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As Filed with the Securities and Exchange Commission on April 30, 1999
Registration No. 33-77322
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
POST-EFFECTIVE AMENDMENT NO. 6
SECURITY VARILIFE SEPARATE ACCOUNT
(SECURITY ELITE BENEFIT)
(Exact Name of Registrant)
SECURITY BENEFIT LIFE INSURANCE COMPANY
(Name of Depositor)
700 SW Harrison Street
Topeka, Kansas 66636-0001
(Address of Depositor's Principal Executive Office)
Copies to:
Amy J. Lee Jeffrey S. Puretz
Associate General Counsel Dechert Price & Rhoads
Security Benefit Group Building 1775 Eye Street, N.W.
700 SW Harrison Street Washington, D.C. 20006
Topeka, Kansas 66636-0001
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1999 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a) (1)
[_] on April 30, 1999 pursuant to paragraph (a) (1) of Rule 485
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Filing Fee: None
Title of Securities Being Registered: Interests in a separate account under
individual flexible premium variable life insurance policies.
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SECURITY ELITE BENEFIT
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
1-800-888-2461
This Prospectus describes Security Elite Benefit, a flexible premium variable
life insurance policy ("the "Policy," or "the "Policies") offered by Security
Benefit Life Insurance Company ("Security Benefit"). As long as the Policy
remains in force, it provides lifetime insurance protection on the Insured named
in the Policy through the Maturity Date. The Policy provides maximum flexibility
in connection with premium payments and death benefits by permitting you,
subject to certain restrictions, to vary the frequency and amount of premium
payments and to increase or decrease the death benefit payable under the Policy.
This flexibility allows you to provide for changing insurance needs under a
single insurance policy. You may surrender the Policy for its Net Cash Surrender
Value.
You may allocate net premium payments to one or more of the Variable Accounts
that comprise a separate account of Security Benefit called the Security
Varilife Separate Account), or to the Fixed Account of Security Benefit. Any
portion of a net premium allocated to one or more of the Variable Accounts is
invested in the corresponding Series of the SBL Fund. The Variable Accounts and
the corresponding Series of the Fund available under the policy are listed
below:
* Growth (Series A)
* Growth-Income (Series B)
* Money Market (Series C)
* Worldwide Equity (Series D)
* High Grade Income (Series E)
* Mid Cap (Series J)
* Global Strategic Income (Series K)
* Global Total Return (Series M)
* Managed Asset Allocation (Series N)
* Equity Income (Series O)
* Social Awareness (Series S)
Amounts that you allocate to the Variable Accounts WILL VARY BASED UPON THE
INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNTS TO WHICH THE ACCUMULATED VALUE
IS ALLOCATED. No minimum amount of Accumulated Value is guaranteed.
Amounts that you allocate to the Fixed Account will accrue interest at rates
declared by Security Benefit.
You may choose from two death benefit options. Under either option, for so
long as the Policy remains in force, the death benefit will never be less than
the current Specified Amount.
You may return the Policy according to the terms of its Free-Look Right (see
"Right to Examine a Policy -- Free-Look Right," page 18). During the Free-Look
Right, net premium payments allocated to the Separate Account will be invested
in the Money Market Variable Account.
It may not be advantageous to replace existing insurance with the Policy.
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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 A CURRENT PROSPECTUS FOR THE SBL FUND. YOU
SHOULD READ THE PROSPECTUSES CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
THE POLICY INVOLVES RISK, INCLUDING LOSS OF PRINCIPAL AND IS NOT A DEPOSIT OR
OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THE POLICY IS NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
PROSPECTUS DATED MAY 1, 1999
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<PAGE>
TABLE OF CONTENTS
Page
IMPORTANT TERMS............................................ 4
SUMMARY OF THE POLICY...................................... 5
PURPOSE OF THE POLICY................................... 6
POLICY VALUES........................................... 6
THE DEATH BENEFIT....................................... 6
PREMIUM FEATURES........................................ 6
CHARGES AND DEDUCTIONS.................................. 6
Premium Tax........................................... 6
Deductions from Accumulated Value..................... 7
Deductions from the Variable Accounts................. 7
Tax Treatment of Policy............................... 7
ALLOCATION OPTIONS...................................... 7
TRANSFER OF ACCUMULATED VALUE........................... 8
POLICY LOANS............................................ 8
FREE-LOOK RIGHT......................................... 8
SURRENDER RIGHT......................................... 8
PARTIAL WITHDRAWAL BENEFITS............................. 8
THE FIXED ACCOUNT....................................... 8
CONTACTING SECURITY BENEFIT............................. 8
INFORMATION ABOUT SECURITY BENEFIT AND THE SEPARATE ACCOUNT 8
SECURITY BENEFIT LIFE INSURANCE COMPANY................. 8
YEAR 2000 COMPLIANCE.................................... 8
SECURITY VARILIFE SEPARATE ACCOUNT...................... 9
SBL FUND................................................ 9
Series A.............................................. 10
Series B.............................................. 10
Series C.............................................. 10
Series D.............................................. 10
Series E.............................................. 10
Series J.............................................. 10
