31.03
End of period .............. $62.24 $61.86 $58.22 $46.58 $39.88
Accumulation units outstanding
at the end of period ....... 12,276,284 14,055,295 15,086,54 15,264,292 14,963,215
------------------------------------------------------------------------------------------
MONEY MARKET SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $19.71 $18.97 $18.26 $17.59 $16.89
End of period ............. $20.38 $19.71 $18.97 $18.26 $17.59
Accumulation units outstanding
at the end of period ....... 3,379,114 3,068,671 2,479,744 3,252,140 2,989,809
------------------------------------------------------------------------------------------
GLOBAL SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $18.11 $15.26 $14.51 $12.51 $11.42
End of period .............. $27.49 $18.11 $15.26 $14.51 $12.51
Accumulation units outstanding
at the end of period ....... 12,753,536 12,848,790 12,804,601 11,881,450 10,236,349
------------------------------------------------------------------------------------------
DIVERSIFIED INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $25.16 $23.58 $21.69 $22.11 $18.87
End of period .............. $23.92 $25.16 $23.58 $21.69 $22.11
Accumulation units outstanding
at the end of period ....... 3,698,583 3,419,362 3,446,85 0 3,673,833 3,912,046
------------------------------------------------------------------------------------------
ENHANCED INDEX SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $10.00 --- --- --- ---
End of period .............. $11.14 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 564,455 --- --- --- ---
------------------------------------------------------------------------------------------
INTERNATIONAL SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $10.00 --- --- --- ---
End of period .............. $12.89 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 95,066 --- --- --- ---
------------------------------------------------------------------------------------------
MID CAP GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $24.90 $21.37 $18.03 $15.46 $13.10
End of period .............. $39.83 $24.91 $21.37 $18.03 $15.46
Accumulation units outstanding
at the end of period ....... 6,970,985 6,781,176 6,738,379 5,563,881 4,387,739
------------------------------------------------------------------------------------------
GLOBAL STRATEGIC INCOME
SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $13.20 $12.50 $12.00 $10.69 $10.00
End of period .............. $13.19 $13.20 $12.50 $12.00 $10.69
Accumulation units outstanding
at the end of period ....... 362,783 398,409 425,354 306,339 129,589
------------------------------------------------------------------------------------------
GLOBAL TOTAL RETURN
SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $14.01 $12.59 $12.01 $10.64 $10.00
End of period .............. $15.78 $14.01 $12.59 $12.01 $10.64
Accumulation units outstanding
at the end of period ....... 1,363,679 1,545,270 1,672,896 1,274,106 611,652
------------------------------------------------------------------------------------------
MANAGED ASSET ALLOCATION
SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $16.26 $13.89 $11.87 $10.66 $10.00
End of period .............. $17.63 $16.26 $13.89 $11.87 $10.66
Accumulation units outstanding
at the end of period ....... 2,289,208 1,950,323 1,057,271 626,179 295,053
------------------------------------------------------------------------------------------
EQUITY INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $18.83 $17.49 $13.78 $11.62 $10.00
End of period .............. $19.19 $18.83 $17.49 $13.78 $11.62
Accumulation units outstanding
at the end of period ....... 5,492,102 5,369,499 4,135,375 2,016,966 604,325
------------------------------------------------------------------------------------------
HIGH YIELD SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $12.43 --- --- --- ---
End of period .............. $12.43 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 89,145 --- --- --- ---
------------------------------------------------------------------------------------------
SOCIAL AWARENESS SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $29.50 $22.72 $18.75 $15.97 $12.65
End of period ............. $34.16 $29.50 $22.72 $18.75 $15.97
Accumulation units outstanding
at the end of period ....... 4,298,149 3,152,738 2,531,119 2,083,090 1,615,845
------------------------------------------------------------------------------------------
MID-CAP VALUE SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $14.89 --- --- --- ---
End of period ............. $17.62 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 577,404 --- --- --- ---
------------------------------------------------------------------------------------------
SMALL CAP GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $10.31 --- --- --- ---
End of period .............. $19.48 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 992,293 --- --- --- ---
------------------------------------------------------------------------------------------
SELECT 25 SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $10.00 --- --- --- ---
End of period .............. $12.24 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 1,226,865 --- --- --- ---
------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
QUALIFIED CONTRACTS 1994 1993 1992(c) 1991(a)(b) 1990
---------------------------------------------------------------------------------------
EQUITY SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $28.75 $25.59 $23.30 $17.33 $19.45
End of period .............. $27.94 $28.75 $25.59 $23.30 $17.33
Accumulation units outstanding
at the end of period ....... 7,723,910 6,900,722 6,640,177 5,420,372 4,616,955
---------------------------------------------------------------------------------------
LARGE CAP VALUE SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $32.37 $29.89 $28.47 $20.92 $22.16
End of period .............. $31.03 $32.37 $29.89 $28.47 $20.92
Accumulation units outstanding
at the end of period ....... 14,312,801 3,236,948 11,381,462 8,753,337 6,449,776
---------------------------------------------------------------------------------------
MONEY MARKET SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $16.48 $16.26 $15.94 $15.27 $14.33
End of period ............. $16.89 $16.48 $16.26 $15.94 $15.27
Accumulation units outstanding
at the end of period ....... 3,578,026 2,680,809 2,373,251 2,161,924 1,913,734
---------------------------------------------------------------------------------------
GLOBAL SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $11.25 $ 8.65 $8.99 $8.07 $10.57
End of period .............. $11.42 $11.25 $8.65 $8.99 $ 8.07
Accumulation units outstanding
at the end of period ....... 9,361,197 5,863,967 2,070,715 917,833 466,703
---------------------------------------------------------------------------------------
DIVERSIFIED INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $20.52 $18.44 $17.37 $15.04 $14.26
End of period .............. $18.87 $20.52 $18.44 $17.37 $15.04
Accumulation units outstanding
at the end of period ....... 3,891,426 3,731,587 2,912,605 2,255,909 1,673,154
---------------------------------------------------------------------------------------
ENHANCED INDEX SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
---------------------------------------------------------------------------------------
INTERNATIONAL SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
---------------------------------------------------------------------------------------
MID CAP GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $13.97 $12.44 $10.00 --- ---
End of period .............. $13.10 $13.97 $12.44 --- ---
Accumulation units outstanding
at the end of period ....... 3,947,047 2,131,858 455,105 --- ---
---------------------------------------------------------------------------------------
GLOBAL STRATEGIC INCOME
SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
---------------------------------------------------------------------------------------
GLOBAL TOTAL RETURN
SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
---------------------------------------------------------------------------------------
MANAGED ASSET ALLOCATION
SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
---------------------------------------------------------------------------------------
EQUITY INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
---------------------------------------------------------------------------------------
HIGH YIELD SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
---------------------------------------------------------------------------------------
SOCIAL AWARENESS SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $13.31 $12.04 $10.47 $10.00 ---
End of period ............. $12.65 $13.31 $12.04 $10.47 ---
Accumulation units outstanding
at the end of period ....... 1,344,063 993,233 513,953 127,699 ---
---------------------------------------------------------------------------------------
MID-CAP VALUE SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period ............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
---------------------------------------------------------------------------------------
SMALL CAP GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
---------------------------------------------------------------------------------------
SELECT 25 SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
NON-QUALIFIED CONTRACTS 1999(f) 1998 1997 1996 1995(d)(e)
---------------------------------------------------------------------------------------
EQUITY SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $72.07 $58.17 $45.74 $37.74 $27.92
End of period .............. $77.00 $72.07 $58.17 $45.74 $37.74
Accumulation units outstanding
at the end of period ....... 2,537,119 2,665,560 2,652,767 2,575,426 2,306,163
---------------------------------------------------------------------------------------
LARGE CAP VALUE SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $61.81 $58.17 $46.54 $39.84 $31.00
End of period .............. $62.18 $61.81 $58.17 $46.54 $39.84
Accumulation units outstanding
at the end of period ....... 2,867,661 3,323,526 3,653,913 3,721,884 3,669,299
---------------------------------------------------------------------------------------
MONEY MARKET SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $19.71 $18.98 $18.26 $17.59 $16.89
End of period .............. $20.38 $19.71 $18.98 $18.26 $17.59
Accumulation units outstanding
at the end of period ....... 1,790,781 1,314,658 089,550 1,681,230 1,469,153
---------------------------------------------------------------------------------------
GLOBAL SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $18.11 $15.26 $14.51 $12.51 $11.42
End of period .............. $27.49 $18.11 $15.26 $14.51 $12.51
Accumulation units outstanding
at the end of period ....... 3,373,269 3,724,722 3,730,734 3,484,411 3,140,486
---------------------------------------------------------------------------------------
DIVERSIFIED INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $25.14 $23.56 $21.67 $22.09 $18.85
End of period .............. $23.90 $25.14 $23.56 $21.67 $22.09
Accumulation units outstanding
at the end of period ....... 1,121,142 1,321,999 1,535,471 1,377,342 1,325,159
---------------------------------------------------------------------------------------
ENHANCED INDEX SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $10.00 --- --- --- ---
End of period .............. $11.14 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 148,669 --- --- --- ---
---------------------------------------------------------------------------------------
INTERNATIONAL SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $10.00 --- --- --- ---
End of period .............. $12.89 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 27,983 --- --- --- ---
---------------------------------------------------------------------------------------
MID CAP GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $24.89 $21.36 $18.03 $15.46 $13.09
End of period .............. $39.81 $24.89 $21.36 $18.03 $15.46
Accumulation units outstanding
at the end of period ....... 1,930,663 2,140,621 2,019,008 1,559,302 1,248,987
---------------------------------------------------------------------------------------
GLOBAL STRATEGIC INCOME
SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $13.20 $12.49 $12.00 $10.69 $10.00
End of period .............. $13.19 $13.20 $12.49 $12.00 $10.69
Accumulation units outstanding
at the end of period ....... 155,100 180,061 212,934 178,818 74,528
---------------------------------------------------------------------------------------
GLOBAL TOTAL RETURN SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $14.01 $12.59 $12.00 $10.64 $10.00
End of period .............. $15.77 $14.01 $12.59 $12.00 $10.64
Accumulation units outstanding
at the end of period ....... 501,463 585,003 687,020 532,893 297,967
---------------------------------------------------------------------------------------
MANAGED ASSET ALLOCATION
SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $16.26 $13.89 $11.87 $10.66 $10.00
End of period .............. $17.63 $16.26 $13.89 $11.87 $10.66
Accumulation units outstanding
at the end of period ....... 742,405 739,827 459,560 374,276 226,555
---------------------------------------------------------------------------------------
EQUITY INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $18.83 $17.48 $13.78 $11.62 $10.00
End of period .............. $19.18 $18.83 $17.48 $13.78 $11.62
Accumulation units outstanding
at the end of period ....... 1,379,765 1,427,599 1,257,818 710,206 234,242
---------------------------------------------------------------------------------------
HIGH YIELD SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $12.43 --- --- --- ---
End of period .............. $12.43 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 95,775 --- --- --- ---
---------------------------------------------------------------------------------------
SOCIAL AWARENESS SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $29.51 $22.73 $18.75 $15.98 $12.66
End of period .............. $34.17 $29.51 $22.73 $18.75 $15.98
Accumulation units outstanding
at the end of period ....... 1,188,307 1,036,280 904,831 746,852 612,235
---------------------------------------------------------------------------------------
MID CAP VALUE SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $14.89 --- --- --- ---
End of period .............. $17.62 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 189,495 --- --- --- ---
---------------------------------------------------------------------------------------
SMALL CAP GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $10.31 --- --- --- ---
End of period .............. $19.48 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 319,874 --- --- --- ---
---------------------------------------------------------------------------------------
SELECT 25 SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $10.00 --- --- --- ---
End of period .............. $12.24 --- --- --- ---
Accumulation units outstanding
at the end of period ....... 318,343 --- --- --- ---
---------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
NON-QUALIFIED CONTRACTS 1994 1993 1992(c) 1991(a)(b) 1990
-------------------------------------------------------------------------------------
EQUITY SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $28.74 $25.58 $23.30 $17.32 $19.45
End of period .............. $27.92 $28.74 $25.58 $23.30 $17.32
Accumulation units outstanding
at the end of period ....... 1,578,797 1,483,618 1,766,896 1,328,865 952,806
-------------------------------------------------------------------------------------
LARGE CAP VALUE SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $32.34 $29.87 $28.44 $20.91 $22.16
End of period .............. $31.00 $32.34 $29.87 $28.44 $20.91
Accumulation units outstanding
at the end of period ....... 3,515,364 3,262,600 2,560,986 1,774,534 1,293,121
-------------------------------------------------------------------------------------
MONEY MARKET SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $16.48 $16.26 $15.94 $15.28 $14.32
End of period .............. $16.89 $16.48 $16.26 $15.94 $15.28
Accumulation units outstanding
at the end of period ....... 2,475,349 1,913,212 1,031,855 1,000,378 954,107
-------------------------------------------------------------------------------------
GLOBAL SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $11.25 $ 8.65 $8.99 $8.07 $10.57
End of period .............. $11.42 $11.25 $8.65 $8.99 $ 8.07
Accumulation units outstanding
at the end of period ....... 2,803,304 2,150,932 678,110 279,878 125,010
-------------------------------------------------------------------------------------
DIVERSIFIED INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $20.50 $18.42 $17.36 $15.02 $14.25
End of period .............. $18.85 $20.50 $18.42 $17.36 $15.02
Accumulation units outstanding
at the end of period ....... 1,392,830 1,290,268 962,775 784,496 582,285
-------------------------------------------------------------------------------------
ENHANCED INDEX SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
-------------------------------------------------------------------------------------
INTERNATIONAL SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
-------------------------------------------------------------------------------------
MID CAP GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $13.96 $12.44 $10.00 --- ---
End of period .............. $13.09 $13.96 $12.44 --- ---
Accumulation units outstanding
at the end of period ....... 1,211,099 610,801 68,338 --- ---
-------------------------------------------------------------------------------------
GLOBAL STRATEGIC INCOME
SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
-------------------------------------------------------------------------------------
GLOBAL TOTAL RETURN SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
-------------------------------------------------------------------------------------
MANAGED ASSET ALLOCATION
SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
-------------------------------------------------------------------------------------
EQUITY INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
-------------------------------------------------------------------------------------
HIGH YIELD SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
-------------------------------------------------------------------------------------
SOCIAL AWARENESS SUBACCOUNT
Accumulation unit value:
Beginning of period ........ $13.31 $12.04 $10.47 $10.00 ---
End of period .............. $12.66 $13.31 $12.04 $10.47 ---
Accumulation units outstanding
at the end of period ....... 543,287 389,861 226,145 98,344 ---
-------------------------------------------------------------------------------------
MID CAP VALUE SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
-------------------------------------------------------------------------------------
SMALL CAP GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
-------------------------------------------------------------------------------------
SELECT 25 SUBACCOUNT
Accumulation unit value:
Beginning of period ........ --- --- --- --- ---
End of period .............. --- --- --- --- ---
Accumulation units outstanding
at the end of period ....... --- --- --- --- ---
-------------------------------------------------------------------------------------
(a) Social Awareness Subaccount was first publicly offered on May 1, 1991.
(b) Effective May 1, 1991, the investment objective of Global Subaccount was changed from
high current income to long-term capital growth through investment in common stocks
and equivalents of companies domiciled in foreign countries and the United States.
(c) Mid Cap Growth Subaccount was first publicly offered on October 1, 1992.
(d) Global Strategic Income, Global Total Return, Managed Asset Allocation and Equity
Income Subaccounts were first publicly offered on June 1, 1995.
(e) Effective June 1, 1995, the investment objective of Large Cap Value Subaccount was
changed from seeking to provide income with secondary emphasis on capital
appreciation to seeking long-term growth of capital with secondary emphasis on
income.
(f) Accumulation unit values for Enhanced Index, International and Select 25 Subaccounts
are for the period May 3, 1999 (the date first publicly offered) to December 31,
1999.
------------------------------------------------------------------------------------------
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND SBL FUND
SECURITY BENEFIT LIFE INSURANCE COMPANY -- Security Benefit is a life insurance
company organized under the laws of the State of Kansas. It was organized
originally as a fraternal benefit society and commenced business February 22,
1892. It became a mutual life insurance company under its present name on
January 2, 1950.
On July 31, 1998, Security Benefit converted from a mutual life insurance
company to a stock life insurance company ultimately controlled by Security
Benefit Mutual Holding Company, a Kansas mutual holding company. Membership
interests of persons who were Contractowners as of July 31, 1998 became
membership interests in Security Benefit Mutual Holding Company as of that date,
and persons who acquire policies from Security Benefit after that date
automatically become members in the mutual holding company.
Security Benefit offers life insurance policies and annuity contracts, as
well as financial and retirement services. It is admitted to do business in the
District of Columbia, and in all states except New York. As of the end of 1999,
The Company had total assets of approximately $8.7 billion. Together with its
subsidiaries, The Company has total funds under management of approximately $9.9
billion.
The Principal Underwriter for the Contracts is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company wholly owned by
Security Benefit.