Series K.............................................. 10
Series M.............................................. 10
Series N.............................................. 10
Series O.............................................. 10
Series S.............................................. 10
THE INVESTMENT ADVISER.................................. 10
THE POLICY................................................. 11
APPLICATION FOR A POLICY................................ 11
PREMIUMS................................................ 11
GUARANTEED DEATH BENEFIT PREMIUM........................ 12
ALLOCATION OF NET PREMIUMS.............................. 12
DOLLAR COST AVERAGING OPTION............................ 12
ASSET REALLOCATION OPTION............................... 13
TRANSFER OF ACCUMULATED VALUE........................... 14
DEATH BENEFIT........................................... 14
Option A.............................................. 14
Option B.............................................. 14
Examples of Options A and B........................... 14
CHANGES IN DEATH BENEFIT OPTION......................... 15
CHANGES IN SPECIFIED AMOUNT............................. 15
Increases............................................. 15
Decreases............................................. 15
POLICY VALUES........................................... 16
Accumulated Value..................................... 16
Net Cash Surrender Value.............................. 16
DETERMINATION OF ACCUMULATED VALUE...................... 16
POLICY LOANS............................................ 16
BENEFITS AT MATURITY.................................... 17
SURRENDER............................................... 17
PARTIAL WITHDRAWAL BENEFITS............................. 17
RIGHT TO EXAMINE A POLICY--FREE-LOOK RIGHT.............. 18
LAPSE................................................... 18
REINSTATEMENT........................................... 18
CHARGES AND DEDUCTIONS..................................... 19
PREMIUM TAX............................................. 19
State and Local Premium Tax Charge.................... 19
DEDUCTIONS FROM ACCUMULATED VALUE....................... 19
Cost of Insurance..................................... 19
Optional Insurance Benefits Charges................... 19
DEDUCTIONS FROM THE VARIABLE ACCOUNTS................... 19
Administrative Charge................................. 19
Mortality and Expense Risk Charge..................... 20
OTHER CHARGES........................................... 20
GUARANTEE OF CERTAIN CHARGES............................ 20
OTHER INFORMATION.......................................... 20
FEDERAL INCOME TAX CONSIDERATIONS....................... 20
Diversification Requirements.......................... 21
Tax Treatment of Policies............................. 21
Conventional Life Insurance Policies.................. 21
Modified Endowment Contracts.......................... 22
Reasonableness Requirement for Charges................ 22
Accelerated Benefit for Terminal Illness.............. 23
Other................................................. 23
CHARGE FOR SECURITY BENEFIT INCOME TAXES................ 23
VOTING OF FUND SHARES................................... 23
DISREGARD OF VOTING INSTRUCTIONS........................ 24
REPORT TO OWNERS........................................ 24
SUBSTITUTION OF INVESTMENTS............................. 24
CHANGES TO COMPLY WITH LAW.............................. 24
PERFORMANCE INFORMATION.................................... 24
THE FIXED ACCOUNT.......................................... 25
GENERAL DESCRIPTION..................................... 25
DEATH BENEFIT........................................... 25
POLICY CHARGES.......................................... 26
TRANSFERS, SURRENDERS, WITHDRAWALS, AND POLICY LOANS.... 26
MORE ABOUT THE POLICY...................................... 26
OWNERSHIP............................................... 26
Joint Owners.......................................... 26
BENEFICIARY............................................. 26
EXCHANGE OF INSURED..................................... 26
EXCHANGE OF POLICY DURING FIRST 24 MONTHS............... 27
THE CONTRACT............................................ 27
PAYMENTS................................................ 27
ASSIGNMENT.............................................. 27
ERRORS ON THE APPLICATION............................... 27
INCONTESTABILITY........................................ 27
PAYMENT IN CASE OF SUICIDE.............................. 27
DIVIDENDS............................................... 28
POLICY ILLUSTRATIONS.................................... 28
PAYMENT PLAN............................................ 28
OPTIONAL INSURANCE BENEFITS............................. 28
Waiver of Monthly Deduction Rider..................... 28
Accelerated Benefit Rider for Terminal Illness........ 28
Level Term Insurance Rider............................ 28
Extended Guaranteed Death Benefit Rider............... 28
DISTRIBUTION OF THE POLICY.............................. 29
MORE ABOUT SECURITY BENEFIT................................ 29
MANAGEMENT.............................................. 29
STATE REGULATION........................................ 30
TELEPHONE TRANSFER PRIVILEGES........................... 31
LEGAL PROCEEDINGS....................................... 31
LEGAL MATTERS........................................... 31
REGISTRATION STATEMENT.................................. 31
EXPERTS................................................. 31
FINANCIAL STATEMENTS.................................... 31
APPENDIX 56
ILLUSTRATIONS.............................................. 57
THIS IS A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. ITS PURPOSE IS TO
PROVIDE INSURANCE PROTECTION FOR THE BENEFICIARY NAMED IN THE POLICY. THIS
POLICY IS NOT IN ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN
OF A MUTUAL FUND.
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You may not be able to purchase the Policy in your state. You should not
consider this Prospectus to be an offering if the Policy 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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<PAGE>
IMPORTANT TERMS
ACCUMULATED VALUE -- The total value of the amounts in the Variable Accounts
of the Separate Account and the Fixed Account for the Policy as well as any
amount set aside in the Loan Account to secure Policy Debt as of any Valuation
Date.
AGE -- The Insured's age as of his or her last birthday as of the Policy
Date, increased by the number of complete Policy Years elapsed.
BENEFICIARY -- The person or persons you named in the application or later
designated to receive the death benefit proceeds upon the death of the Insured.
EXTENDED GUARANTEED DEATH BENEFIT RIDER -- A Planned Periodic Premium in an
amount specified by Security Benefit which if paid in advance on at least a
monthly basis will keep the Policy in force beyond the first five Policy Years
even if Net Cash Surrender Value is insufficient to cover the monthly deduction
on any Monthly Payment Date. The length of the Extended Guaranteed Death Benefit
Period will vary according to the Age of the Insured on the Policy Date. At all
times during the Extended Guaranteed Death Benefit Period, the amount of
premiums you have paid on the Policy less any outstanding Policy Debt and any
Partial Withdrawals must be greater than or equal to the monthly pro rata share
of the Extended Guaranteed Death Benefit Premium multiplied by the number of
Policy Months the Policy has been in force. The Extended Guaranteed Death
Benefit Rider is an optional insurance benefit that you may elect to add to the
Policy by rider. See "Optional Insurance Benefits," page 28. This premium is not
applied to purchase the Rider, but is applied to the Policy and may be the same
as the Planned Periodic Premium.
FIXED ACCOUNT -- An account that is part of Security Benefit's General
Account to which you may allocate all or a portion of net premium payments for
accumulation at a fixed rate of interest (which may not be less than 4.0%)
declared 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.
GUARANTEED DEATH BENEFIT PREMIUM -- A Planned Periodic Premium in an amount
specified by Security Benefit which if paid in advance on at least a monthly
basis will keep the Policy in force during the first five Policy Years even if
during that period Net Cash Surrender Value is insufficient to cover the monthly
deduction on any Monthly Payment Date. At all times during the first five Policy
Years, the amount of premiums you have paid on the Policy, less any outstanding
Policy Debt and any Partial Withdrawals, must be greater than or equal to the
monthly pro rata share of the Guaranteed Death Benefit Premium multiplied by the
number of Policy months the Policy has been in force.
HOME OFFICE -- The SEB Administration Department at Security Benefit's
office, 700 SW Harrison Street, Topeka, Kansas 66636-0001.
INSURED -- The person upon whose life the Policy is issued and whose death is
the contingency upon which the death benefit proceeds are payable.
LOAN ACCOUNT -- An account to which amounts are transferred from the Variable
Accounts and the Fixed Account as collateral for Policy loans.
MATURITY DATE -- The Policy Anniversary on which the Insured is Age 95.
MONTHLY PAYMENT DATE -- The day each month on which the monthly deduction is
due against the Accumulated Value. The first Monthly Payment Date is the Policy
Date.
NET CASH SURRENDER VALUE -- Accumulated Value less Policy Debt.
PLANNED PERIODIC PREMIUM -- The premium determined by the Policyowner as a
level amount planned to be paid at fixed intervals over a specified period of
time.
POLICY DATE -- The date used to determine the Monthly Payment Date, Policy
Months, Policy Years, and Policy Monthly, Quarterly, Semiannual, and Annual
Anniversaries. It is usually the date the initial premium is received at
Security Benefit's Home Office.
POLICY DEBT -- The unpaid loan balance including accrued loan interest.
POLICYOWNER OR OWNER -- The person who owns the Policy. The Policyowner will
be the Insured unless otherwise stated in the application. If the Policy has
been absolutely assigned, the assignee becomes the Owner. A collateral assignee
is not the Owner.
SPECIFIED AMOUNT -- The amount chosen by the Owner on which the initial death
benefit is based. The Specified Amount may be increased or decreased under
certain circumstances.
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 -- The period that starts at the close of a Valuation Date
and ends at the close of the next succeeding Valuation Date.
<PAGE>
SUMMARY OF THE POLICY
This summary provides a brief overview of the more significant aspects of the
Policy. Further detail is provided in this Prospectus and in the Policy. Unless
the context indicates otherwise, the discussion in this summary and the
remainder of the Prospectus relates to the portion of the Policy involving the
Separate Account. The Fixed Account is briefly described under "The Fixed
Account," page 25 and in the Policy.
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DIAGRAM OF POLICY
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PREMIUM PAYMENTS
* You can vary amount and frequency.
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[ARROW POINTING DOWN]
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DEDUCTIONS FROM PREMIUMS
* Premium Tax based upon the actual rate in your state of residence.