PUBLISHED RATINGS -- Security Benefit may from time to time publish in
advertisements, sales literature and reports to Owners, the ratings and other
information assigned to it by one or more independent rating organizations such
as A.M. Best Company and Standard & Poor's. The purpose of the ratings is to
reflect the financial strength and/or claims-paying ability of Security Benefit
and should not be considered as bearing on the investment performance of assets
held in the Separate Account. Each year A.M. Best Company reviews the financial
status of thousands of insurers, culminating in the assignment of Best's
Ratings. These ratings reflect their current opinion of the relative financial
strength and operating performance of an insurance company in comparison to the
norms of the life/health insurance industry. In addition, the claims-paying
ability of Security Benefit as measured by Standard & Poor's Insurance Ratings
Services may be referred to in advertisements or sales literature or in reports
to Owners. These ratings are opinions of an operating insurance company's
financial capacity to meet the obligations of its insurance and annuity policies
in accordance with their terms. Such ratings do not reflect the investment
performance of the Separate Account or the degree of risk associated with an
investment in the Separate Account.
SEPARATE ACCOUNT -- Security Benefit established the Separate Account under
Kansas law on January 31, 1984. The Contract provides that the income, gains, or
losses of the Separate Account, whether or not realized, are credited to or
charged against the assets of the Separate Account without regard to other
income, gains, or losses of Security Benefit. Kansas law provides that assets in
a separate account attributable to the reserves and other liabilities under the
contracts may not be charged with liabilities arising from any other business
that the insurance company conducts if, and to the extent the contracts so
provide. The Contract contains such a provision. Security Benefit owns the
assets in the Separate Account and is required to maintain sufficient assets in
the Separate Account to meet all Separate Account obligations under the
Contracts. Security Benefit may transfer to its General Account assets that
exceed anticipated obligations of the Separate Account. All obligations arising
under the Contracts are general corporate obligations of Security Benefit.
Security Benefit may invest its own assets in the Separate Account for other
purposes, but not to support contracts other than variable annuity contracts,
and may accumulate in the Separate Account proceeds from Contract charges and
investment results applicable to those assets.
The Separate Account is currently divided into twenty-two Subaccounts. The
Contract provides that the income, gains and losses, whether or not realized,
are credited to, or charged against, the assets of each Subaccount without
regard to the income, gains or losses in the other Subaccounts. Each Subaccount
invests exclusively in shares of a specific Series of SBL Fund. Security Benefit
may in the future establish additional Subaccounts of the Separate Account,
which may invest in other Series of SBL Fund or in other securities, mutual
funds, or investment vehicles.
The Separate Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with the
SEC does not involve supervision by the SEC of the administration or investment
practices of the Separate Account or of Security Benefit.
SBL FUND -- SBL Fund is an open-end management investment company of the
series type. It is registered with the SEC under the 1940 Act. Such registration
does not involve supervision by the SEC of the investments or investment policy
of the Fund. SBL Fund currently has twenty-two separate portfolios ("Series"),
each of which pursues different investment objectives and policies.
Shares of the Fund currently are offered only for purchase by separate
accounts of Security Benefit to serve as an investment medium for variable life
insurance policies and variable annuity contracts issued by Security Benefit.
Thus, SBL Fund serves as an investment medium for both variable life insurance
policies and variable annuity contracts. This is called "mixed funding." Shares
of SBL Fund also may be sold in the future to separate accounts of other
insurance companies, both affiliated and not affiliated with Security Benefit.
This is called "shared funding." Security Benefit currently does not foresee any
disadvantages to Contractowners arising from either mixed or shared funding;
however, due to differences in tax treatment or other considerations, it is
theoretically possible that the interests of owners of various contracts for
which SBL Fund serves as an investment medium might at some time be in conflict.
However, Security Benefit, the Fund's Board of Directors, and any other
insurance companies that participate in SBL Fund in the future are required to
monitor events in order to identify any material conflicts that arise from the
use of the Fund for mixed and/or shared funding. SBL Fund's Board of Directors
is required to determine what action, if any, should be taken in the event of
such a conflict. If such a conflict were to occur, Security Benefit might be
required to withdraw the investment of one or more of its separate accounts from
SBL Fund. This might force the Fund to sell securities at disadvantageous
prices.
A summary of the investment objective of each Series of SBL Fund is set forth
below. We cannot assure that any Series will achieve its objective. More
detailed information is contained in the accompanying prospectus of SBL Fund,
including information on the risks associated with the investments and
investment techniques of each Series.
SBL FUND'S PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
SERIES A (EQUITY SERIES) -- Amounts that you allocate to the Equity Subaccount
are invested in Series A. The investment objective of Series A is to seek
long-term capital growth by investing in a broadly diversified portfolio of
common stocks, securities convertible into common stocks, preferred stocks,
bonds and other debt securities.
SERIES B (LARGE CAP VALUE SERIES) -- Amounts that you allocate to the Large Cap
Value Subaccount are invested in Series B. Series B seeks long-term growth of
capital by investing at least 65% of its total assets in large-capitalization
value companies. The Series' stock investments may include common stocks,
preferred stocks and convertible securities of both U.S. and U.S.
dollar-denominated foreign issuers. Series B may temporarily invest in cash,
government bonds or money market securities.
SERIES C (MONEY MARKET SERIES) -- Amounts that you allocate to the Money Market
Subaccount are invested in Series C. The investment objective of Series C is to
provide as high a level of current income as is consistent with preserving
capital. It invests in high quality money market instruments with maturities of
not longer than thirteen months.
SERIES D (GLOBAL SERIES) -- Amounts that you allocate to the Global Subaccount
are invested in Series D. The investment objective of Series D is to seek
long-term growth of capital primarily through investment in common stocks and
equivalents of companies domiciled in foreign countries and the United States.
SERIES E (DIVERSIFIED INCOME SERIES) -- Amounts that you allocate to the
Diversified Income Subaccount are invested in Series E. The investment objective
of Series E is to provide current income with security of principal. Series E
seeks to achieve this investment objective by investing primarily in a
diversified portfolio of investment-grade debt securities. The debt securities
in which Series E invests will primarily be domestic securities, but may also
include dollar denominated foreign securities.
SERIES G (LARGE CAP GROWTH SERIES) -- Amounts that you allocate to the Large Cap
Growth Subaccount are invested in Series G. The investment objective of Series G
is to seek long-term capital growth by investing primarily in equity securities
of large capitalization companies (defined as companies whose total market value
is at least $5 billion at the time of purchase).
SERIES H (ENHANCED INDEX SERIES) -- Amounts that you allocate to the Enhanced
Index Subaccount are invested in Series H. The investment objective of Series H
is to seek to outperform the S&P 500 Index through stock selection resulting in
different weightings of common stocks relative to the index.
SERIES I (INTERNATIONAL SERIES) -- Amounts that you allocate to the
International Subaccount are invested in Series I. The investment objective of
Series I is to seek long-term capital appreciation by investing primarily in
non-U.S. equity securities and other securities with equity characteristics.
SERIES J (MID CAP GROWTH SERIES) -- Amounts that you allocate to the Mid Cap
Growth Subaccount are invested in Series J. The investment objective of Series J
is to seek capital appreciation through investment in a broadly diversified
portfolio of securities which may include common stocks, preferred stocks, debt
securities and securities convertible into common stocks.
SERIES K (GLOBAL STRATEGIC INCOME SERIES) -- Amounts that you allocate to the
Global Strategic Income Subaccount are invested in Series K. The investment
objective of Series K is to seek high current income and, as a secondary
objective, capital appreciation by investing in a combination of foreign and
domestic high-yield, lower rated debt securities (commonly known as "junk
bonds").
SERIES L (CAPITAL GROWTH SERIES) -- Amounts that you allocate to the Capital
Growth Series are invested in Series L. The investment objective of Series L is
to seek growth of capital by pursuing aggressive investment policies primarily
in equity securities of U. S. companies.
SERIES M (GLOBAL TOTAL RETURN SERIES) -- Amounts that you allocate to the Global
Total Return Subaccount are invested in Series M. The investment objective of
Series M is to seek high total return consisting of capital appreciation and
current income. Series M seeks this objective through asset allocation and
security selection by investing in a diversified portfolio of global equity and
bond securities.
SERIES N (MANAGED ASSET ALLOCATION SERIES) -- Amounts that you allocate to the
Managed Asset Allocation Subaccount are invested in Series N. The investment
objective of Series N is to seek a high level of total return by investing
primarily in a diversified portfolio of debt and equity securities.
SERIES O (EQUITY INCOME SERIES) -- Amounts that you allocate to the Equity
Income Subaccount are invested in Series O. The investment objective of Series O
is to seek to provide substantial dividend income and also capital appreciation
by investing primarily in dividend-paying common stocks of established
companies.
SERIES P (HIGH YIELD SERIES) -- Amounts that you allocate to the High Yield
Subaccount are invested in Series P. The investment objective of Series P is to
seek high current income. Capital appreciation is a secondary objective. Series
P seeks its objectives by investing primarily in higher yielding, higher risk
debt securities (commonly referred to as "junk bonds").
SERIES Q (SMALL CAP VALUE SERIES) -- Amounts that you allocate to the Small Cap
Value Series are invested in Series Q. The investment objective of Series Q is
to seek capital growth by investing in securities of small capitalization
companies (defined as companies with a market capitalization substantially
similar to that of companies in the Russell 2500TM Index at the time of
investment).
SERIES S (SOCIAL AWARENESS SERIES) -- Amounts that you allocate to the Social
Awareness Subaccount are invested in Series S. The investment objective of
Series S is to seek capital appreciation by investing in various types of
securities which meet certain social criteria established for the Series. The
Series also may invest in companies that are included in the Domini 400 Social
IndexSM, which companies will be deemed to comply with the Series' social
criteria. Series S will invest in a diversified portfolio of common stocks,
convertible securities, preferred stocks and debt securities.
SERIES T (TECHNOLOGY SERIES) -- Amounts that you allocate to the Technology
Subaccount are invested in Series T. The investment objective of Series T is to
seek long-term capital appreciation by investing in the equity securities of
technology companies.
SERIES V (MID CAP VALUE SERIES) -- Amounts that you allocate to the Mid Cap
Value Subaccount are invested in Series V. The investment objective of Series V
is to seek long-term growth of capital by investing in a diversified portfolio
consisting primarily of common stocks. The Series will invest in stocks that the
Investment Adviser believes are undervalued relative to assets, earnings, growth
potential or cash flow.
SERIES W (MAIN STREET GROWTH AND INCOME(R) SERIES) -- Amounts that you allocate
to the Main Street Growth and Income(R) Subaccount are invested in Series W. The
investment objective of Series W is to seek high total return (which includes
growth in the value of its shares as well as current income) from equity and
debt securities.
SERIES X (SMALL CAP GROWTH SERIES) -- Amounts that you allocate to the Small Cap
Growth Subaccount are invested in Series X. The investment objective of Series X
is to seek long-term growth of capital by investing primarily in domestic and
foreign equity securities of small capitalization companies (defined as
companies with a market capitalization substantially similar to that of
companies in the Russell 2000TM Growth Index at the time of investment).
SERIES Y (SELECT 25 SERIES) -- Amounts that you allocate to the Select 25
Subaccount are invested in Series Y. The investment objective of Series Y is to
seek long-term growth of capital by concentrating its investments in a core
position of 20-30 common stocks of growth companies which have exhibited
consistent above average earnings growth.
THE INVESTMENT ADVISER -- Security Management Company, LLC, 700 SW Harrison
Street, Topeka, Kansas 66636, serves as Investment Adviser to each Series of SBL
Fund. The Investment Adviser is registered with the SEC as an investment
adviser. The Investment Adviser has engaged The Dreyfus Corporation, 200 Park
Avenue, New York, New York 10166, to provide investment advisory services to
Large Cap Value Series; OppenheimerFunds, Inc., Two World Trade Center, New
York, New York 10048-0203, to provide investment advisory services to Global
Series and Main Street Growth and Income(R) Series; Bankers Trust Company, 130
Liberty Street, New York, New York 10006 to provide investment advisory services
to Enhanced Index Series and International Series; Wellington Management Company
LLP, 75 State Street, Boston, Massachusetts 02109 to provide investment advisory
services to Global Strategic Income Series, Global Total Return Series and
Technology Series; T. Rowe Price Associates, Inc., 100 East Pratt Street,
Baltimore, Maryland 21202 to provide investment advisory services to Managed
Asset Allocation Series and Equity Income Series; Strong Capital Management
Corporation, 900 Heritage Reserve, Menomonee, Wisconsin 53051 to provide
investment advisory services to Small Cap Value Series and Small Cap Growth
Series; and Alliance Capital Management L.P., 1345 Avenue of the Americas, New
York, New York 10105 to provide investment advisory services to Capital Growth
Series.
THE CONTRACT
GENERAL -- Security Benefit issues the Contract offered by this Prospectus. It
is a flexible purchase payment deferred variable annuity. It is also available
as a single purchase payment immediate variable annuity. To the extent that you
allocate all or a portion of your purchase payments to the Subaccounts, the
Contract is significantly different from a fixed annuity contract in that you
assume the risk of investment gain or loss under the Contract rather than
Security Benefit. When you are ready to begin receiving annuity payments, the
Contract provides several Annuity Options under which Security Benefit will pay
periodic annuity payments on a variable basis, a fixed basis or both, beginning
on the Annuity Commencement Date. The amount that will be available for annuity
payments will depend on the investment performance of the Subaccounts to which
you have allocated purchase payments and the amount of interest credited on
Contract Value that you have allocated to the Fixed Account.
The Contract is available for purchase by an individual or group as a non-tax
qualified retirement plan ("Non-Qualified Plan"). The Contract is also eligible
for purchase in connection with certain tax qualified retirement plans that meet
the requirements of Section 401, 403(a), 403(b), 408, 408A, or 457 of the
Internal Revenue Code ("Qualified Plan"). Certain federal tax advantages are
currently available to retirement plans that qualify as (1) self-employed
individuals' retirement plans under Section 401, such as HR-10 and Keogh plans,
(2) pension or profit-sharing plans established by an employer for the benefit
of its employees under Section 401 or 403(a), (3) individual retirement accounts
or annuities, including those established by an employer as a simplified
employee pension plan, under Section 408, (4) annuity purchase plans of public
school systems and certain tax-exempt organizations under Section 403(b) or (5)
deferred compensation plans for employees established by a unit of a state or
local government or by a tax-exempt organization under Section 457. Joint Owners
are permitted only on a Contract issued pursuant to a Non-Qualified Plan.
TYPES OF VARIFLEX CONTRACTS -- Different types of the Contract are offered by
Security Benefit through this Prospectus. The types of the Contract vary in the
amount and timing of the minimum purchase payments, and in various other
respects. The different types of the Contract are described below:
SINGLE PURCHASE PAYMENT IMMEDIATE ANNUITY. This type of Contract is used for
an individual where a single purchase payment has been allocated to provide for
annuity payments to commence immediately.
FLEXIBLE PURCHASE PAYMENT DEFERRED ANNUITY. This type of Contract is used for
an individual where periodic purchase payments will be made with annuity
payments to commence at a later date.
GROUP FLEXIBLE PURCHASE PAYMENT DEFERRED ANNUITY CONTRACT. This type of
Contract is used when purchase payments under group plans are to be accumulated
until the retirement date of each Participant. Under a Group Allocated Contract,
Contract Value is established for each Participant for whom payments are being
made and the benefit at retirement will be determined by your Contract Value at
that time.
Under a Group Unallocated Contract, the purchase payments are not allocated
to the individual Participants but are credited to the Contractowner's account.
When a Participant becomes entitled to receive payments under the provisions of
the Plan, the appropriate amount of Contract Value may be withdrawn by the
Contractowner to provide the Participant with an annuity.
APPLICATION FOR A CONTRACT -- If you wish to purchase a Contract, you may submit
an application and an initial purchase payment to Security Benefit, as well as
any other form or information that Security Benefit may require. Security
Benefit reserves the right to reject an application or purchase payment for any
reason, subject to Security Benefit's underwriting standards and guidelines and
any applicable state or federal law relating to nondiscrimination.
The maximum age of an Owner or Annuitant for which a Contract will be issued
is age 80 (age 75 for Contracts issued in Florida). If there are Joint Owners or
Annuitants, the maximum issue age will be determined by reference to the older
Owner or Annuitant.
PURCHASE PAYMENTS -- The minimum initial purchase payment is $500 for a Contract
funding a Non-Qualified Plan or Group Unallocated Contract, $25 for a Contract
funding a Qualified Plan and $2,500 for single purchase payment immediate
annuity. Thereafter, you may choose the amount and frequency of purchase
payments, except that the minimum subsequent purchase payment is $25. Security
Benefit does not permit subsequent purchase payments for a single purchase
payment immediate annuity. Total purchase payments exceeding $1 million will not
be accepted without prior approval of Security Benefit.
Security Benefit will apply the initial purchase payment not later than the
end of the second Valuation Date after the Valuation Date it is received by
Security Benefit; provided that the purchase payment is preceded or accompanied
by an application that contains sufficient information to establish an account
and properly credit such purchase payment. The application form will be provided
by Security Benefit. If Security Benefit does not receive a complete
application, Security Benefit will notify you that it does not have the
necessary information to issue a Contract. If you do not provide the necessary
information to Security Benefit within five Valuation Dates after the Valuation
Date on which Security Benefit first receives the initial purchase payment or if
Security Benefit determines it cannot otherwise issue the Contract, Security
Benefit will return the initial purchase payment to you unless you consent to
Security Benefit retaining the purchase payment until the application is made
complete.
Security Benefit will credit subsequent purchase payments as of the end of
the Valuation Period in which they are received by Security Benefit at its Home
Office. Purchase payments after the initial purchase payment may be made at any
time prior to the Annuity Commencement Date, so long as the Owner is living.
Subsequent purchase payments under a Qualified Plan may be limited by the terms
of the plan and provisions of the Internal Revenue Code.
ALLOCATION OF PURCHASE PAYMENTS -- In an application for a Contract, you select
the Subaccounts or the Fixed Account to which purchase payments will be
allocated. Purchase payments will be allocated according to your instructions
contained in the application or more recent instructions received, if any,
except that no purchase payment allocation is permitted that would result in
less than $25 per payment being allocated to any one Subaccount or the Fixed
Account. The allocations must be a whole dollar or whole percentage. Available
allocation alternatives include the twenty-two Subaccounts and the Fixed
Account.
You may change the purchase payment allocation instructions by submitting a
proper written request to Security Benefit's Home Office. A proper change in
allocation instructions will be effective upon receipt by Security Benefit at
its Home Office and will continue in effect until you submit a change in
instructions to the company. You may make changes in your purchase payment
allocation and changes to an existing Dollar Cost Averaging or Asset
Reallocation Option by telephone provided the Telephone Transfer section of the
application or an Authorization for Telephone Requests form is properly
completed, signed, and filed at Security Benefit's Home Office. Changes in the
allocation of future purchase payments have no effect on existing Contract
Value. You may, however, transfer Contract Value among the Subaccounts and the
Fixed Account in the manner described in "Transfers of Contract Value," page 19.
DOLLAR COST AVERAGING OPTION -- Prior to the Annuity Commencement Date, you may
dollar cost average your Contract Value by authorizing Security Benefit to make
periodic transfers of Contract Value from any one Subaccount to one or more of
the other Subaccounts. Dollar cost averaging is a systematic method of investing
in which securities are purchased at regular intervals in fixed dollar amounts
so that the cost of the securities gets averaged over time and possibly over
various market cycles. The option will result in the transfer of Contract Value
from one Subaccount to one or more of the other Subaccounts. Amounts transferred
under this option will be credited at the price of the Subaccount as of the end
of the Valuation Dates on which the transfers are effected. Since the price of a
Subaccount's Accumulation Units will vary, the amounts transferred to a
Subaccount will result in the crediting of a greater number of units when the
price is low and a lesser number of units when the price is high. Similarly, the
amounts transferred from a Subaccount will result in a debiting of a greater
number of units when the price is low and a lesser number of units when the
price is high. Dollar cost averaging does not guarantee profits, nor does it
assure that you will not have losses.
A Dollar Cost Averaging Request form is available upon request. On the form,
you must designate whether Contract Value is to be transferred on the basis of a
specific dollar amount, fixed period or earnings only, the Subaccount or
Subaccounts to and from which the transfers will be made, the desired frequency
of the transfers, which may be on a monthly or quarterly basis, and the length
of time during which the transfers shall continue or the total amount to be
transferred over time.
After Security Benefit has received a Dollar Cost Averaging Request in proper
form at its Home Office, Security Benefit will transfer Contract Value in the
amounts you designate from the Subaccount from which transfers are to be made to
the Subaccount or Subaccounts you have chosen. The minimum amount that you may
transfer each month or quarter to any one Subaccount is $25. Security Benefit
will effect each transfer on the date you specify or if no date is specified, on
the monthly or quarterly anniversary, whichever corresponds to the period
selected, of the date of receipt at the Home Office of a Dollar Cost Averaging
Request in proper form. Transfers will be made until the total amount elected
has been transferred, or until Contract Value in the Subaccount from which
transfers are made has been depleted. Amounts periodically transferred under
this option are not currently subject to any transfer charges.
You may instruct Security Benefit at any time to terminate the option by
written request to Security Benefit's Home Office. In that event, the Contract
Value in the Subaccount from which transfers were being made that has not been
transferred will remain in that Subaccount unless you instruct us otherwise. If
you wish to continue transferring on a dollar cost averaging basis after the
expiration of the applicable period, the total amount elected has been
transferred, or the Subaccount has been depleted, or after the Dollar Cost
Averaging Option has been canceled, a new Dollar Cost Averaging Request must be
completed and sent to the Home Office. Security Benefit requires that you wait
at least a month (or a quarter if transfers were made on a quarterly basis)
before reinstating Dollar Cost Averaging after it has been terminated for any
reason. Security Benefit may discontinue, modify, or suspend the Dollar Cost
Averaging Option at any time.
You may also dollar cost average Contract Value to or from the Fixed Account,
subject to certain restrictions described under "The Fixed Account," page 28.
ASSET REALLOCATION OPTION -- Prior to the Annuity Commencement Date, you may
authorize Security Benefit to automatically transfer Contract Value on a
quarterly, semiannual or annual basis to maintain a particular percentage
allocation among the Subaccounts. The Contract Value allocated to each
Subaccount will grow or decline in value at different rates during the selected
period. Asset Reallocation automatically reallocates the Contract Value in the
Subaccounts to the allocation you selected on a quarterly, semiannual or annual
basis, as you select. Asset Reallocation is intended to transfer Contract Value
from those Subaccounts that have increased in value to those Subaccounts that
have declined in value. Over time, this method of investing may help you buy low
and sell high. This investment method does not guarantee profits, nor does it
assure that you will not have losses.
To elect this option an Asset Reallocation Request in proper form must be
received by Security Benefit at its Home Office. An Asset Reallocation Request
form is available upon request. On the form, you must indicate the applicable
Subaccounts, the applicable time period and the percentage of Contract Value to
be allocated to each Subaccount.
Upon receipt of the Asset Reallocation Request, Security Benefit will effect
a transfer or, in the case of a new Contract, will allocate the initial purchase
payment, among the Subaccounts based upon the percentages that you selected.
Thereafter, Security Benefit will transfer Contract Value to maintain that
allocation on each quarterly, semiannual or annual anniversary, as applicable,
of the date of Security Benefit's receipt of the Asset Reallocation Request in
proper form. The amounts transferred will be credited at the price of the
Subaccount as of the end of the Valuation Date on which the transfer is
effected. Amounts periodically transferred under this option are not currently
subject to any transfer charges.
You may instruct Security Benefit at any time to terminate this option by
written request to Security Benefit's Home Office. In that event, the Contract
Value in the Subaccounts that has not been transferred will remain in those
Subaccounts regardless of the percentage allocation unless you instruct us
otherwise. If you wish to continue Asset Reallocation after it has been
canceled, a new Asset Reallocation Request form must be completed and sent to
Security Benefit's Home Office. Security Benefit may discontinue, modify, or
suspend, and reserves the right to charge a fee for the Asset Reallocation
Option at any time.
Contract Value allocated to the Fixed Account may be included in the Asset
Reallocation option, subject to certain restrictions described in "Transfers and
Withdrawals from the Fixed Account," page 28.
TRANSFERS OF CONTRACT VALUE -- Prior to the Annuity Commencement Date, you may
transfer Contract Value among the Subaccounts upon proper written request to
Security Benefit's Home Office. You may make transfers (other than transfers
pursuant to the Dollar Cost Averaging and Asset Reallocation Options) by
telephone if the Telephone Transfer section of the application or an
Authorization for Telephone Requests form has been properly completed, signed
and filed at Security Benefit's Home Office. The minimum transfer amount is
$500, or the amount remaining in a given Subaccount. The minimum transfer amount
does not apply to transfers under the Dollar Cost Averaging or Asset
Reallocation Options.
You may also transfer Contract Value from the Subaccounts to the Fixed
Account; however, transfers from the Fixed Account to the Subaccounts are
restricted as described in "The Fixed Account," page 28.
Security Benefit generally does not limit the frequency of transfers,
although Security Benefit reserves the right to limit them as to any individual,
or in the future, in general, to not more than 14 transfers in a Contract Year.
Security Benefit also reserves the right to limit the size and frequency of such
transfers, and to discontinue telephone transfers.
CONTRACT VALUE -- The Contract Value is the sum of the amounts under your
Contract held in each Subaccount and the Fixed Account as well as any amount set
aside in the loan account to secure loans as of any Valuation Date.
On each Valuation Date, the amount of Contract Value allocated to any
particular Subaccount will be adjusted to reflect the investment experience of
that Subaccount. See "Determination of Contract Value," page 19. No minimum
amount of Contract Value is guaranteed. You bear the entire investment risk
relating to the investment performance of Contract Value allocated to the
Subaccounts.
DETERMINATION OF CONTRACT VALUE -- Your Contract Value will vary to a degree
that depends upon several factors, including investment performance of the
Subaccounts to which you have allocated Contract Value, payment of purchase
payments, the amount of any outstanding Contract Debt, partial withdrawals, and
the charges assessed in connection with the Contract. The amounts allocated to
the Subaccounts will be invested in shares of the corresponding Series of SBL
Fund. The investment performance of the Subaccounts will reflect increases or
decreases in the net asset value per share of the corresponding Series and any
dividends or distributions declared by a Series. Any dividends or distributions
from any Series of the Fund will be automatically reinvested in shares of the
same Series, unless Security Benefit, on behalf of the Separate Account, elects
otherwise.
Assets in the Subaccounts are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's
interest in a Subaccount. When you allocate purchase payments to a Subaccount,
your Contract is credited with Accumulation Units. The number of Accumulation
Units to be credited is determined by dividing the dollar amount allocated to
the particular Subaccount by the price for the Subaccount as of the end of the
Valuation Period in which the purchase payment is credited. In addition, other
transactions including loans, full or partial withdrawals, transfers, and
assessment of certain charges against the Contract affect the number of
Accumulation Units credited to a Contract. The number of units credited or
debited in connection with any such transaction is determined by dividing the
dollar amount of such transaction by the price of the affected Subaccount. The
price of each Subaccount is determined on each Valuation Date. The number of
Accumulation Units credited to a Contract shall not be changed by any subsequent
change in the value of an Accumulation Unit, but the dollar value of an
Accumulation Unit may vary from Valuation Date to Valuation Date depending upon
the investment experience of the Subaccount and charges against the Subaccount.
The price of each Subaccount's units initially was $10. The price of a
Subaccount on any Valuation Date takes into account the following: (1) the
investment performance of the Subaccount, which is based upon the investment
performance of the corresponding Series of SBL Fund, (2) any dividends or
distributions paid by the corresponding Series, (3) the charges, if any, that
may be assessed by Security Benefit for taxes attributable to the operation of
the Subaccount, and (4) the mortality and expense risk charge under the
Contract.
FULL AND PARTIAL WITHDRAWALS -- A Contractowner may make a partial withdrawal of
Contract Value, or surrender the Contract for its Withdrawal Value. A full or
partial withdrawal, including a systematic withdrawal, may be taken from
Contract Value at any time while the Owner is living and before the Annuity
Commencement Date, subject to limitations under the applicable plan for
Qualified Plans and applicable law. A full or partial withdrawal request will be
effective as of the end of the Valuation Period that a proper written request is
received by Security Benefit at its Home Office. A proper written request must
include the written consent of any effective assignee or irrevocable
Beneficiary, if applicable.
The proceeds received upon a full withdrawal will be the Contract's
Withdrawal Value. The Withdrawal Value is equal to the Contract Value as of the
end of the Valuation Period during which a proper withdrawal request is received
by Security Benefit at its Home Office, less any outstanding Contract Debt, any
applicable withdrawal charge, a pro rata administration charge and any
uncollected premium taxes.
Security Benefit requires the signature of all Owners on any request for
withdrawal, and a guarantee of all such signatures to effect the transfer or
exchange of all or part of the Contract for another investment. The signature
guarantee must be provided by an eligible guarantor, such as a bank, broker,
credit union, national securities exchange or savings association. Security
Benefit further requires that any request to transfer or exchange all or part of
the Contract for another investment be made upon a transfer form provided by
Security Benefit which is available upon request.
A partial withdrawal may be requested for a specified percentage or dollar
amount of Contract Value. A request for a partial withdrawal will result in a
payment by Security Benefit of the amount specified in the partial withdrawal
request provided there is sufficient Contract Value to meet the request. Upon
payment, the Contract Value will be reduced by an amount equal to the payment
and any applicable withdrawal charge and premium tax. If a partial withdrawal is
requested after the first Contract Year that would leave the Withdrawal Value in
the Contract less than $2,000, Security Benefit reserves the right to treat the
partial withdrawal as a request for a full withdrawal. For Contracts issued
prior to January 4, 1999, if your withdrawal exceeds 90 percent of Contract
Value, Security Benefit may elect to treat your withdrawal as a full withdrawal.
Security Benefit will deduct the amount of a partial withdrawal from the
Contract Value in the Subaccounts and the Fixed Account, according to the
Contractowner's instructions to Security Benefit. If a Contractowner does not
specify the allocation, Security Benefit will deduct the withdrawal from the
Contract Value in the Subaccounts and the Fixed Account in the following order:
Money Market Subaccount, Diversified Income Subaccount, High Yield Subaccount,
Global Strategic Income Subaccount, Managed Asset Allocation Subaccount, Equity
Income Subaccount, Global Total Return Subaccount, Large Cap Value Subaccount,
Main Street Growth and Income(R) Subaccount, Equity Subaccount, Large Cap Growth
Subaccount, Enhanced Index Subaccount, Capital Growth Subaccount, Select 25
Subaccount, Social Awareness Subaccount, Mid Cap Value Subaccount, Mid Cap
Growth Subaccount, Global Subaccount, International Subaccount, Technology
Subaccount, Small Cap Value Subaccount and Small Cap Growth Subaccount and then
from the Fixed Account. The value of each account will be depleted before the
next account is charged.
A full or partial withdrawal, including a systematic withdrawal, may be
subject to a withdrawal charge if a withdrawal is made during the first eight
Contract Years and may be subject to a premium tax charge to reimburse Security
Benefit for any tax on premiums on a Contract that may be imposed by various
states and municipalities. Security Benefit may deduct a pro rata administration
charge upon a full withdrawal. See "Contingent Deferred Sales Charge," page 23,
"Administration Charge," page 24 and "Premium Tax Charge," page 25.
A full or partial withdrawal, including a systematic withdrawal, may result
in receipt of taxable income to the Owner and, if made prior to the Owner
attaining age 59 1/2, may be subject to a 10 percent penalty tax. In the case of
Contracts issued in connection with retirement plans that meet the requirements
of Section 401(a), 403, 408 or 457 of the Internal Revenue Code, reference
should be made to the terms of the particular Qualified Plan for any limitations
or restrictions on withdrawals. For more information, see "Restrictions on
Withdrawals from Qualified Plans," page 31. The tax consequences of a withdrawal
under the Contract should be carefully considered. See "Federal Tax Matters,"
page 31.
SYSTEMATIC WITHDRAWALS -- Security Benefit currently offers a feature under
which you may select systematic withdrawals. Under this feature, a Contractowner
may elect to receive systematic withdrawals while the Owner is living and before
the Annuity Commencement Date by sending a properly completed Systematic
Withdrawal Request form to Security Benefit at its Home Office. This option may
be elected at any time after the first Contract Year, or during the first
Contract Year, if Contract Value is $40,000 or more at the time of election. A
Contractowner may designate the systematic withdrawal amount as a percentage of
Contract Value allocated to the Subaccounts and/or Fixed Account, as a fixed
period, as a specified dollar amount, as all earnings in the Contract, or based
upon the life expectancy of the Owner or the Owner and a beneficiary. A
Contractowner also may designate the desired frequency of the systematic
withdrawals, which may be monthly, quarterly, semiannually or annually. The
Contractowner may stop or modify systematic withdrawals upon proper written
request received by Security Benefit at its Home Office at least 30 days in
advance of the requested date of termination or modification. A proper request
must include the written consent of any effective assignee or irrevocable
Beneficiary, if applicable.
Each systematic withdrawal must be at least $25. Upon payment, your Contract
Value will be reduced by an amount equal to the payment proceeds plus any
applicable withdrawal charge and premium tax. Any systematic withdrawal that
equals or exceeds the Withdrawal Value will be treated as a full withdrawal. In
no event will payment of a systematic withdrawal exceed the Withdrawal Value.
The Contract will automatically terminate if a systematic withdrawal causes the
Contract's Withdrawal Value to equal zero.
Security Benefit will effect each systematic withdrawal as of the end of the
Valuation Period during which the withdrawal is scheduled. The deduction caused
by the systematic withdrawal, including any applicable withdrawal charge, will
be allocated from the Contractowner's Contract Value in the Subaccounts and the
Fixed Account, as directed by the Contractowner. If a Contractowner does not
specify the allocation, the systematic withdrawal will be deducted from the
Contract Value in the Subaccounts and the Fixed Account in the following order:
Money Market Subaccount, Diversified Income Subaccount, High Yield Subaccount,
Global Strategic Income Subaccount, Managed Asset Allocation Subaccount, Equity
Income Subaccount, Global Total Return Subaccount, Large Cap Value Subaccount,
Main Street Growth and Income(R) Subaccount, Equity Subaccount, Large Cap Growth
Subaccount, Enhanced Index Subaccount, Capital Growth Subaccount, Select 25
Subaccount, Social Awareness Subaccount, Mid Cap Value Subaccount, Mid Cap
Growth Subaccount, Global Subaccount, International Subaccount, Technology
Subaccount, Small Cap Value Subaccount and Small Cap Growth Subaccount and then
from the Fixed Account. The value of each account will be depleted before the
next account is charged.
Systematic withdrawals generally are subject to any applicable withdrawal
charges. Systematic withdrawals may be made without a withdrawal charge provided
that you have not made a free withdrawal during the Contract Year and your
systematic withdrawals do not exceed an amount determined as follows: 10 percent
of Contract Value as of the Valuation Date the first systematic withdrawal
request is received during the Contract Year. Systematic withdrawals that exceed
this amount are subject to any applicable withdrawal charge.