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[ARROW POINTING DOWN]
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NET PREMIUM
* You direct how net premium payments are to be allocated among the Fixed
Account and the Variable Accounts. Each of the Variable Accounts invests
exclusively in a Series of SBL Fund, which Series offer investments in
diversified portfolios of stocks, bonds, money market instruments, a
combination of these securities or in securities of foreign issuers. (See page
9.)
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[ARROW POINTING DOWN]
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DEDUCTIONS FROM ASSETS
* The monthly deduction for cost of insurance and cost of any riders is deducted
from a Policy's Accumulated Value.
* A daily charge at an annual rate of 0.90% is deducted from the Variable
Accounts for mortality and expense risks. A daily charge at the annual rate of
0.35% is deducted from the Variable Accounts for administration and
maintenance of the Policies. These charges are not deducted from Fixed Account
assets. (See page 19.)
* Investment advisory fees and other fund expenses are deducted from the Series
of SBL Fund. (See page 20.)
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[LEFT, CENTER AND RIGHT ARROW POINTING DOWN]
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LIVING BENEFITS
* Within the first 24 months after the Policy Date, subject to certain
restrictions, the policyowner may exchange the policy for a fixed benefit life
policy issued and made available for exchange by Security Benefit. (See page
26.)
* The policy may be surrendered at any time for its Net Cash Surrender Value
with no surrender charge. (See page 17.)
* Partial withdrawals are available on and after the first Policy Anniversary
(subject to certain restrictions). The death benefit will be reduced by at
least the amount of the partial withdrawal. (See page 17.)
* Up to six free transfers may be made each year among the Variable Accounts.
(See page 14.)
* Accelerated payment of up to 50% of the Specified Amount (subject to a maximum
benefit of the lesser of $250,000 or 50% of the Specified Amount less any
policy debt) is available under certain conditions to insureds suffering from
terminal illness. (See page 28.)
* For loans outstanding during Policy Years one through ten, the net loan
interest rate is 2%. For loans outstanding after the first ten Policy Years,
the net loan interest rate is currently 0%. (See page 16.)
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RETIREMENT BENEFITS
* Payments may be taken under one or more of five different payment options.
(See page 28.)
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DEATH BENEFITS
* Level Term Insurance Rider providing additional death benefit coverage for
family members and/or business associates is available. (See page 28.)
* Available as lump sum or under the five payment methods available as
retirement benefits. (See page 28.)
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PURPOSE OF THE POLICY -- The Policy offers you insurance protection on the life
of the Insured through the Maturity Date as long as the Policy is in force. Like
traditional fixed life insurance, the Policy provides for a death benefit equal
to its Specified Amount, accumulation of cash value, and surrender and loan
privileges. Unlike traditional fixed life insurance, the Policy offers a choice
of allocation alternatives and an opportunity for the Policy's Accumulated Value
and, if elected by the Policyowner and under certain circumstances, its death
benefit to grow based on investment results. The Policy is a flexible premium
policy, so that, unlike many other insurance policies and subject to certain
limitations, you may choose the amount and frequency of premium payments.
POLICY VALUES -- You may allocate net premium payments among the various
Variable Accounts or to the Fixed Account.
Depending on the investment experience of the selected Variable Accounts, the
Accumulated Value may increase or decrease on any day. The death benefit may or
may not increase or decrease depending upon several factors, including the death
benefit option selected by you, although the death benefit will never decrease
below the Specified Amount provided the Policy is in force. There is no
guarantee that the Policy's Accumulated Value and death benefit will increase.
You bear the investment risk on that portion of the net premiums and Accumulated
Value allocated to the Separate Account.
The Policy will remain in force until the earliest of the Maturity Date, the
death of the Insured, or a full surrender of the Policy, unless, before any of
these events, Net Cash Surrender Value is insufficient to pay the current
monthly deduction on a Monthly Payment Date and a Grace Period expires without
sufficient additional premium payment or loan repayment by the Policyowner. A
Policy will not lapse, however, during the first five Policy Years if the
Guaranteed Death Benefit Premium is in effect, or for a period of 10 to 30
Policy Years (depending on the Age of the Insured on the Policy Date) after the
first five Policy Years if the Extended Guaranteed Death Benefit Rider is in
force.
THE DEATH BENEFIT -- You may elect one of two Options to calculate the amount of
death benefit payable under the Policy. Under Option A, the death benefit will
be equal to the Specified Amount of the Policy or, if greater, Accumulated Value
multiplied by a death benefit percentage. Under Option B, the death benefit will
be equal to the Specified Amount of the Policy plus the Accumulated Value
(determined as of the date of the Insured's death) or, if greater, Accumulated
Value multiplied by a death benefit percentage. You should choose Option A if
you are seeking to have favorable investment performance reflected in increasing
Accumulated Value. You should choose Option B if you are seeking favorable
investment performance reflected in increasing insurance coverage. You may
change the death benefit option subject to certain conditions. See "Death
Benefit" and "Changes in Death Benefit Option," pages 14 and 15.
PREMIUM FEATURES -- Security Benefit requires you to pay an initial premium
equal to at least 1/12 of Guaranteed Death Benefit Premium for the first Policy
Year. Thereafter, subject to certain limitations, you may choose the amount and
frequency of premium payments. The Policy, therefore, provides you with the
flexibility to vary premium payments to reflect varying financial conditions.
When applying for a Policy, you will determine a Planned Periodic Premium
that provides for the payment of level premiums over a specified period of time.
You may pay additional premiums monthly under a Secur-O-Matic plan. Under a
Secur-O-Matic plan you authorize Security Benefit to withdraw premiums from your
checking account on the 7th, 14th, 21st or 28th of each month. The minimum
initial premium required must be paid before Security Benefit will accept a
Secur-O-Matic plan.
The amount, frequency, and period of time over which a Policyowner pays
premiums may affect whether or not the Policy will be classified as a Modified
Endowment Contract, which is a type of life insurance contract subject to
different tax treatment for certain pre-death distributions. For more
information on the tax treatment of life insurance contracts, including those
classified as Modified Endowment Contracts, see "Federal Income Tax
Considerations," page 20.
Payment of the Planned Periodic Premiums will not guarantee that a Policy
will remain in force. Instead, the duration of the Policy depends upon the
Policy's Accumulated Value. Even if Planned Periodic Premiums are paid, the
Policy will lapse any time Accumulated Value less Policy Debt is insufficient to
pay the current monthly deduction and a Grace Period expires without sufficient
payment, unless the Guaranteed Death Benefit Premium or Extended Guaranteed
Death Benefit Rider is in effect. Any premium payment must be for at least $50.
Security Benefit also may reject or limit any premium payment that would result
in the death benefit being equal to Accumulated Value times the death benefit
percentage. The death benefit percentages are listed in the Appendix, page 56.
Such a premium, however, may be accepted with satisfactory evidence of
insurability.
CHARGES AND DEDUCTIONS --
PREMIUM TAX. Security Benefit deducts a premium tax from each premium payment
under a Policy prior to allocation of the net premium to the Policyowner's
Accumulated Value. The premium tax consists of the following item:
* Security Benefit assesses a state and local premium tax charge against each
premium to pay applicable state and local premium taxes, currently ranging
from .75% to 5%. However premium tax rates are subject to change by a
governmental entity.
DEDUCTIONS FROM ACCUMULATED VALUE. Security Benefit deducts a charge called
the monthly deduction from a Policy's Accumulated Value on each Monthly Payment
Date. The monthly deduction consists of the following items:
* COST OF INSURANCE: This monthly charge compensates Security Benefit for
providing life insurance coverage for the Insured. The amount of the charge
is equal to a current cost of insurance rate multiplied by the net amount at
risk under a Policy at the beginning of the Policy Month.
* OPTIONAL INSURANCE BENEFITS CHARGES: The monthly deduction includes charges
for any optional insurance benefits added to the Policy by Rider.
DEDUCTIONS FROM THE VARIABLE ACCOUNTS.
* ADMINISTRATIVE CHARGE: Security Benefit deducts a daily administrative
charge from the average daily net assets of each Variable Account. The daily
administrative charge is equal to an annual rate of .35% in the first ten
Policy Years and .25% thereafter. Security Benefit, however, reserves the
right to charge up to an annual rate of .35% in all Policy Years. The
administrative charge is assessed to reimburse Security Benefit for the
expenses associated with administration and maintenance of the Policies.
* MORTALITY AND EXPENSE RISK CHARGE: Security Benefit deducts a daily charge
from the assets of each Variable Account for mortality and expense risks
assumed by Security Benefit. This charge is equal to an annual rate of .90%
of the average daily net assets of each Variable Account in the first ten
Policy Years and .70% thereafter. Security Benefit, however, reserves the
right to charge up to .90% in all Policy Years.
Security Benefit pays the operating expenses of the Separate Account. The
Fund pays the investment advisory fees and operating expenses of the Fund. You
will indirectly bear a pro rata portion of these fees and expenses. For a
description of these charges, see "Charges and Deductions," page 19 and the fee
table below.
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ANNUAL MUTUAL FUND EXPENSES
(as a percentage of each Series' average daily net assets)
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TOTAL
ADVISORY OTHER MUTUAL FUND
FEE EXPENSES EXPENSES
Growth (Series A)........................ 0.75% 0.06% 0.81%
Growth-Income (Series B)................. 0.75% 0.05% 0.80%
Money Market (Series C).................. 0.50% 0.07% 0.57%
Worldwide Equity (Series D).............. 1.00% 0.26% 1.26%
High Grade Income (Series E)............. 0.75% 0.08% 0.83%
Mid Cap (Series J)....................... 0.75% 0.07% 0.82%
Global Strategic Income (Series K)....... 0.75% 0.91% 1.66%
Global Total Return (Series M)........... 1.00% 0.24% 1.24%
Managed Asset Allocation (Series N)...... 1.00% 0.22% 1.22%
Equity Income (Series O)................. 1.00% 0.08% 1.08%
Social Awareness (Series S).............. 0.75% 0.07% 0.82%
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TAX TREATMENT OF POLICY. The Policy is intended to produce benefits normally
associated with life insurance. See "Federal Income Tax Considerations," page
20, for details.