Security Benefit may, at any time, discontinue, modify, or suspend systematic
withdrawals. You should consider carefully the tax consequences of a systematic
withdrawal, including the 10 percent penalty tax which may be imposed on
withdrawals made prior to the Owner attaining age 59 1/2. See "Federal Tax
Matters," page 31.
FREE-LOOK RIGHT -- You may return a Contract within the Free-Look Period, which
is generally a ten-day period beginning when you receive the Contract. Security
Benefit will then deem void the returned Contract and will refund to you any
purchase payments allocated to the Fixed Account plus the Contract Value in the
Subaccounts as of the end of the Valuation Period during which the returned
Contract is received by Security Benefit. Security Benefit will refund purchase
payments allocated to the Subaccounts rather than Contract Value in those states
and circumstances that require it to do so.
DEATH BENEFIT -- If the Owner (or Annuitant if you purchased your Contract prior
to January 4, 1999) dies prior to the Annuity Commencement Date, Security
Benefit will pay the death benefit proceeds to the Designated Beneficiary upon
receipt of due proof of the Owner's (or if applicable, the Annuitant's) death
and instructions regarding payment to the Designated Beneficiary. If there are
Joint Owners, the death benefit proceeds will be payable upon receipt of due
proof of death of either Owner prior to the Annuity Commencement Date and
instructions regarding payment.
If the surviving spouse of the deceased Owner is the sole Designated
Beneficiary, such spouse may elect to continue the Contract in force, subject to
certain limitations. See "Distribution Requirements," page 22. If the Owner is
not a natural person, the death benefit proceeds will be payable upon receipt of
due proof of death of the Annuitant prior to the Annuity Commencement Date and
instructions regarding payment. Additionally, if the Owner is not a natural
person, the amount of the death benefit will be based on the age of the oldest
Annuitant on the date the Contract was issued. If the death of the Owner occurs
on or after the Annuity Commencement Date, any death benefit will be determined
according to the terms of the Annuity Option. See "Annuity Options," page 26.
The death benefit proceeds will be the death benefit reduced by any
outstanding Contract Debt and any uncollected premium tax. If an Owner (or if
applicable, the Annuitant) dies during the Accumulation Period and the age of
each Owner (or Annuitant) was 75 or younger on the date the Contract was issued,
the amount of the death benefit will be the greatest of:
* The sum of all Purchase Payments, less any reductions caused by previous
withdrawals,
* The Contract Value on the date due proof of death and instructions regarding
payment are received by Security Benefit, or
* The stepped-up death benefit.
* The stepped-up death benefit is:
* The largest death benefit on any Contract anniversary that is an exact
multiple of six and occurs prior to the oldest Owner (or if applicable, the
Annuitant) attaining age 76, plus
* Any Purchase Payments made since the applicable Contract anniversary, less
* Any withdrawals since the applicable anniversary.
For Contracts in effect for six Contract Years or more as of May 1, 1991, the
Contract anniversary immediately preceding May 1, 1991, is deemed to be the
sixth Contract anniversary for purposes of determining the stepped-up death
benefit.
If an Owner (or if applicable, an Annuitant) dies during the Accumulation
Period and the age of any Owner (or Annuitant) was 76 or greater on the date the
Contract was issued, the death benefit will be the greater of:
* The Contract Value on the date due proof of death and instructions regarding
payment are received by Security Benefit at its Home Office, or
* Total purchase payments reduced by any partial withdrawals.
The death benefit proceeds will be paid to the Designated Beneficiary in a
single sum or under one of the Annuity Options, as elected by the Designated
Beneficiary. If the Designated Beneficiary is to receive annuity payments under
an Annuity Option, there may be limits under applicable law on the amount and
duration of payments that the Beneficiary may receive, and requirements
respecting timing of payments. A tax adviser should be consulted in considering
Annuity Options. See "Federal Tax Matters," page 31 and "Distribution
Requirements," page 22 for a discussion of the tax consequences in the event of
death.
DEATH BENEFIT FOR CERTAIN FLORIDA RESIDENTS. If you were a resident of
Florida and purchased your Contract prior to January 4, 1999, your death benefit
is as follows. If the Annuitant is 75 or younger as of the date of his or her
death, the death benefit is the greatest of: (1) the sum of all purchase
payments reduced by any partial withdrawals; (2) the Contract Value as of the
date due proof of death and instructions regarding payment are received by
Security Benefit at its Home Office; or (3) the largest Contract Value on any
Contract anniversary that is an exact multiple of six, less any partial
withdrawals since that anniversary. If the Annuitant is 76 or older as of the
date of his or her death, the death benefit is the Contract Value as of the date
due proof of death and instructions regarding payment are received by Security
Benefit at its Home Office, less any applicable withdrawal charge. Security
Benefit currently waives the withdrawal charge applicable to the death benefit.
DEATH BENEFIT FOR GROUP UNALLOCATED CONTRACTS. The death benefit under a
group unallocated contract is determined by reference to the terms of the
Qualified Plan. The Contractowner must inform Security Benefit of the amount of
the death benefit, and its payment will be treated as a partial withdrawal.
Security Benefit will not impose a withdrawal charge upon such a withdrawal and
it will not be considered a free withdrawal under the Contract.
DISTRIBUTION REQUIREMENTS -- For Contracts issued in connection with
Non-Qualified Plans, the federal tax laws require that Security Benefit pay a
death benefit upon the death of the Owner, and Security Benefit will do so under
all Contracts, including those issued prior to January 4, 1999. If the surviving
spouse of the deceased Owner is the sole Designated Beneficiary, such spouse may
elect to continue this Contract in force until the earliest of the spouse's
death or the Annuity Commencement Date or receive the death benefit proceeds.
For any Designated Beneficiary other than a surviving spouse, only those
options may be chosen that provide for complete distribution of such Owner's
interest in the Contract within five years of the death of the Owner. If the
Designated Beneficiary is a natural person, that person alternatively can elect
to begin receiving annuity payments within one year of the Owner's death over a
period not extending beyond his or her life or life expectancy. If the Owner of
the Contract is not a natural person, these distribution rules are applicable
upon the death of or a change in the primary Annuitant.
For Contracts issued in connection with Qualified Plans, the terms of the
particular Qualified Plan and the Internal Revenue Code should be reviewed with
respect to limitations or restrictions on distributions following the death of
the Owner or Annuitant. Because the rules applicable to Qualified Plans are
extremely complex, a competent tax adviser should be consulted.
DEATH OF THE ANNUITANT -- For Contracts issued currently, if the Annuitant dies
prior to the Annuity Commencement Date, and the Owner is a natural person and is
not the Annuitant, no death benefit proceeds will be payable under the Contract.
The Owner may name a new Annuitant within 30 days of the Annuitant's death. If a
new Annuitant is not named, Security Benefit will designate the Owner as
Annuitant. On the death of the Annuitant after the Annuity Commencement Date,
any guaranteed payments remaining unpaid will continue to be paid to the
Designated Beneficiary pursuant to the Annuity Option in force at the date of
death. See "Death Benefit," page 22 for a discussion of the death benefit in the
event of the Annuitant's death for Contracts issued prior to January 4, 1999.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE -- Security Benefit does not deduct sales
charges from purchase payments before allocating them to your Contract Value.
However, except as set forth below, Security Benefit may assess a contingent
deferred sales charge (which may also be referred to as a withdrawal charge) on
a full or partial withdrawal, including systematic withdrawals, depending upon
the Contract Year in which the withdrawal is made.
Security Benefit will waive the withdrawal charge on the first withdrawal in
any Contract Year after the first Contract Year, to the extent that such
withdrawal does not exceed the Free Withdrawal amount. The Free Withdrawal
amount in any Contract Year is equal to 10 percent of Contract Value as of the
date of the first withdrawal in that Contract Year. You forfeit any Free
Withdrawal amount not used on the first withdrawal in a Contract Year. The
withdrawal charge generally applies to the amount of any withdrawal that exceeds
the Free Withdrawal amount.
If your Contract is funding a charitable remainder trust, the free withdrawal
is available beginning in the first Contract Year, and you may make periodic
free withdrawals provided that the total free withdrawals in any Contract Year
do not exceed the Free Withdrawal amount discussed above.
For Group Unallocated Contracts, the free withdrawal is available after the
first Contract Year. The first withdrawal in each calendar month under such a
Contract is free to the extent that total free withdrawals in any Contract Year
do not exceed 10 percent of Contract Value as of the beginning of that Contract
Year.
The withdrawal charge does not apply to withdrawals of earnings. For the
purpose of determining any withdrawal charge, Security Benefit deems any
withdrawals that are subject to the withdrawal charge to be made first from
purchase payments and then from earnings. Free Withdrawal amounts do not reduce
purchase payments for the purpose of determining future withdrawal charges. The
amount of the charge will depend on the Contract Year in which the withdrawal is
made according to the following schedule:
-------------------------------------------------
WITHDRAWAL CHARGE
-------------------------------
THE VARIFLEX CONTRACT-
CONTRACT YEAR CONTRACT 401(K) AND 408(K)
-------------------------------------------------
1 8% 8%
2 7% 8%
3 6% 8%
4 5% 8%
5 4% 7%
6 3% 6%
7 2% 5%
8 1% 4%
9 and later 0% 0%
-------------------------------------------------
In no event will the amount of any withdrawal charge, when added to such
charge previously assessed against any amount withdrawn from the Contract,
exceed 8 percent of purchase payments paid under the Contract. In addition, no
withdrawal charge will be imposed upon: (1) payment of death benefit proceeds;
or (2) annuity options that provide for payments for life, or a period of at
least 7 years (5 years if you purchased your Contract prior to January 4, 1999).
Subject to insurance department approval, the withdrawal charge also will be
waived on a full or partial withdrawal if the Owner has been confined to a
hospital or qualified skilled nursing facility for 90 consecutive days or more.
See "Waiver of Withdrawal Charge," page 24. Security Benefit will assess the
withdrawal charge against the Subaccounts and the Fixed Account in the same
proportion as the withdrawal proceeds are allocated.
Security Benefit pays sales commissions to broker-dealers and other expenses
associated with the promotion and sales of the Contracts. The withdrawal charge
is designed to reimburse Security Benefit for these costs, although it is
expected that actual expenses will be greater than the amount of the charge. To
the extent that all sales expenses are not recovered from the charge, such
expenses may be recovered from other charges, including amounts derived
indirectly from the charge for mortality and expense risk. Broker-dealers may
receive aggregate commissions of up to 6 percent of aggregate purchase payments
and an annual trail commission of up to 0.25 percent of Contract Value. Security
Benefit also may pay override payments, expense allowances, bonuses, wholesaler
fees and training allowances. Registered representatives earn commissions from
the broker-dealers with which they are affiliated and such arrangements will
vary. In addition, registered representatives who meet specified production
levels may qualify, under sales incentive programs adopted by Security Benefit
to receive non-cash compensation such as expense-paid trips and educational
seminars and merchandise. No compensation will be offered to the extent it is
prohibited by the laws of any state or self-regulatory agency, such as the NASD.
WITHDRAWAL CHARGE FOR CERTAIN TEXAS PARTICIPANTS -- Notwithstanding the
withdrawal charges set forth above, if your Contract was issued after August 14,
2000, under a Section 403(b) retirement plan sponsored by a Texas institution of
higher education (as defined in the Texas Education Code), your withdrawal
charge schedule is as follows:
-----------------------------------
CONTRACT YEAR WITHDRAWAL CHARGE
-----------------------------------
1 7%
2 7%
3 6%
4 5%
5 4%
6 3%
7 2%
8 and later 0%
-----------------------------------
WAIVER OF WITHDRAWAL CHARGE -- Security Benefit will waive the withdrawal charge
in the event of confinement to a hospital or nursing facility, provided the
following conditions are met: (1) the Contractowner has been confined to a
"hospital" or "qualified skilled nursing facility" (as defined on page 4) for at
least 90 consecutive days prior to the date of the withdrawal; (2) the
Contractowner is so confined when Security Benefit receives the waiver request
and became so confined after the date the Contract was issued; and (3) the
request for waiver submitted to Security Benefit is accompanied by a properly
completed claim form which may be obtained from Security Benefit and a written
physician's statement acceptable to Security Benefit certifying that such
confinement is a medical necessity and is due to illness or infirmity.
Security Benefit reserves the right to have the Contractowner examined by a
physician of its choice and at its expense to determine if the Contractowner is
eligible for a waiver. The waiver is not available in certain states pending
department of insurance approval. If the waiver is later approved by the
insurance department of a state, Security Benefit intends to make the waiver
available to all Contractowners in that state at that time, but there can be no
assurance that the waiver will be approved. Prospective Contractowners should
contact their agent concerning availability of the waiver in their state.
MORTALITY AND EXPENSE RISK CHARGE -- Security Benefit deducts a daily charge
from the assets of each Subaccount for mortality and expense risks assumed by
Security Benefit under the Contract. The charge is equal to an annual rate of
1.2 percent of each Subaccount's average daily net assets. This amount is
intended to compensate Security Benefit for certain mortality and expense risks
Security Benefit assumes in offering and administering the Contract and in
operating the Subaccounts.
The expense risk is the risk that Security Benefit's actual expenses in
issuing and administering the Contract and operating the Subaccounts will be
more than the charges assessed for such expenses. The mortality risk borne by
Security Benefit is the risk that Annuitants, as a group, will live longer than
Security Benefit's actuarial tables predict. In this event, Security Benefit
guarantees that annuity payments will not be affected by a change in mortality
experience that results in the payment of greater annuity income than assumed
under the Annuity Options in the Contract. Security Benefit also assumes a
mortality risk in connection with the death benefit under the Contract.
Security Benefit may ultimately realize a profit from this charge to the
extent it is not needed to cover mortality and administrative expenses, but
Security Benefit may realize a loss to the extent the charge is not sufficient.
Security Benefit may use any profit derived from this charge for any lawful
purpose, including distribution expenses.
ADMINISTRATION CHARGE -- Security Benefit will deduct from your Contract Value
an administration charge of $30 (or if less, 2 percent of Contract Value for the
Variflex Contract - 401(k) and 408(k)). The administration charge is not
assessed against Contract Value that has been applied under Annuity Options 1
through 4, 9 and 10. Security Benefit deducts the administration charge at each
calendar year end, but will waive the charge if your Contract Value is $25,000
or more, and your Contract has been in force eight or more years, as of that
date. Security Benefit will deduct the administration charge from your Contract
Value in the Subaccounts and the Fixed Account in the following order:
------------------------------------------------------------
1 Money Market 13 Capital Growth
2 Diversified Income 14 Select 25
3 High Yield 15 Social Awareness
4 Global Strategic Income 16 Mid Cap Value
5 Managed Asset Allocation 17 Mid Cap Growth
6 Equity Income 18 Global
7 Global Total Return 19 International
8 Large Cap Value 20 Technology
9 Main Street Growth and Income(R) 21 Small Cap Value
10 Equity 22 Small Cap Growth
11 Large Cap Growth 23 Fixed Account
12 Enhanced Index
------------------------------------------------------------
The value of each account will be depleted before the next account is charged.
Security Benefit will deduct a pro rata administration charge upon:
* A full withdrawal of Contract Value
* Payment of a death benefit
* The Annuity Commencement Date if one of Annuity Options 1 through 4, 9 or 10
is elected
* The first deduction of the administration charge if the Contract has been in
force for less than a full calendar year
The purpose of this charge is to reimburse Security Benefit for the expenses
associated with administration of the Contract. Security Benefit does not expect
to profit from this charge.
PREMIUM TAX CHARGE -- Various states and municipalities impose a tax on premiums
received by insurance companies on annuity contracts. Whether or not a premium
tax is imposed will depend upon, among other things, the Owner's state of
residence, the Annuitant's state of residence, and the insurance tax laws and
Security Benefit's status in a particular state. Security Benefit assesses a
premium tax charge to reimburse itself for premium taxes that it incurs in
connection with a Contract. Security Benefit currently deducts this charge upon
the Annuity Commencement Date or upon full or partial withdrawal if a premium
tax was incurred and is not refundable. Security Benefit reserves the right to
deduct premium taxes when due or any time thereafter. Premium tax rates
currently range from 0 percent to 3.5 percent, but are subject to change by a
governmental entity.
OTHER CHARGES -- Security Benefit may charge the Separate Account or the
Subaccounts for the federal, state, or local taxes incurred by Security Benefit
that are attributable to the Separate Account or the Subaccounts, or to the
operations of Security Benefit with respect to the Contract, or that are
attributable to payment of premiums or acquisition costs under the Contract. No
such charge is currently assessed. See "Tax Status of Security Benefit and the
Separate Account," page 32 and "Charge for Security Benefit Taxes," page 32.
VARIATIONS IN CHARGES -- Security Benefit may reduce or waive the amount of the
contingent deferred sales charge and administration charge for a Contract where
the expenses associated with the sale of the Contract or the administrative and
maintenance costs associated with the Contract are reduced for reasons such as
the amount of the initial purchase payment or projected purchase payments or the
Contract is sold in connection with a group or sponsored arrangement. Security
Benefit may also reduce or waive the contingent deferred sales charge and
administration charge on Contracts sold to directors, officers and bona fide
full-time employees of Security Benefit and its affiliated companies; the
spouses, grandparents, parents, children, grandchildren and sibling of such
directors, officers and employees and their spouses; and salespersons (and their
spouses and minor children) who are licensed with Security Benefit to sell
variable annuities.