ALLOCATION OPTIONS -- You may allocate Net Premium Payments among the Variable
Accounts. The Variable Accounts invest in diversified portfolios of a mutual
fund. The portfolios include stocks, bonds, money market instruments, or a
combination of these securities, or securities of foreign issuers. Each of the
Variable Accounts invests exclusively in shares of a designated portfolio
("Series") of the SBL Fund (the "Fund"). Each Series of the Fund has a different
investment objective. The Variable Accounts and the corresponding Series of the
Fund are: the Growth Variable Account (Series A); the Growth-Income Variable
Account (Series B); the Money Market Variable Account (Series C); the Worldwide
Equity Variable Account (Series D); the High Grade Income Variable Account
(Series E); the Mid Cap (formerly Emerging Growth) Variable Account (Series J);
the Global Strategic Income (formerly Global Aggressive Bond) Variable Account
(Series K); the Global Total Return (formerly Specialized Asset Allocation)
Variable Account (Series M); the Managed Asset Allocation Variable Account
(Series N); the Equity Income Variable Account (Series O); and the Social
Awareness Variable Account (Series S). See "SBL Fund," page 9. Security
Management Company, LLC, is the Investment Adviser of each of the Series,
subject to the direction and control of the Fund's Board of Directors. Security
Management Company, LLC is a limited liability company, which is controlled by
Security Benefit. The Adviser has engaged OppenheimerFunds, Inc. to serve as
Sub-Adviser of Series D. The Investment Adviser has also engaged T. Rowe Price
Associates, Inc. to serve as Sub-Adviser of Series N and O and Wellington
Management Company, LLP, 75 State Street, Boston, MA 02109 to provide investment
advisory services to Series K and M.
The Policyowner may choose to allocate net premium payments among the eleven
Variable Accounts constituting the Separate Account, and to the Fixed Account.
TRANSFER OF ACCUMULATED VALUE -- You may transfer Accumulated Value among the
Variable Accounts and, subject to certain other limitations, between the
Variable Accounts and the Fixed Account. You may make transfers 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. See "Transfer of Accumulated Value," page 14.
POLICY LOANS -- You may borrow from Security Benefit up to 80% of the Policy's
Accumulated Value, subject to a minimum loan of $1,000. You may borrow an amount
in excess of 80% of Accumulated Value on Policies issued in certain states, as
required by applicable state law. The Policy will be the only security required
for a loan. See "Policy Loans," page 16.
The amount of any Policy Debt is subtracted from the death benefit or from
the Accumulated Value upon surrender. See "Policy Loans," page 16. The Policy
will lapse when Net Cash Surrender Value is insufficient to cover the current
monthly deduction on a Monthly Payment Date, and a Grace Period expires without
a sufficient premium or repayment of Policy Debt.
FREE-LOOK RIGHT -- You may obtain a full refund of the premium paid if the
Policy is returned within 20 days after you receive it or 45 days after the
application for the Policy is completed, whichever is later. During the
Free-Look Period, net premiums will be allocated to the Money Market Variable
Account. See "Allocation of Net Premiums," page 12.
SURRENDER RIGHT -- You can surrender the Policy during the life of the Insured
and receive its Net Cash Surrender Value, which is equal to the Accumulated
Value less any outstanding Policy Debt.
PARTIAL WITHDRAWAL BENEFITS -- You may make a Partial Withdrawal on and after
the last day of the first Policy Year. You may make up to four "Partial
Withdrawals" of Net Cash Surrender Value each Policy Year after the first Policy
Year. A Partial Withdrawal may decrease the Specified Amount on a Policy on
which you have elected death benefit Option A, and will decrease the death
benefit if the death benefit is greater than the Specified Amount under either
Option A or B. See "Partial Withdrawal Benefits," page 17.
Each Partial Withdrawal must be for at least $500. After the withdrawal the
Policy's Net Cash Surrender Value must be at least $1,000, plus an amount equal
to the sum of the monthly deductions scheduled to be deducted from the Policy's
Accumulated Value in the 36-month period immediately following a Partial
Withdrawal.
THE FIXED ACCOUNT -- You may allocate all or a portion of net premium payments
and transfer Accumulated Value to the Fixed Account. Amounts allocated to the
Fixed Account are held in Security Benefit's General Account. Security Benefit
guarantees that the Accumulated Value allocated to the Fixed Account will be
credited interest monthly at a rate equivalent to an effective annual rate of
4%. In addition, Security Benefit may in its sole discretion pay interest in
excess of the guaranteed amount. See "The Fixed Account," page 25.
CONTACTING SECURITY BENEFIT -- You should direct all written requests, notices,
and forms required by the Policies, and any questions or inquiries to Security
Benefit's SEB Administration Department at 700 SW Harrison Street, Topeka,
Kansas 66636-0001.
INFORMATION ABOUT SECURITY BENEFIT AND THE SEPARATE ACCOUNT
SECURITY BENEFIT LIFE INSURANCE COMPANY -- Security Benefit is a stock 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, the Company 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 Policyowners as of July 31, 1998 became
membership interests in Security Benefit Mutual Holding Company as of that date,
and persons who acquire policies from the Company after that date automatically
become members in the mutual holding company.
Security Benefit offers variable life insurance policies, fixed and variable
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 December 31, 1998, Security Benefit had total assets of approximately $7.9
billion. Together with its subsidiaries, Security Benefit has total funds under
management of approximately $8.8 billion.
The Principal Underwriter for the Policies is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company wholly owned by
Security Benefit.
YEAR 2000 COMPLIANCE -- Like other insurance companies, as well as other
financial and business organizations around the world, Security Benefit or SBL
Fund could be adversely affected if the computer systems used by Security
Benefit or the Fund's Investment Adviser, and other service providers, in
performing their administrative functions do not properly process and calculate
date-related information and data before, during and after January 1, 2000. Some
computer software and hardware systems currently cannot distinguish between the
year 2000 and the year 1900 or some other date because of the way date fields
were encoded. This is commonly known as the "Year 2000 Problem." If not
addressed, the Year 2000 Problem could impact (i) the administrative services
provided by Security Benefit with respect to the Policy and (ii) the management
services provided to SBL Fund by the Investment Adviser, as well as transfer
agency, accounting, custody, distribution and other services provided to the
Fund.
Security Benefit and the Investment Adviser have adopted a plan to be "Year
2000 Compliant" with respect to both their internally built systems as well as
systems provided by external vendors. We consider a system Year 2000 Compliant
when it is able to correctly process, provide, and/or receive data before,
during and after the Year 2000. Security Benefit and the Investment Adviser's
overall approach to addressing the Year 2000 issue is as follows: (1) to
inventory their internal and external hardware, software, telecommunications and
data transmissions to customers and conduct a risk assessment with respect to
the impact that a failure on any such system would have on its business
operations; (2) to modify or replace their internal systems and obtain vendor
certifications of Year 2000 compliance for systems provided by vendors or
replace such systems that are not Year 2000 Compliant; and (3) to implement and
test their systems for Year 2000 compliance. Security Benefit and the Investment
Adviser have completed the inventory of their internal and external systems and
have made substantial progress toward completing the modification/replacement of
its internal systems as well as obtaining Year 2000 Compliant certifications
from its external vendors. Overall systems testing commenced in early 1998 and
will extend into the first eight months of 1999.
Although Security Benefit and the Investment Adviser have taken steps to
ensure that their systems will function properly before, during and after the
Year 2000, external vendors provide their key operating systems and information
sources which creates uncertainty to the extent Security Benefit and the
Investment Adviser are relying on the assurance of such vendors as to whether
their systems will be Year 2000 Compliant. The costs or consequences of
incomplete or untimely resolution of the Year 2000 issue are unknown to Security
Benefit and the Investment Adviser at this time but could have a material
adverse impact on the operations of the Security Benefit, the Separate Account,
the underlying Fund and the Investment Adviser.
The Year 2000 Problem is also expected to impact companies, which may include
issuers of portfolio securities held by SBL Fund, to varying degrees based upon
various factors, including, but not limited to, the company's industry sector
and degree of technological sophistication. The Fund and the Investment Adviser
are unable to predict what impact, if any, the Year 2000 Problem will have on
issuers of the portfolio securities held by the Fund.
SECURITY VARILIFE SEPARATE ACCOUNT -- The Security Varilife Separate Account
("Separate Account") is a separate account of Security Benefit used only to
support the variable death benefits and policy values of variable life insurance
policies. The assets in the Separate Account are kept separate from the General
Account assets and other separate accounts of Security Benefit.
Security Benefit owns the assets in the Separate Account and is required to
maintain sufficient assets in the Separate Account to meet anticipated
obligations of the Policies funded by the Account. The Separate Account is
divided into subaccounts called Variable Accounts. The income, gains, or losses
of the Separate Account are credited to or charged against the assets of the
Separate Account without regard to the other income, gains, or losses of
Security Benefit. Assets in the Separate Account attributable to the reserves
and other liabilities under the Policies are not chargeable with liabilities
arising from any other business that Security Benefit conducts. Security Benefit
may transfer to its General Account any assets which exceed anticipated
obligations of the Separate Account. All obligations arising under the Policy
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 Policies other than variable life insurance policies, and may accumulate
in the Separate Account proceeds from various Policy charges and investment
results applicable to those assets.
Security Benefit established the Separate Account on September 13, 1993,
under Kansas law under the authority of the Board of Directors of Security
Benefit. The Separate Account is registered as a unit investment trust with the
SEC. Such registration does not involve any supervision by the SEC of the
administration or investment practices or policies of the Account.