GUARANTEE OF CERTAIN CHARGES -- Security Benefit guarantees that the charge for
mortality and expense risks will not exceed an annual rate of 1.2 percent of
each Subaccount's average daily net assets and the administration charge will
not exceed $30 per year.
SBL FUND EXPENSES -- Each Subaccount of the Separate Account purchases shares at
the net asset value of the corresponding Series of SBL Fund. Each Series' net
asset value reflects the investment advisory fee and other expenses that are
deducted from the assets of the Series. These fees and expenses are not deducted
from the Subaccounts, but are paid from the assets of the corresponding Series.
As a result, the Owner indirectly bears a pro rata portion of such fees and
expenses. The advisory fees and other expenses, if any, which are more fully
described in SBL Fund's prospectus, are not specified or fixed under the terms
of the Contract.
ANNUITY PERIOD
GENERAL -- You select the Annuity Commencement Date at the time of application.
If you purchase a single purchase payment immediate annuity, your annuity
payments will commence immediately. Otherwise, your Annuity Commencement Date
may not be prior to the third annual Contract Anniversary (ninth annual Contract
Anniversary for Contracts issued in Oregon after August 31, 1999) and may not be
deferred beyond the Annuitant's 95th birthday (90th birthday for Contracts
issued prior to January 4, 1999). The terms of a Qualified Plan and the laws of
certain states may require that you start annuity payments at an earlier age. If
you do not select an Annuity Commencement Date, the Annuity Commencement Date
will be the later of the Annuitant's 65th birthday or the tenth annual Contract
Anniversary. See "Selection of an Option," page 27. If there are Joint
Annuitants, the birthdate of the older Annuitant will be used to determine the
latest Annuity Commencement Date.
On the Annuity Commencement Date, the proceeds under the Contract will be
applied to provide an annuity under one of the options described below. Each
option is available in two forms--either as a variable annuity for use with the
Subaccounts or as a fixed annuity for use with the Fixed Account. A combination
variable and fixed annuity is also available. Variable annuity payments will
fluctuate with the investment performance of the applicable Subaccounts while
fixed annuity payments will not. Unless you direct otherwise, proceeds derived
from Contract Value allocated to the Subaccounts will be applied to purchase a
variable annuity and proceeds derived from Contract Value allocated to the Fixed
Account will be applied to purchase a fixed annuity. The proceeds under the
Contract will be equal to your Contract Value in the Subaccounts and the Fixed
Account as of the Annuity Commencement Date, reduced by any applicable premium
taxes, any outstanding Contract Debt, and for Options 1 through 4, 9 and 10, a
pro rata administration charge.
The Contracts provide for several Annuity Options. Security Benefit may make
other Annuity Options available upon request. Although Options 1 through 10 may
not be described, or are numbered differently, in some Contracts, Security
Benefit makes these Options available to all Contractowners, except that Option
9 is not available under certain forms of the Contract. Annuity payments under
Annuity Options 1 through 4, 9 and 10 are based upon annuity rates that vary
with the Annuity Option selected. In the case of Options 1 through 4 and 10, the
annuity rates will vary based on the age and sex of the Annuitant, except that
unisex rates are available where required by law. The annuity rates reflect your
life expectancy based upon your age as of the Annuity Commencement Date and your
gender, unless unisex rates apply. The annuity rates are based upon the 1983(a)
mortality table and are adjusted to reflect an assumed interest rate of 3.5
percent, compounded annually. In the case of Options 5 through 8 as described
below, annuity payments are based upon Contract Value without regard to annuity
rates. If no Annuity Option has been selected, annuity payments will be made to
the Annuitant under an automatic option which shall be an annuity payable during
the lifetime of the Annuitant with payments guaranteed to be made for 10 years
under Option 2.
Annuity Options 1 through 4 and 10 provide for annuity payments to be made
during the lifetime of the Annuitant. Annuity payments under such options cease
in the event of the Annuitant's death, unless the option provides for a
guaranteed minimum number of payments, for example a life income with guaranteed
payments of 5, 10, 15 or 20 years. The level of annuity payments will be greater
for shorter guaranteed periods and less for longer guaranteed periods.
Similarly, payments will be greater for life annuities than for joint and
survivor annuities, because payments for life annuities are expected to be made
for a shorter period.
You may elect to receive annuity payments on a monthly, quarterly,
semiannual, or annual basis, although no payments will be made for less than $50
($25 for Contracts issued prior to January 4,1999). If the frequency of payments
selected would result in payments of less than $50 (or $25 if applicable),
Security Benefit reserves the right to change the frequency.
You may designate or change an Annuity Commencement Date, Annuity Option, or
Annuitant, provided proper written notice is received by Security Benefit at its
Home Office at least 30 days prior to the Annuity Commencement Date set forth in
the Contract. The date selected as the new Annuity Commencement Date must be at
least 30 days after the date written notice requesting a change of Annuity
Commencement Date is received at Security Benefit's Home Office.
Once annuity payments have commenced under Annuity Options 1 through 4 and
10, an Annuitant or Owner cannot change the Annuity Option and cannot surrender
his or her annuity and receive a lump sum settlement in lieu thereof. Under
Annuity Options 5 through 8, full or partial withdrawals may be made after the
Annuity Commencement Date, subject to any applicable withdrawal charge. The
Contract specifies annuity tables for Annuity Options 1 through 4, 9 and 10,
described below. The tables contain the guaranteed minimum dollar amount (per
$1,000 applied) of the FIRST annuity payment for a variable annuity and each
annuity payment for a fixed annuity.
ANNUITY OPTIONS --
OPTION 1 -- LIFE INCOME. Periodic annuity payments will be made during the
lifetime of the Annuitant. It is possible under this Option for any Annuitant to
receive only one annuity payment if the Annuitant's death occurred prior to the
due date of the second annuity payment, two if death occurred prior to the due
date of the third annuity payment, etc. THERE IS NO MINIMUM NUMBER OF PAYMENTS
GUARANTEED UNDER THIS OPTION. PAYMENTS WILL CEASE UPON THE DEATH OF THE
ANNUITANT REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 2 -- LIFE INCOME WITH GUARANTEED PAYMENTS OF 5, 10, 15 OR 20 YEARS.
Periodic annuity payments will be made during the lifetime of the Annuitant with
the promise that if, at the death of the Annuitant, payments have been made for
less than a stated period, which may be five, ten, fifteen or twenty years, as
elected by the Owner, annuity payments will be continued during the remainder of
such period to the Designated Beneficiary.
OPTION 3 -- LIFE WITH INSTALLMENT REFUND OPTION. Periodic annuity payments
will be made during the lifetime of the Annuitant with the promise that, if at
the death of the Annuitant, the number of payments that has been made is less
than the number determined by dividing the amount applied under this Option by
the amount of the first annuity payment, annuity payments will continue to the
Designated Beneficiary until that number of payments has been made.
OPTION 4 -- JOINT AND LAST SURVIVOR. Periodic annuity payments will be made
during the lifetime of either Annuitant. It is possible under this Option for
only one annuity payment to be made if both Annuitants died prior to the second
annuity payment due date, two if both died prior to the third annuity payment
due date, etc. AS IN THE CASE OF OPTION 1, THERE IS NO MINIMUM NUMBER OF
PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE LAST
SURVIVING ANNUITANT, REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 5 -- PAYMENTS FOR SPECIFIED PERIOD. Periodic annuity payments will be
made for a fixed period, which may be from five to twenty years, as elected by
the Owner, with the guarantee that, if, at the death of all Annuitants, payments
have been made for less than the selected fixed period, the remaining unpaid
payments will be paid to the Designated Beneficiary.
OPTION 6 -- PAYMENTS OF A SPECIFIED AMOUNT. Periodic annuity payments of the
amount elected by the Owner will be made until Contract Value is exhausted, with
the guarantee that, if, at the death of all Annuitants, all guaranteed payments
have not yet been made, the remaining unpaid payments will be paid to the
Designated Beneficiary.
OPTION 7 -- DEPOSIT OPTION. The amount due under the Contract on the Annuity
Commencement Date may be left on deposit with Security Benefit in its General
Account with interest at the rate of not less than 2 percent per year. Interest
will be paid annually, semiannually, quarterly or monthly as you elect. This
Option is not available under Contracts used in connection with Qualified Plans.
OPTION 8 -- AGE RECALCULATION. Periodic annuity payments will be made based
upon the Annuitant's life expectancy, or the joint life expectancy of the
Annuitant and his or her beneficiary, at the Annuitant's attained age (and the
beneficiary's attained or adjusted age, if applicable) each year. The payments
are computed by reference to government actuarial tables and are made until
Contract Value is exhausted. Upon the Annuitant's death, any Contract Value will
be paid to the Designated Beneficiary.
OPTION 9 -- PERIOD CERTAIN. Periodic annuity payments will be made for a
stated period which may be five, ten, fifteen or twenty years, as elected by the
Owner. If the Annuitant dies prior to the end of the period, the remaining
payments will be made to the Designated Beneficiary.
OPTION 10 -- JOINT AND CONTINGENT SURVIVOR OPTION. Periodic annuity payments
will be made during the life of the primary Annuitant. Upon the death of the
primary Annuitant, payments will be made to the contingent Annuitant during his
or her life. If the contingent Annuitant is not living upon the death of the
primary Annuitant, no payments will be made to the contingent Annuitant. It is
possible under this Option for only one annuity payment to be made if both
Annuitants died prior to the second annuity payment due date, two if both died
prior to the third annuity payment due date, etc. AS IN THE CASE OF OPTIONS 1
AND 4, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION.
PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT, REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
VALUE OF VARIABLE ANNUITY PAYMENTS: ASSUMED INTEREST RATE. The annuity tables
in the Contract which are used to calculate variable annuity payments for
Annuity Options 1 through 4, 9 and 10 are based on an "assumed interest rate" of
3 1/2 percent, compounded annually. Variable annuity payments generally increase
or decrease from one annuity payment date to the next based upon the performance
of the applicable Subaccounts during the interim period adjusted for the assumed
interest rate. If the performance of the Subaccount selected is equal to the
assumed interest rate, the annuity payments will remain constant. If the
performance of the Subaccounts is greater than the assumed interest rate, the
annuity payments will increase and if it is less than the assumed interest rate,
the annuity payments will decline. A higher assumed interest rate would mean a
higher initial annuity payment but the amount of the annuity payment would
increase more slowly in a rising market (or the amount of the annuity payment
would decline more rapidly in a declining market). A lower assumption would have
the opposite effect.
SELECTION OF AN OPTION -- You should carefully review the Annuity Options with
your financial or tax advisers. For Contracts used in connection with a
Qualified Plan, reference should be made to the terms of the particular plan and
the requirements of the Internal Revenue Code for pertinent limitations
respecting annuity payments and other matters. For instance, Qualified Plans
generally require that annuity payments begin no later than April 1 of the
calendar year following the year in which the Annuitant reaches age 70 1/2. In
addition, under Qualified Plans, the period elected for receipt of annuity
payments under Annuity Options (other than Life Income) generally may be no
longer than the joint life expectancy of the Annuitant and beneficiary in the
year that the Annuitant reaches age 70 1/2, and must be shorter than such joint
life expectancy if the beneficiary is not the Annuitant's spouse and is more
than ten years younger than the Annuitant. For Non-Qualified Plans, SBL does not
allow annuity payments to be deferred beyond the Annuitant's 95th birthday (90th
birthday for Contracts issued prior to January 4, 1999).
THE FIXED ACCOUNT
You may allocate all or a portion of your purchase payments and transfer
Contract Value to the Fixed Account. Amounts allocated to the Fixed Account
become part of Security Benefit's General Account, which supports Security
Benefit's insurance and annuity obligations. The General Account is subject to
regulation and supervision by the Kansas Department of Insurance and is also
subject to the insurance laws and regulations of other jurisdictions in which
the Contract is distributed. In reliance on certain exemptive and exclusionary
provisions, interests in the Fixed Account have not been registered as
securities under the Securities Act of 1933 (the "1933 Act") and the Fixed
Account has not been registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, neither the Fixed Account nor
any interests therein are generally subject to the provisions of the 1933 Act or
the 1940 Act. Security Benefit has been advised that the staff of the SEC has
not reviewed the disclosure in this Prospectus relating to the Fixed Account.
This disclosure, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in the Prospectus. This Prospectus is generally
intended to serve as a disclosure document only for aspects of a Contract
involving the Separate Account and contains only selected information regarding
the Fixed Account. For more information regarding the Fixed Account, see "The
Contract," page 17.
Amounts allocated to the Fixed Account become part of the General Account of
Security Benefit, which consists of all assets owned by Security Benefit other
than those in the Separate Account and other separate accounts of Security
Benefit. Subject to applicable law, Security Benefit has sole discretion over
investment of the assets of its General Account.
INTEREST -- Contract Value allocated to the Fixed Account earns interest at a
fixed rate or rates that are paid by Security Benefit. The Contract Value in the
Fixed Account earns interest at an interest rate that is guaranteed to be at
least an annual effective rate of 3 percent which will accrue daily ("Guaranteed
Rate"). Such interest will be paid regardless of the actual investment
experience of the Fixed Account. In addition, Security Benefit may in its
discretion pay interest at a rate ("Current Rate") that exceeds the Guaranteed
Rate. Security Benefit will determine the Current Rate, if any, from time to
time.
Contract Value allocated or transferred to the Fixed Account will earn
interest at the Current Rate, if any, in effect on the date such portion of
Contract Value is allocated or transferred to the Fixed Account. Contract Value
allocated or transferred to the Fixed Account at one point in time may be
credited with a different Current Rate than amounts allocated or transferred to
the Fixed Account at another point in time. For example, amounts allocated to
the Fixed Account in June may be credited with a different current rate than
amounts allocated to the Fixed Account in July. Therefore, at any time, various
portions of your Contract Value in the Fixed Account may be earning interest at
different Current Rates depending upon the point in time such portions were
allocated or transferred to the Fixed Account. Security Benefit bears the
investment risk for the Contract Value allocated to the Fixed Account and for
paying interest at the Guaranteed Rate on amounts allocated to the Fixed
Account.
For purposes of determining the interest rates to be credited on Contract
Value in the Fixed Account, withdrawals, loans or transfers from the Fixed
Account will be deemed to be taken from purchase payments and Contract Value
allocated to the Fixed Account on a first in, first out basis. Any interest
attributable to such amounts shall be deemed to be taken before the amount of
the purchase payment or other Contract Value allocated to the Fixed Account. For
more information about transfers and withdrawals from the Fixed Account, see the
discussion of the Fixed Account options below. For more information about
transfers and withdrawals from the Fixed Account, see "Transfers and Withdrawals
From the Fixed Account," below.
DEATH BENEFIT -- The death benefit under the Contract will be determined in the
same fashion for a Contract that has Contract Value allocated to the Fixed
Account as for a Contract that has Contract Value allocated to the Subaccounts.
See "Death Benefit," page 22.
CONTRACT CHARGES -- Premium taxes, withdrawal charges and the administration
charge will be the same for Contractowners who allocate purchase payments or
transfer Contract Value to the Fixed Account as for those who allocate purchase
payments or transfer Contract Value to the Subaccounts. The charge for mortality
and expense risks will not be assessed against the Fixed Account, and any
amounts that Security Benefit pays for income taxes allocable to the Subaccounts
will not be charged against the Fixed Account. In addition, you will not pay
directly or indirectly the investment advisory fees and operating expenses of
SBL Fund to the extent Contract Value is allocated to the Fixed Account;
however, you also will not participate in the investment experience of the
Subaccounts.
TRANSFERS AND WITHDRAWALS FROM THE FIXED ACCOUNT -- You may transfer amounts
from the Subaccounts to the Fixed Account and from the Fixed Account to the
Subaccounts, subject to the following limitations. Transfers from the Fixed
Account are limited in a Contract Year to not more than the greatest of:
1. $5,000,
2. one-third of the Contract Value allocated to the Fixed Account at the time
of the first transfer from the Fixed Account in the Contract Year, or
3. 120 percent of the amount transferred from the Fixed Account during the
previous Contract Year.
Security Benefit reserves the right for a period of time to allow transfers from
the Fixed Account in amounts that exceed the limits set forth above ("Waiver
Period"). In any Contract Year following such a Waiver Period, the total dollar
amount that may be transferred from the Fixed Account is the greatest of: (1)
above; (2) above; or (3) 120 percent of the lesser of: (i) the dollar amount
transferred from the Fixed Account in the previous Contract Year; or (ii) the
maximum dollar amount that would have been allowed in the previous Contract Year
under the transfer provisions above absent the Waiver Period.
The minimum amount that you may transfer from the Fixed Account to the
Subaccounts is the lesser of (i) $500 or (ii) the amount of Contract Value
allocated to the Fixed Account. Transfer of Contract Value pursuant to the Asset
Reallocation Option is not currently subject to any minimums. The minimum
transfer under the Dollar Cost Averaging Option is $25. The Company reserves the
right to limit the number of transfers permitted each Contract Year to 14
transfers and to limit the amount that may be subject to transfer.
You may also make full or partial withdrawals to the same extent as if you
had allocated Contract Value to the Subaccounts. However, no partial withdrawal
request will be processed which would result in the withdrawal of Contract Value
from the Loan Account. See "Full and Partial Withdrawals," page 20 and
"Systematic Withdrawals," page 21. In addition, to the same extent as
Contractowners with Contract Value in the Subaccounts, the Owner of a Contract
used in connection with a Qualified Plan may obtain a loan if so permitted under
the terms of the Qualified Plan. See "Loans," page 30.
PAYMENTS FROM THE FIXED ACCOUNT -- Full and partial withdrawals, loans, and
transfers from the Fixed Account may be delayed for up to six months after a
written request in proper form is received by Security Benefit at its Home
Office. During the period of deferral, interest at the applicable interest rate
or rates will continue to be credited to the amounts allocated to the Fixed
Account. However, payment of any amounts will not be deferred if they are to be
used to pay premiums on any policies or contracts issued by Security Benefit.
MORE ABOUT THE CONTRACT
OWNERSHIP -- The Contractowner is the person named as such in the application or
in any later change shown in Security Benefit's records. While living, the
Contractowner alone has the right to receive all benefits and exercise all
rights that the Contract grants or Security Benefit allows, subject to any
limitations under your Qualified Plan. The Owner may be an entity that is not a
living person such as a trust or corporation referred to herein as "Non-natural
Persons." See "Federal Tax Matters," page 31.
JOINT OWNERS. The Joint Owners will be joint tenants with rights of
survivorship and upon the death of an Owner, the surviving Owner shall be the
sole Owner. Any Contract transaction requires the signature of all persons named
jointly.
DESIGNATION AND CHANGE OF BENEFICIARY -- The Designated Beneficiary is the
person having the right to the death benefit, if any, payable upon the death of
the Owner or Joint Owner (or if applicable, the Annuitant) during the
Accumulation Period. The Designated Beneficiary is the first person on the
following list who is alive on the date of death of the Owner or the Joint
Owner: the Owner; the Joint Owner; the Primary Beneficiary; the Secondary
Beneficiary; the Annuitant; or if none of the above are alive, the Owner's
estate. If you purchased your Contract prior to January 4, 1999, the Designated
Beneficiary is the first person on the following list who is alive on the date
of death of the Annuitant: the Primary Beneficiary, the Secondary Beneficiary or
if none of the above are alive, the Annuitant's estate. The Primary Beneficiary
is the individual named as such in the application or any later change shown in
Security Benefit's records. Careful consideration should be given to the manner
in which the Contract is registered, as well as the designation of the Primary
Beneficiary. The Contractowner may change the Primary Beneficiary at any time
while the Contract is in force by written request on forms provided by Security
Benefit and received by Security Benefit at its Home Office. The change will not
be binding on Security Benefit until it is received and recorded at its Home
Office. The change will be effective as of the date the form is signed subject
to any payments made or other actions taken by Security Benefit before the
change is received and recorded. A Secondary Beneficiary may be designated. The
Owner may designate a permanent Beneficiary whose rights under the Contract
cannot be changed without his or her consent.
Reference should be made to the terms of a particular Qualified Plan and any
applicable law for any restrictions or limitations on the designation of a
Beneficiary.
DIVIDENDS -- The Contract may share in the surplus earnings of Security Benefit.
However, the current dividend scale is zero and Security Benefit does not
anticipate that dividends will be paid. Certain states will not permit the
Contract to be issued as a dividend-paying policy.
PAYMENTS FROM THE SEPARATE ACCOUNT -- Security Benefit will pay any full or
partial withdrawal benefit or death benefit proceeds from Contract Value
allocated to the Subaccounts, and will effect a transfer between Subaccounts or
from a Subaccount to the Fixed Account on the Valuation Date a proper request is
received at Security Benefit's Home Office. However, Security Benefit can
postpone the calculation or payment of such a payment or transfer of amounts
from the Subaccounts to the extent permitted under applicable law, which is
currently permissible only for any period:
* During which the New York Stock Exchange is closed other than customary
weekend and holiday closings,
* During which trading on the New York Stock Exchange is restricted as
determined by the SEC,
* During which an emergency, as determined by the SEC, exists as a result of
which (i) disposal of securities held by the Separate Account is not
reasonably practicable, or (ii) it is not reasonably practicable to
determine the value of the assets of the Separate Account, or
* For such other periods as the SEC may by order permit for the protection of
investors.
PROOF OF AGE AND SURVIVAL -- Security Benefit may require proof of age or
survival of any person on whose life annuity payments depend.
MISSTATEMENTS -- If you misstate the age or sex of an Annuitant or age of an
Owner, the correct amount paid or payable by Security Benefit under the Contract
shall be such as the Contract Value would have provided for the correct age or
sex (unless unisex rates apply).
LOANS -- If you own a Contract issued in connection with a retirement plan that
is qualified under Section 403(b) of the Internal Revenue Code, you may borrow
money under your Contract using the Contract Value as the only security for the
loan. You may obtain a loan by submitting a proper written request to Security
Benefit. A loan must be taken prior to the Annuity Commencement Date. The
minimum loan that may be taken is $1,000 ($500 for Contracts issued in New
Jersey). The maximum loan that may be taken is generally equal to the lesser of:
(1) $50,000 reduced by the excess of: (a) the highest outstanding loan balance
within the preceding 12-month period ending on the day before the date the loan
is made; over (b) the outstanding loan balance on the date the loan is made; or
(2) 50 percent of the Contract Value or $10,000, whichever is greater. The
Internal Revenue Code requires aggregation of all loans made to an individual
employee under a single employer plan. However, since Security Benefit has no
information concerning outstanding loans with other providers, we will only use
information available under annuity contracts issued by us. Reference should be
made to the terms of your particular Qualified Plan for any additional loan
restrictions.
When an eligible contractowner takes a loan, Contract Value in an amount
equal to the loan amount is transferred from the Subaccounts and/or the Fixed
Account into an account called the "Loan Account." Amounts allocated to the Loan
Account earn 3 percent, the minimum rate of interest guaranteed under the Fixed
Account. In addition, ten percent of the loaned amount will be held in the Fixed
Account as security for the loan and will earn the Current Rate.
Interest will be charged for the loan and will accrue on the loan balance
from the effective date of any loan. The loan interest rate will be 5 percent
(5.5 percent if your Contract was issued prior to January 4, 1999). Because the
Contract Value maintained in the Loan Account (which will earn 3 percent) will
always be equal in amount to the outstanding loan balance, the net cost of a
loan is 2 percent.
Loans must be repaid within five years, unless Security Benefit determines
that the loan is to be used to acquire your principal residence, in which case
the loan must be repaid within 30 years. You must make loan repayments on at
least a quarterly basis, and you may prepay your loan at any time. Upon receipt
of a loan payment, Security Benefit will transfer Contract Value from the Loan
Account to the Fixed Account and/or the Subaccounts according to your current
instructions with respect to purchase payments in an amount equal to the amount
by which the payment reduces the amount of the loan outstanding.
If you do not make any required loan payment within 30 days of the due date
for loans with a monthly repayment schedule or within 90 days of the due date
for loans with a quarterly repayment schedule, your total outstanding loan
balance will be deemed to be in default for tax reporting purposes. The entire
loan balance, with any accrued interest, will be reported as income to the
Internal Revenue Service ("IRS"). Once a loan has gone into default, regularly
scheduled payments will not be accepted. No new loans will be allowed while a
loan is in default. Interest will continue to accrue on a loan in default and if
such interest is not paid by December 31 of each year, it will be added to the
outstanding balance of the loan and will be reported to the IRS. Contract Value
equal to the amount of the accrued interest will be transferred to the Loan
Account. If a loan continues to be in default, the total outstanding balance
will be deducted from Contract Value upon the Contractowner's attaining age 59
1/2. The Contract will be automatically terminated if the outstanding loan
balance on a loan in default equals or exceeds the Withdrawal Value. The
proceeds from the Contract will be used to repay the debt and any applicable
withdrawal charge. Because of the adverse tax consequences associated with
defaulting on a loan, you should carefully consider your ability to repay the
loan and should consult with a tax advisor before requesting a loan.
While the amount to secure the loan is held in the Loan Account, you forego
the investment experience of the Subaccounts and the Current Rate of interest on
the Fixed Account. Outstanding Contract Debt will reduce the amount of proceeds
paid upon full withdrawal, upon payment of the death benefit, and upon
annuitization. In addition, no partial withdrawal will be processed which would
result in the withdrawal of Contract Value from the Loan Account.
You should consult with your tax adviser on the effect of a loan.
Loans are not available in certain states pending department of insurance
approval. If loans are later approved by the insurance department of a state,
Security Benefit intends to make loans available to all Owners of 403(b)
contracts in that state at that time, but there can be no assurance that loans
will be approved. Prospective Contractowners should contact their agent
concerning availability of loans in their state.
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS -- Generally, a Qualified Plan
may not provide for the distribution or withdrawal of amounts accumulated under
the Plan until after a fixed number of years, the attainment of a stated age or
upon the occurrence of a specific event such as hardship, disability,
retirement, death or termination of employment. Therefore, if you own a Contract
purchased in connection with a Qualified Plan, you may not be entitled to make a
full or partial withdrawal, as described in this Prospectus, unless one of the
above-described conditions has been satisfied. For this reason, you should refer
to the terms of your particular Qualified Plan, the Internal Revenue Code and
other applicable law for any limitation or restriction on distributions and
withdrawals, including the 10 percent penalty tax that may be imposed in the
event of a distribution from a Qualified Plan before the participant reaches age
59 1/2. See the discussion under "Tax Penalties," page 38.
Section 403(b) imposes restrictions on certain distributions from
tax-sheltered annuity contracts meeting the requirements of Section 403(b). The
restrictions apply to tax years beginning on or after January 1, 1989. Section
403(b) requires that distributions from Section 403(b) tax-sheltered annuities
that are attributable to your contributions made after December 31, 1988 under a
salary reduction agreement begin only after you (i) reach age 59 1/2, (ii)
separate from service, (iii) die, (iv) become disabled, or (v) incur a hardship.
Furthermore, we may not distribute to you on account of hardship gains accrued
after December 31, 1988 attributable to such contributions. Hardship, for this
purpose, is generally defined as an immediate and heavy financial need, such as
paying for medical expenses, the purchase of a residence, or paying certain
tuition expenses, that may ONLY be met by the distribution.
If you own a Contract purchased as a Section 403(b) tax-sheltered annuity
contract, you will not be entitled to make a full or partial withdrawal, as
described in this Prospectus, in order to receive proceeds from the Contract
attributable to your contributions under a salary reduction agreement or any
gains credited to such Contract after December 31, 1988 unless one of the above
conditions has been satisfied. In the case of transfers of amounts accumulated
in a different Section 403(b) contract to this Contract under a Section 403(b)
program, the withdrawal constraints described above would not apply to the
amount transferred to the Contract attributable to your December 31, 1988
account balance under the old contract, provided the amounts transferred between
contracts qualified as a tax-free exchange under the Internal Revenue Code. You
may be able to transfer your Contract's Withdrawal Value to certain other
investment alternatives meeting the requirements of Section 403(b) that are
available under your employer's Section 403(b) arrangement.
The distribution or withdrawal of amounts under a Contract purchased in
connection with a Qualified Plan may result in the receipt of taxable income to
the Owner or Annuitant and in some instances may also result in a penalty tax.
Therefore, you should carefully consider the tax consequences of a distribution
or withdrawal under a Contract and you should consult a competent tax adviser.
See "Federal Tax Matters," page 31.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT -- If you are a Participant in
the Texas Optional Retirement Program, your Contract is subject to restrictions
required under the Texas Government Code. In accordance with those restrictions,
you will not be permitted to make withdrawals prior to your retirement, death or
termination of employment in a Texas public institution of higher education.
FEDERAL TAX MATTERS
INTRODUCTION -- The Contract described in this Prospectus is designed for use by
individuals and groups as a non-tax qualified retirement plan and for
individuals and groups which are Qualified Plans under the provisions of the
Internal Revenue Code ("Code"). The ultimate effect of federal income taxes on
the amounts held under a Contract, on annuity payments, and on the economic
benefits to the Owner, the Annuitant, and the Beneficiary or other payee will
depend upon the type of retirement plan, if any, for which the Contract is
purchased, the tax and employment status of the individuals involved and a
number of other factors. The discussion contained herein and in the Statement of
Additional Information is general in nature and is not intended to be an
exhaustive discussion of all questions that might arise in connection with a
Contract. It is based upon Security Benefit's understanding of the present
federal income tax laws as currently interpreted by the Internal Revenue Service
("IRS"), and is not intended as tax advice. No representation is made regarding
the likelihood of continuation of the present federal income tax laws or of the
current interpretations by the IRS or the courts. Future legislation may affect
annuity contracts adversely. Moreover, no attempt has been made to consider any
applicable state or other laws. Because of the inherent complexity of the tax
laws and the fact that tax results will vary according to the particular
circumstances of the individual involved and, if applicable, the Qualified Plan,
you should consult with a qualified tax adviser regarding the purchase of a
Contract, the selection of an Annuity Option under a Contract, the receipt of
annuity payments under a Contract or any other transaction involving a Contract.
SECURITY BENEFIT DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF, OR TAX
CONSEQUENCES ARISING FROM, ANY CONTRACT OR ANY TRANSACTION INVOLVING THE
CONTRACT.
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT --
GENERAL. Security Benefit intends to be taxed as a life insurance company
under Part I, Subchapter L of the Code. Because the operations of the Separate
Account form a part of Security Benefit, Security Benefit will be responsible
for any federal income taxes that become payable with respect to the income of
the Separate Account and its Subaccounts.
CHARGE FOR SECURITY BENEFIT TAXES. A charge may be made for any federal taxes
incurred by Security Benefit that are attributable to the Separate Account, the
Subaccounts or to the operations of Security Benefit with respect to the
Contracts or attributable to payments, premiums, or acquisition costs under the
Contracts. Security Benefit will review the question of a charge to the Separate
Account, the Subaccounts or the Contracts for Security Benefit's federal taxes
periodically. Charges may become necessary if, among other reasons, the tax
treatment of Security Benefit or of income and expenses under the Contracts is
ultimately determined to be other than what Security Benefit currently believes
it to be, if there are changes made in the federal income tax treatment of
variable annuities at the insurance company level, or if there is a change in
Security Benefit's tax status.
Under current laws, Security Benefit may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, Security Benefit reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS. Each Series of SBL Fund will be required to adhere
to regulations adopted by the Treasury Department pursuant to Section 817(h) of
the Code prescribing asset diversification requirements for investment companies
whose shares are sold to insurance company separate accounts funding variable
contracts. Pursuant to these regulations, on the last day of each calendar
quarter (or on any day within 30 days thereafter), no more than 55 percent of
the total assets of a Series may be represented by any one investment, no more
than 70 percent may be represented by any two investments, no more than 80
percent may be represented by any three investments, and no more than 90 percent
may be represented by any four investments. For purposes of Section 817(h),
securities of a single issuer generally are treated as one investment but
obligations of the U.S. Treasury and each U.S. Governmental agency or
instrumentality generally are treated as securities of separate issuers. The
Separate Account, through the Series, intends to comply with the diversification
requirements of Section 817(h).
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contractowner's gross income. The IRS has stated in published rulings that a
variable contractowner will be considered the owner of separate account assets
if the contractowner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the contractowner),
rather than the insurance company, to be treated as the owner of the assets in
the account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." Guidance issued to date has no application to the Contract.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example, the Contractowner has additional flexibility in allocating purchase
payments and Contract Values. These differences could result in a Contractowner
being treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, Security Benefit does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Security Benefit therefore reserves the right to
modify the Contract, as it deems appropriate, to attempt to prevent a
Contractowner from being considered the owner of a pro rata share of the assets
of the Separate Account. Moreover, in the event that regulations or rulings are
adopted, there can be no assurance that the Subaccounts will be able to operate
as currently described in the Prospectus, or that SBL Fund will not have to
change any Series' investment objective or investment policies.
INCOME TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS -- Section 72 of
the Code governs the taxation of annuities. In general, a Contractowner is not
taxed on increases in value under an annuity contract until some form of
distribution is made under the contract. However, the increase in value may be
subject to tax currently under certain circumstances. See "Contracts Owned by
Non-Natural Persons," page 34 and "Diversification Standards," page 32.
Withholding of federal income taxes on all distributions may be required unless
a recipient who is eligible elects not to have any amounts withheld and properly
notifies Security Benefit of that election.
SURRENDERS OR WITHDRAWALS PRIOR TO THE ANNUITY COMMENCEMENT DATE. Code
Section 72 provides that amounts received upon a total or partial withdrawal
(including systematic withdrawals) from a Contract prior to the Annuity
Commencement Date generally will be treated as gross income to the extent that
the cash value of the Contract immediately before the withdrawal (determined
without regard to any surrender charge in the case of a partial withdrawal)
exceeds the "investment in the contract." The "investment in the contract" is
that portion, if any, of purchase payments paid under a Contract less any
distributions received previously under the Contract that are excluded from the
recipient's gross income. The taxable portion is taxed at ordinary income tax
rates. For purposes of this rule, a pledge or assignment of a contract is
treated as a payment received on account of a partial withdrawal of a Contract.
SURRENDERS OR WITHDRAWALS ON OR AFTER THE ANNUITY COMMENCEMENT DATE. Upon a
complete surrender, the receipt is taxable to the extent that the cash value of
the Contract exceeds the investment in the Contract. The taxable portion of such
payments will be taxed at ordinary income tax rates.
For fixed annuity payments, the taxable portion of each payment generally is
determined by using a formula known as the "exclusion ratio," which establishes
the ratio that the investment in the Contract bears to the total expected amount
of annuity payments for the term of the Contract. That ratio is then applied to
each payment to determine the non-taxable portion of the payment. The remaining
portion of each payment is taxed at ordinary income rates. For variable annuity
payments, the taxable portion of each payment is determined by using a formula
known as the "excludable amount," which establishes the non-taxable portion of
each payment. The non-taxable portion is a fixed dollar amount for each payment,
determined by dividing the investment in the Contract by the number of payments
to be made. The remainder of each variable annuity payment is taxable. Once the
excludable portion of annuity payments to date equals the investment in the
Contract, the balance of the annuity payments will be fully taxable.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS. With respect to amounts
withdrawn or distributed before the taxpayer reaches age 59 1/2, a penalty tax
is imposed equal to 10 percent of the portion of such amount which is includable
in gross income. However, the penalty tax is not applicable to withdrawals: (i)
made on or after the death of the owner (or where the owner is not an
individual, the death of the "primary annuitant," who is defined as the
individual the events in whose life are of primary importance in affecting the
timing and amount of the payout under the Contract); (ii) attributable to the
taxpayer's becoming totally disabled within the meaning of Code Section
72(m)(7); (iii) which are part of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancy) of
the taxpayer and his or her beneficiary; (iv) from certain qualified plans; (v)
under a so-called qualified funding asset (as defined in Code Section 130(d));
(vi) under an immediate annuity contract; or (vii) which are purchased by an
employer on termination of certain types of qualified plans and which are held
by the employer until the employee separates from service.
If the penalty tax does not apply to a surrender or withdrawal as a result of
the application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the first
year in which the modification occurs will be increased by an amount (determined
by the regulations) equal to the tax that would have been imposed but for item
(iii) above, plus interest for the deferral period, if the modification takes
place (a) before the close of the period which is five years from the date of
the first payment and after the taxpayer attains age 59 1/2, or (b) before the
taxpayer reaches age 59 1/2.
ADDITIONAL CONSIDERATIONS --
DISTRIBUTION-AT-DEATH RULES. In order to be treated as an annuity contract, a
contract must provide the following two distribution rules: (a) if any owner
dies on or after the Annuity Commencement Date, and before the entire interest
in the Contract has been distributed, the remainder of the owner's interest will
be distributed at least as quickly as the method in effect on the owner's death;
and (b) if any owner dies before the Annuity Commencement Date, the entire
interest in the Contract must generally be distributed within five years after
the date of death, or, if payable to a designated beneficiary, must be
annuitized over the life of that designated beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, commencing within one
year after the date of death of the owner. If the sole designated beneficiary is
the spouse of the deceased owner, the Contract (together with the deferral of
tax on the accrued and future income thereunder) may be continued in the name of
the spouse as owner.
Generally, for purposes of determining when distributions must begin under
the foregoing rules, where an owner is not an individual, the primary annuitant
is considered the owner. In that case, a change in the primary annuitant will be
treated as the death of the owner. Finally, in the case of joint owners, the
distribution-at-death rules will be applied by treating the death of the first
owner as the one to be taken into account in determining generally when
distributions must commence, unless the sole Designated Beneficiary is the
deceased owner's spouse.
GIFT OF ANNUITY CONTRACTS. Generally, gifts of non-tax qualified Contracts
prior to the Annuity Commencement Date will trigger tax on the gain on the
Contract, with the donee getting a stepped-up basis for the amount included in
the donor's income. The 10 percent penalty tax and gift tax also may be
applicable. This provision does not apply to transfers between spouses or
incident to a divorce.
CONTRACTS OWNED BY NON-NATURAL PERSONS. If the Contract is held by a
non-natural person (for example, a corporation) the income on that Contract
(generally the increase in net surrender value less the purchase payments) is
includable in taxable income each year. The rule does not apply where the
Contract is acquired by the estate of a decedent, where the Contract is held by
certain types of retirement plans, where the Contract is a qualified funding
asset for structured settlements, where the Contract is purchased on behalf of
an employee upon termination of a qualified plan, and in the case of an
immediate annuity. An annuity contract held by a trust or other entity as agent
for a natural person is considered held by a natural person.
MULTIPLE CONTRACT RULE. For purposes of determining the amount of any
distribution under Code Section 72(e) (amounts not received as annuities) that
is includable in gross income, all Non-Qualified annuity contracts issued by the
same insurer to the same Contractowner during any calendar year are to be
aggregated and treated as one contract. Thus, any amount received under any such
contract prior to the contract's Annuity Commencement Date, such as a partial
surrender, dividend, or loan, will be taxable (and possibly subject to the 10
percent penalty tax) to the extent of the combined income in all such contracts.
In addition, the Treasury Department has broad regulatory authority in
applying this provision to prevent avoidance of the purposes of this rule. It is
possible that, under this authority, the Treasury Department may apply this rule
to amounts that are paid as annuities (on and after the Annuity Commencement
Date) under annuity contracts issued by the same company to the same owner
during any calendar year. In this case, annuity payments could be fully taxable
(and possibly subject to the 10 percent penalty tax) to the extent of the
combined income in all such contracts and regardless of whether any amount would
otherwise have been excluded from income because of the "exclusion ratio" under
the contract.
POSSIBLE TAX CHANGES. In recent years, legislation has been proposed that
would have adversely modified the federal taxation of certain annuities. There
is always the possibility that the tax treatment of annuities could change by
legislation or other means (such as IRS regulations, revenue rulings, and
judicial decisions). Moreover, although unlikely, it is also possible that any
legislative change could be retroactive (that is, effective prior to the date of
such change).
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT. A transfer of ownership of
a Contract, the designation of an Annuitant, payee or other beneficiary who is
not also the Owner, the selection of certain Annuity Commencement Dates or the
exchange of a Contract may result in certain tax consequences to the Owner that
are not discussed herein. An Owner contemplating any such transfer, assignment,
selection or exchange should contact a competent tax adviser with respect to the
potential effects of such a transaction.
QUALIFIED PLANS -- The Contract may be used with Qualified Plans that meet the
requirements of Section 401, 403(a), 403(b), 408 or 457 of the Code. The tax
rules applicable to participants in such Qualified Plans vary according to the
type of plan and the terms and conditions of the plan itself. No attempt is made
herein to provide more than general information about the use of the Contract
with the various types of Qualified Plans. These Qualified Plans may permit the
purchase of the Contracts to accumulate retirement savings under the plans.
Adverse tax or other legal consequences to the plan, to the participant or to
both may result if this Contract is assigned or transferred to any individual as
a means to provide benefit payments, unless the plan complies with all legal
requirements applicable to such benefits prior to transfer of the Contract.
Contractowners, Annuitants, and beneficiaries, are cautioned that the rights of
any person to any benefits under such Qualified Plans may be subject to the
terms and conditions of the plans themselves or limited by applicable law,
regardless of the terms and conditions of the Contract issued in connection
therewith. For example, Security Benefit may accept beneficiary designations and
payment instructions under the terms of the Contract without regard to any
spousal consents that may be required under the Employee Retirement Income
Security Act of 1974 (ERISA). Consequently, a Contractowner's beneficiary
designation or elected payment option may not be enforceable.
The amounts that may be contributed to Qualified Plans are subject to
limitations that vary depending on the type of Plan. In addition, early
distributions from most Qualified Plans may be subject to penalty taxes, or in
the case of distributions of amounts contributed under salary reduction
agreements, could cause the Plan to be disqualified. Furthermore, distributions
from most Qualified Plans are subject to certain minimum distribution rules.
Failure to comply with these rules could result in disqualification of the Plan
or subject the Owner or Annuitant to penalty taxes. As a result, the minimum
distribution rules may limit the availability of certain Annuity Options to
certain Annuitants and their beneficiaries. These requirements may not be
incorporated into Security Benefit's Contract administration procedures. Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law.
The following are brief descriptions of the various types of Qualified Plans
and the use of the Contract therewith:
SECTION 401. Code Section 401 permits employers to establish various types of
retirement plans (e.g., pension, profit sharing and 401(k) plans) for their
employees. For this purpose, self-employed individuals (proprietors or partners
operating a trade or business) are treated as employees and therefore eligible
to participate in such plans. Retirement plans established in accordance with
Section 401 may permit the purchase of Contracts to provide benefits thereunder.
In order for a retirement plan to be "qualified" under Code Section 401, it
must: (i) meet certain minimum standards with respect to participation, coverage
and vesting; (ii) not discriminate in favor of "highly compensated" employees;
(iii) provide contributions or benefits that do not exceed certain limitations;
(iv) prohibit the use of plan assets for purposes other than the exclusive
benefit of the employees and their beneficiaries covered by the plan; (v)
provide for distributions that comply with certain minimum distribution
requirements; (vi) provide for certain spousal survivor benefits; and (vii)
comply with numerous other qualification requirements.
A retirement plan qualified under Code Section 401 may be funded by employer
contributions, employee contributions or a combination of both. Plan
participants are not subject to tax on employer contributions until such amounts
are actually distributed from the plan. Depending upon the terms of the
particular plan, employee contributions may be made on a pre-tax or after-tax
basis. In addition, plan participants are not taxed on plan earnings derived
from either employer or employee contributions until such earnings are
distributed.
Each employee's interest in a retirement plan qualified under Code Section
401 must generally be distributed or begin to be distributed not later than
April 1 of the calendar year following the later of the calendar year in which
the employee reaches age 70 1/2 or retires ("required beginning date"). Periodic
distributions must not extend beyond the life of the employee or the lives of
the employee and a designated beneficiary (or over a period extending beyond the
life expectancy of the employee or the joint life expectancy of the employee and
a designated beneficiary).
If an employee dies before reaching his or her required beginning date, the
employee's entire interest in the plan must generally be distributed within five
years of the employee's death. However, the five-year rule will be deemed
satisfied, if distributions begin before the close of the calendar year
following the year of the employee's death to a designated beneficiary and are
made over the life of the beneficiary (or over a period not extending beyond the
life expectancy of the beneficiary). If the designated beneficiary is the
employee's surviving spouse, distributions may be delayed until the employee
would have reached age 70 1/2.
If an employee dies after reaching his or her required beginning date, the
employee's interest in the plan must generally be distributed at least as
rapidly as under the method of distribution in effect at the time of the
employee's death.
Annuity payments distributed from a retirement plan qualified under Code
Section 401 are taxable under Section 72 of the Code. Section 72 provides that
the portion of each payment attributable to contributions that were taxable to
the employee in the year made, if any, is excluded from gross income as a return
of the employee's investment. The portion so excluded is determined by dividing
the employee's investment in the plan by (1) the number of anticipated payments
determined under a table set forth in Section 72 of the Code or (2) in the case
of a contract calling for installment payments, the number of monthly annuity
payments under such contract. The portion of each payment in excess of the
exclusion amount is taxable as ordinary income. Once the employee's investment
has been recovered, the full annuity payment will be taxable. If the employee
should die prior to recovering his entire investment, the unrecovered investment
will be allowed as a deduction on his final return. If the employee made no
contributions that were taxable when made, the full amount of each annuity
payment is taxable to him as ordinary income.
A "lump-sum" distribution from a retirement plan qualified under Code Section
401 is eligible for favorable tax treatment. A "lump-sum" distribution means the
distribution within one taxable year of the balance to the credit of the
employee which becomes payable: (i) on account of the employee's death, (ii)
after the employee attains age 59 1/2, (iii) on account of the employee's
termination of employment (in the case of a common law employee only) or (iv)
after the employee has become disabled (in the case of a self-employed person
only).
As a general rule, a lump-sum distribution is fully taxable as ordinary
income except for an amount equal to the employee's investment, if any, which is
recovered tax-free. However, special five-year averaging may be available,
provided the employee has reached age 59 1/2 and has not previously elected to
use income averaging. (Special five-year averaging has been repealed for
distributions after 1999.) Special ten-year averaging and capital-gains
treatment may be available to an employee who reached age 50 before 1986.
Distributions from a retirement plan qualified under Code Section 401 may be
eligible for a tax-free rollover to either another qualified retirement plan or
to an individual retirement account or annuity (IRA). See "Rollovers," page 37.
SECTION 403(B). Code Section 403(b) permits public school employees and
employees of certain types of charitable, educational and scientific
organizations specified in Section 501(c)(3) of the Code to purchase annuity
contracts, and, subject to certain limitations, to exclude the amount of
purchase payments from gross income for tax purposes. The Contract may be
purchased in connection with a Section 403(b) annuity program.
Section 403(b) annuities must generally be provided under a plan which meets
certain minimum participation, coverage, and nondiscrimination requirements.
Section 403(b) annuities are generally subject to minimum distribution
requirements similar to those applicable to retirement plans qualified under
Section 401 of the Code. See "Section 401," page 35.
A Section 403(b) annuity contract may be purchased with employer
contributions, employee contributions or a combination of both. An employee's
rights under a Section 403(b) contract must be nonforfeitable. Numerous
limitations apply to the amount of contributions that may be made to a Section
403(b) annuity contract. The applicable limit will depend upon, among other
things, whether the annuity contract is purchased with employer or employee
contributions.
Amounts used to purchase Section 403(b) annuities generally are excludable
from the taxable income of the employee. As a result, all distributions from
such annuities are normally taxable in full as ordinary income to the employee.
A Section 403(b) annuity contract must prohibit the distribution of employee
contributions (including earnings thereon) until the employee: (i) attains age
59 1/2, (ii) terminates employment; (iii) dies; (iv) becomes disabled; or (v)
incurs a financial hardship (earnings may not be distributed in the event of
hardship).
Distributions from a Section 403(b) annuity contract may be eligible for a
tax-free rollover to either another Section 403(b) annuity contract or to an
individual retirement account or annuity (IRA). See "Rollovers," page 37.
SECTIONS 408 AND 408A. INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the
Code permits eligible individuals to establish individual retirement programs
through the purchase of Individual Retirement Annuities ("traditional IRAs").
The Contract may be purchased as an IRA. The IRAs described in this paragraph
are called "traditional IRAs" to distinguish them from the new "Roth IRAs" which
became available in 1998. (Roth IRAs are described on page 37.)
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 IRS. Purchasers of the Contract for such purposes will be
provided with such supplementary information as may be required by the IRS or
other appropriate agency, and will have the right to revoke the Contract under
certain circumstances. See the IRA Disclosure Statement that accompanies this
Prospectus.
In general, traditional IRAs are subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code; however, the required beginning date for traditional IRAs is generally
the date that the Contractowner reaches age 70 1/2--the Contractowner's
retirement date, if any, will not affect his or her required beginning date. See
"Section 401," page 35. Distributions from IRAs are generally taxed under Code
Section 72. Under these rules, a portion of each distribution may be excludable
from income. The amount excludable from the individual's income is the amount of
the distribution which bears the same ratio as the individual's nondeductible
contributions bears to the expected return under the IRA.
Distributions from a traditional IRA may be eligible for a tax-free rollover
to another traditional IRA. In certain cases, a distribution from a traditional
IRA may be eligible to be rolled over to a retirement plan qualified under Code
Section 401(a) or a Section 403(b) annuity contract. See "Rollovers," page 37.
SIMPLE INDIVIDUAL RETIREMENT ANNUITIES. The Small Business Job Protection Act
of 1996 created a new retirement plan, the Savings Incentive Match Plan for
Employees of Small Employers (SIMPLE plans). Depending upon the type of SIMPLE
plan, employers may deposit the plan contributions into a single trust or into
SIMPLE Individual Retirement Annuities ("SIMPLE IRA") established by each
participant.
Information on eligibility to participate in an employer's SIMPLE Plan will
be included in the summary description of the plan furnished to the participants
by their employer. Contributions to a SIMPLE IRA may be either salary deferral
contributions or employer contributions. On a pre-tax basis, participants may
elect to contribute through salary deferrals up to $6,000 of their compensation
to a SIMPLE IRA. In addition, employers are required to make either (1) a
dollar-for-dollar matching contribution or (2) a nonelective contribution to
their account each year. Finally, participants may roll over or transfer
contributions to their SIMPLE IRA from another SIMPLE IRA.
In general, SIMPLE IRAs are subject to a minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code; however, the required beginning date for SIMPLE IRAs is generally the
date that the contractowner reaches age 70 1/2. The Contractowner's retirement
date will not affect his or her required beginning date. Amounts used to
purchase SIMPLE IRAs generally are excludable from the taxable income of the
participant. As a result, all distributions from such annuities are normally
taxable in full as ordinary income to the participant.
Distributions from a SIMPLE IRA may be eligible for a tax-free rollover or
transfer to another SIMPLE IRA. However, a distribution from a SIMPLE IRA is
NEVER eligible to be rolled over to a retirement plan qualified under Code
Section 401(a) or a Section 403(b) annuity contract.
The IRS 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 IRS. Purchasers of the Contract for such purposes
will be provided with such supplementary information as may be required by the
IRS or other appropriate agency, and will have the right to revoke the Contract
under certain requirements. Unlike a traditional IRA, Roth IRAs are not subject
to minimum required distribution rules during the Contractowner's lifetime.
Generally, however, the amount in a remaining Roth IRA must be distributed by
the end of the fifth year after the death of the Contractowner.
The IRS has not reviewed the Contract for qualification as a Roth IRA and has
not addressed in a ruling of general applicability whether a death benefit
provision such as the provision in the Contract comports with Roth IRA
qualification requirements.
SECTION 457. Section 457 of the Code permits employees of state and local
governments and units and agencies of state and local governments as well as
tax-exempt organizations described in Section 501(c)(3) of the Code to defer a
portion of their compensation without paying current taxes if those employees
are participants in an eligible deferred compensation plan. A Section 457 plan
may permit the purchase of Contracts to provide benefits thereunder.
Although a participant under a Section 457 plan may be permitted to direct or
choose methods of investment in the case of a tax-exempt employer sponsor, all
amounts deferred under the plan, and any income thereon, remain solely the
property of the employer and subject to the claims of its general creditors,
until paid to the participant. The assets of a Section 457 plan maintained by a
state or local government employer must be held in trust (or custodial account
or an annuity contract) for the exclusive benefit of plan participants, who will
be responsible for taxes upon distribution. A Section 457 plan must not permit
the distribution of a participant's benefits until the participant attains age
70 1/2, terminates employment or incurs an "unforeseeable emergency."
Section 457 plans are generally subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code. See "Section 401," page 35. Since under a Section 457 plan,
contributions are generally excludable from the taxable income of the employee,
the full amount received will usually be taxable as ordinary income when annuity
payments commence or other distributions are made. Distributions from a Section
457 plan are not eligible for tax-free rollovers.
ROLLOVERS. A "rollover" is the tax-free transfer of a distribution from one
Qualified Plan to another. Distributions which are rolled over are not included
in the employee's gross income until some future time.
If any portion of the balance to the credit of an employee in a Section 401
plan or Section 403(b) plan is paid to the employee in an "eligible rollover
distribution" and the employee transfers any portion of the amount received to
an "eligible retirement plan," then the amount so transferred is not includable
in income. An "eligible rollover distribution" generally means any distribution
that is not one of a series of periodic payments made for the life of the
distributee or for a specified period of at least ten years. In addition, a
required minimum distribution will not qualify as an eligible rollover
distribution. A rollover must be completed within 60 days after receipt of the
distribution.
In the case of a Section 401 plan, an "eligible retirement plan" will be
another retirement plan qualified under Code Section 401 or an individual
retirement account or annuity under Code Section 408. With respect to a Section
403(b) plan, an "eligible retirement plan" will be another Section 403(b) plan
or an individual retirement account or annuity described in Code Section 408.
A Section 401 plan and a Section 403(b) plan must generally provide a
participant receiving an eligible rollover distribution, the option to have the
distribution transferred directly to another eligible retirement plan.
The owner of an IRA may make a tax-free rollover of any portion of the IRA.
The rollover must be completed within 60 days of the distribution and generally
may only be made to another IRA. However, an individual may receive a
distribution from his or her IRA and within 60 days roll it over into a
retirement plan qualified under Code Section 401(a) if all of the funds in the
IRA are attributable to a rollover from a Section 401(a) plan. Similarly, a
distribution from an IRA may be rolled over to a Section 403(b) plan only if all
of the funds in the IRA are attributable to a rollover from a Section 403(b)
annuity.
TAX PENALTIES. PREMATURE DISTRIBUTION TAX. Distributions from a Qualified
Plan before the participant reaches age 59 1/2 are generally subject to an
additional tax equal to 10 percent of the taxable portion of the distribution.
The 10 percent penalty tax does not apply to distributions: (i) made on or after
the death of the employee; (ii) attributable to the employee's disability; (iii)
which are part of a series of substantially equal periodic payments made (at
least annually) for the life (or life expectancy) of the employee or the joint
lives (or joint life expectancy) of the employee and a designated beneficiary
and which begin after the employee terminates employment; (iv) made to an
employee after termination of employment after reaching age 55; (v) made to pay
for certain medical expenses; (vi) that are exempt withdrawals of an excess
contribution; (vii) that is rolled over or transferred in accordance with Code
requirements; or (viii) that is transferred pursuant to a decree of divorce or
separate maintenance or written instrument incident to such a decree.
The exception to the 10 percent penalty tax described in item (iv) above is
not applicable to IRAs. However, distributions from an IRA to unemployed
individuals can be made without application of the 10 percent penalty tax to pay
health insurance premiums in certain cases. In addition, the 10 percent penalty
tax is generally not applicable to distributions from a Section 457 plan.
Starting January 1, 1998, there are two additional exceptions to the 10 percent
penalty tax on withdrawals from IRAs before age 59 1/2: withdrawals made to pay
"qualified" higher education expenses and withdrawals made to pay certain
"eligible first-time home buyer expenses."
MINIMUM DISTRIBUTION TAX. If the amount distributed from a Qualified Plan is
less than the minimum required distribution for the year, the participant is
subject to a 50 percent tax on the amount that was not properly distributed.
EXCESS DISTRIBUTION/ACCUMULATION TAX. The penalty tax of 15 percent which was
imposed (in addition to any ordinary income tax) on large plan distributions and
the "excess retirement accumulations" of an individual has been repealed,
effective January 1, 1997.
WITHHOLDING. Periodic distributions (e.g., annuities and installment
payments) from a Qualified Plan that will last for a period of ten or more years
are generally subject to voluntary income tax withholding. The amount withheld
on such periodic distributions is determined at the rate applicable to wages.
The recipient of a periodic distribution may generally elect not to have
withholding apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than ten years) from a Qualified Plan (other than IRA and
Section 457 plans) are generally subject to mandatory 20 percent income tax
withholding. However, no withholding is imposed if the distribution is
transferred directly to another eligible Qualified Plan. Nonperiodic
distributions from an IRA are subject to income tax withholding at a flat 10
percent rate. The recipient of such a distribution may elect not to have
withholding apply.
The above description of the federal income tax consequences of the different
types of Qualified Plans which may be funded by the Contract offered by this
Prospectus is only a brief summary and is not intended as tax advice. The rules
governing the provisions of Qualified Plans are extremely complex and often
difficult to comprehend. Anything less than full compliance with the applicable
rules, all of which are subject to change, may have adverse tax consequences. A
prospective Contractowner considering adoption of a Qualified Plan and purchase
of a Contract in connection therewith should first consult a qualified and
competent tax adviser, with regard to the suitability of the Contract as an
investment vehicle for the Qualified Plan.
OTHER INFORMATION
VOTING OF SBL FUND SHARES -- You indirectly (through the Separate Account)
purchase shares of the Series of SBL Fund when you allocate purchase payments to
the Subaccounts. The Company owns shares of the Fund in the Separate Account for
your benefit. Under current law, the Company will vote shares of the Fund held
in the Subaccounts in accordance with voting instructions received from Owners
having the right to give such instructions. You will have the right to give
voting instructions to the extent that you have Account Value allocated to the
particular Subaccount. The Company will vote all shares it owns through the
Subaccount in the same proportion as the shares for which it receives voting
instructions from Owners. The Company votes shares in accordance with its
current understanding of the federal securities laws. If the Company later
determines that it may vote shares of the Fund in its own right, it may elect to
do so.
Unless otherwise required by applicable law, the number of shares of a
particular Series as to which you may give voting instructions to the Company is
determined by dividing your Account Value in the corresponding Subaccount on a
particular date by the net asset value per share of that Series as of the same
date. Fractional votes will be counted. The number of votes as to which voting
instructions may be given will be determined as of the date established by the
Fund for determining shareholders eligible to vote at the meeting of the Fund.
If required by the SEC, the Company reserves the right to determine in a
different fashion the voting rights attributable to the shares of the Fund.
Voting instructions may be cast in person or by proxy.
SUBSTITUTION OF INVESTMENTS -- Security Benefit reserves the right, subject to
compliance with the law as then in effect, to make additions to, deletions from,
substitutions for, or combinations of the securities that are held by the
Separate Account or any Subaccount or that the Separate Account or any
Subaccount may purchase. If shares of any or all of the Series of SBL Fund
should no longer be available for investment, or if Security Benefit management
believes further investment in shares of any or all of the Series of SBL Fund
should become inappropriate in view of the purposes of the Contract, Security
Benefit may substitute shares of another Series of SBL Fund or of a different
fund for shares already purchased, or to be purchased in the future under the
Contract. Security Benefit may also purchase, through the Subaccount, other
securities for other classes or contracts, or permit a conversion between
classes of contracts on the basis of requests made by Owners.
In connection with a substitution of any shares attributable to an Owner's
interest in a Subaccount or the Separate Account, Security Benefit will, to the
extent required under applicable law, provide notice, seek Owner approval, seek
prior approval of the SEC, and comply with the filing or other procedures
established by applicable state insurance regulators.
Security Benefit also reserves the right to establish additional Subaccounts
of the Separate Account that would invest in a new Series of SBL Fund or in
shares of another investment company, a series thereof, or other suitable
investment vehicle. Security Benefit may establish new Subaccounts in its sole
discretion, and will determine whether to make any new Subaccount available to
existing Owners. Security Benefit may also eliminate or combine one or more
Subaccounts if, in its sole discretion, marketing, tax, or investment conditions
so warrant.
Subject to compliance with applicable law, Security Benefit may transfer
assets to the General Account. Security Benefit also reserves the right, subject
to any required regulatory approvals, to transfer assets of any Subaccount to
another separate account or Subaccount.
In the event of any such substitution or change, Security Benefit may, by
appropriate endorsement, make such changes in these and other contracts as may
be necessary or appropriate to reflect such substitution or change. If Security
Benefit believes it to be in the best interests of persons having voting rights
under the Contracts, the Separate Account may be operated as a management
investment company under the 1940 Act or any other form permitted by law. The
Separate Account may be deregistered under that Act in the event such
registration is no longer required, or it may be combined with other separate
accounts of Security Benefit or an affiliate thereof. Subject to compliance with
applicable law, Security Benefit also may combine one or more Subaccounts and
may establish a committee, board, or other group to manage one or more aspects
of the operation of the Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS -- Security Benefit reserves the
right, without the consent of Owners, to suspend sales of the Contract as
presently offered and to make any change to the provisions of the Contracts to
comply with, or give Owners the benefit of, any federal or state statute, rule,
or regulation, including but not limited to requirements for annuity contracts
and retirement plans under the Internal Revenue Code and regulations thereunder
or any state statute or regulation. In addition, upon 30 days notice to the
holder of a Group Contract, Security Benefit may make other changes to a Group
Contract that will apply only to individuals who become participants after the
effective date of the change.
REPORTS TO OWNERS -- Security Benefit will send you annually a statement setting
forth a summary of the transactions that occurred during the year, and
indicating the Contract Value as of the end of each year. In addition, the
statement will indicate the allocation of Contract Value among the Fixed Account
and the Subaccounts and any other information required by law. Security Benefit
will also send confirmations upon purchase payments, transfers, loans, loan
repayments, and full and partial withdrawals. Security Benefit may confirm
certain transactions on a quarterly basis. These transactions include purchases
made automatically from your bank account or pursuant to a salary reduction
arrangement, transfers under the Dollar Cost Averaging and Asset Reallocation
Options, systematic withdrawals and annuity payments.
You will also receive an annual and semiannual report containing financial
statements for SBL Fund, which will include a list of the portfolio securities
of each Series, as required by the 1940 Act, and/or such other reports as may be
required by federal securities laws.
TELEPHONE TRANSFER PRIVILEGES -- You may request a transfer of Contract Value
and may make changes to an existing Dollar Cost Averaging or Asset Reallocation
option by telephone if the Telephone Transfer section of the application or an
Authorization for Telephone Requests form ("Telephone Authorization") has been
completed, signed, and filed at Security Benefit's Home Office. Security Benefit
has established procedures to confirm that instructions communicated by
telephone are genuine and will not be liable for any losses due to fraudulent or
unauthorized instructions provided it complies with its procedures. Security
Benefit's procedures require that any person requesting a transfer by telephone
provide the account number and the Owner's tax identification number and such
instructions must be received on a recorded line. Security Benefit reserves the
right to deny any telephone transfer request. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), you may not be able to request transfers by telephone and would
have to submit written requests.
By authorizing telephone transfers, you authorize Security Benefit to accept
and act upon telephonic instructions for transfers involving your Contract. You
agree that neither Security Benefit, any of its affiliates, nor SBL Fund, will
be liable for any loss, damages, cost, or expense (including attorneys' fees)
arising out of any telephone requests; provided that Security Benefit effects
such request in accordance with its procedures. As a result of this policy on
telephone requests, you bear the risk of loss arising from the telephone
transfer privilege. Security Benefit may discontinue, modify, or suspend the
telephone transfer privilege at any time.
LEGAL PROCEEDINGS -- There are no legal proceedings pending to which the
Separate Account is a party, or which would materially affect the Separate
Account.
LEGAL MATTERS -- Amy J. Lee, Esq., Associate General Counsel, Security Benefit,
has passed upon legal matters in connection with the issue and sale of the
Contracts described in this Prospectus, Security Benefit's authority to issue
the Contracts under Kansas law, and the validity of the forms of the Contracts
under Kansas law.
PERFORMANCE INFORMATION
Performance information for the Subaccounts, including the yield and
effective yield of the Money Market Subaccount, the yield of the remaining
Subaccounts, and the total return of all Subaccounts may appear in
advertisements, reports, and promotional literature to current or prospective
Owners.
Current yield for the Money Market Subaccount will be based on income
received by a hypothetical investment over a given 7-day period (less expenses
accrued during the period), and then "annualized" (i.e., assuming that the 7-day
yield would be received for 52 weeks, stated in terms of an annual percentage
return on the investment). "Effective yield" for the Money Market Subaccount is
calculated in a manner similar to that used to calculate yield, but reflects the
compounding effect of earnings.
For the remaining Subaccounts, quotations of yield will be based on all
investment income per Accumulation Unit earned during a given 30-day period,
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of an Accumulation Unit
on the last day of the period. Quotations of average annual total return for any
Subaccount will be expressed in terms of the average annual compounded rate of
return on a hypothetical investment in a Contract over a period of one, five,
and ten years (or, if less, up to the life of the Subaccount), and will reflect
the deduction of the administration charge, mortality and expense risk charge
and contingent deferred sales charge and may simultaneously be shown for other
periods.
Quotations of yield and effective yield do not reflect deduction of the
contingent deferred sales charge, and total return figures may be quoted that do
not reflect deduction of the charge. If reflected, the performance figures
quoted would be lower. Such performance information will be accompanied by total
return figures that reflect deduction of the contingent deferred sales charge
that would be imposed if Contract Value were withdrawn at the end of the period
for which total return is quoted.
Although the Contracts were not available for purchase until June 8, 1984,
the underlying investment vehicle of the Separate Account, SBL Fund, has been in
existence since May 26, 1977. Performance information for the Subaccounts may
also include quotations of total return for periods beginning prior to the
availability of the Contracts that incorporate the performance of SBL Fund.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donaghue Money Market
Institutional Averages, the Lehman Brothers Government Corporate Index, the
Morgan Stanley Capital International's EAFE Index or other indices measuring
performance of a pertinent group of securities so that investors may compare a
Subaccount's results with those of a group of securities widely regarded by
investors as representative of the securities markets in general or
representative of a particular type of security: (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Contract Value is allocated to a Subaccount
during a particular time period on which the calculations are based. Performance
information should be considered in light of the investment objectives and
policies, characteristics, and quality of the Series in which the Subaccount
invests, and the market conditions during the given time period, and should not
be considered as a representation of what may be achieved in the future. For a
description of the methods used to determine yield and total return for the
Subaccounts, see the Statement of Additional Information.
Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on overall
performance or other criteria, (ii) the effect of tax-deferred compounding on a
Subaccount's investment returns, or returns in general, which may be illustrated
by graphs, charts, or otherwise, and which may include a comparison, at various
points in time, of the return from an investment in a Contract (or returns in
general) on a tax-deferred basis (assuming one or more tax rates) with the
return on a taxable basis, and (iii) Security Benefit's rating or a rating of
Security Benefit's claim-paying ability as determined by firms that analyze and
rate insurance companies and by nationally recognized statistical rating
organizations.
ADDITIONAL INFORMATION
REGISTRATION STATEMENT -- A Registration Statement under the 1933 Act has been
filed with the SEC relating to the offering described in this Prospectus. This
Prospectus does not include all the information included in the Registration
Statement, certain portions of which, including the Statement of Additional
Information, have been omitted pursuant to the rules and regulations of the SEC.
The omitted information may be obtained at the SEC's principal office in
Washington, DC, upon payment of the SEC's prescribed fees and may also be
obtained from the SEC's web site (http://www.sec.gov).
FINANCIAL STATEMENTS -- Consolidated financial statements of Security Benefit
Life Insurance Company and Subsidiaries at December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999, and the financial
statements of the Separate Account at December 31, 1999 and for each of the two
years in the period ended December 31, 1999 are contained in the Statement of
Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to Security Benefit Life Insurance Company and
Subsidiaries. The Table of Contents of the Statement of Additional Information
is set forth below:
TABLE OF CONTENTS --
Page
THE CONTRACT............................................................... 3
Valuation of Accumulation Units......................................... 3
Computation of Variable Annuity Payments................................ 3
Illustration............................................................ 3
Variations in Charges................................................... 4
Termination of Contract................................................. 4
Group Contracts......................................................... 4
PERFORMANCE INFORMATION.................................................... 4
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX QUALIFIED RETIREMENT PLANS...... 7
Section 401............................................................. 7
Section 403(b).......................................................... 7
Section 408............................................................. 7
Section 457............................................................. 7
ASSIGNMENT................................................................. 8
DISTRIBUTION OF THE CONTRACTS.............................................. 8
SAFEKEEPING OF VARIFLEX ACCOUNT ASSETS..................................... 8
STATE REGULATION........................................................... 8
EXPERTS.................................................................... 8
FINANCIAL STATEMENTS....................................................... 8