Each Variable Account invests exclusively in shares of a designated Series of
the Fund. Security Benefit may in the future establish additional Variable
Accounts within the Separate Account, which may invest in other Series of the
Fund or in other securities or other investment vehicles.
SBL FUND -- The Fund is a diversified, open-end management investment company of
the series type. The Fund is registered with the SEC under the Investment
Company Act of 1940. Such registration does not involve supervision by the SEC
of the investments or investment policy of the Fund. Each Series of the Fund
pursues different investment objectives and policies. Security Benefit purchases
shares of each Series for the corresponding Variable Account at net asset value
(i.e., without sales load). All dividends and capital gains distributions
received from a Series are automatically reinvested in such Series at net asset
value, unless Security Benefit, on behalf of the Separate Account, elects
otherwise. Fund shares will be redeemed by Security Benefit at their net asset
value to the extent necessary to make payments under the 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 for variable annuity contracts issued by Security
Benefit. Thus, the Fund serves as an investment medium for both variable life
insurance policies and variable annuity contracts. This is called "mixed
funding." Shares of the Fund may also 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 Policyowners arising from either mixed or shared
funding; however, due to differences in tax treatment or other considerations,
it is possible that the interests of owners of various contracts for which the
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 the 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. The 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 the
Fund. This might force the Fund to sell securities at disadvantageous prices.
The investment objective of each Series of the Fund is described below. There
can be no assurance that any Series will achieve its objective. More detailed
information is contained in the accompanying Prospectus of the Fund, including
information on the risks associated with the investments and investment
techniques of each of the Series.
THE FUND'S PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
SERIES A. Amounts allocated to the Growth Variable Account are invested in
Series A. Series A seeks long-term capital growth by investing primarily in a
broadly diversified portfolio of common stocks.
SERIES B. Amounts allocated to the Growth Income Variable Account are
invested in Series B. Series B seeks long-term growth of capital with secondary
emphasis on income.
SERIES C. Amounts allocated to the Money Market Variable Account are invested
in Series C. Series C seeks a high level of current income consistent with
preserving capital by investing in money market securities with varying
maturities.
SERIES D. Amounts allocated to the Worldwide Equity Variable Account are
invested in Series D. Series D seeks long-term growth of capital primarily
through investment in common stocks and equivalents of companies in foreign
countries and the United States.
SERIES E. Amounts allocated to the High Grade Income Variable Account are
invested in Series E. Series E seeks to provide current income with security of
principal by investing in a broad range of debt securities, including U.S. and
foreign corporate debt securities and securities issued by the U.S. and foreign
governments.
SERIES J. Amounts allocated to the Mid Cap (formerly Emerging Growth)
Variable Account are invested in Series J. Series J seeks capital appreciation
by investing primarily in a broadly diversified portfolio of common stocks.
SERIES K. Amounts allocated to the Global Strategic Income (formerly Global
Aggressive Bond) Variable Account are invested in Series K. Series K seeks high
current income and, as a secondary objective, capital appreciation by investing
primarily in a broad range of debt securities, including U.S. and foreign high
yield, lower-rated debt securities (commonly known as "junk bonds").
SERIES M. Amounts allocated to the Global Total Return (formerly Specialized
Asset Allocation) Variable Account are invested in Series M. Series M seeks 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 debt and equity securities.
SERIES N. Amounts allocated to the Managed Asset Allocation Variable Account
are invested in Series N. Series N seeks a high level of total return by
investing primarily in a diversified portfolio of debt and equity securities of
U.S. and foreign issuers.
SERIES O. Amounts allocated to the Equity Income Variable Account are
invested in Series O. Series O seeks to provide substantial dividend income and
also capital appreciation by investing primarily in dividend-paying common
stocks of established companies.
SERIES S. Amounts allocated to the Social Awareness Variable Account are
invested in Series S. Series S seeks capital appreciation by investing in
various types of securities which meet certain social criteria established for
the Series.
THE INVESTMENT ADVISER -- Security Management Company, LLC, located at 700 SW
Harrison Street, Topeka, Kansas 66636, serves as Investment Adviser to each
Series of the Fund. Security Management Company, LLC is registered with the SEC
as an investment adviser. Security Management Company, LLC formulates and
implements continuing programs for the purchase and sale of securities in
compliance with the investment objective, policies, and restrictions of each
Series and is responsible for the day-to-day decisions to buy and sell
securities for the Series, except Series D, K, M, N and O. See the accompanying
SBL Fund prospectus for details. The Investment Adviser has engaged
OppenheimerFunds, Inc., Two World Trade Center, New York, New York 10048, to
provide investment advisory services to Series D of the Fund; Wellington
Management Company, LLP, 75 State Street, Boston, MA 02109, to provide
investment advisory services to Series K and M; and T. Rowe Price Associates,
Inc., 100 East Pratt Street, Baltimore, Maryland 21202 to provide investment
advisory services to Series N and O.
THE POLICY
The variable life insurance benefits provided by the Policies are funded through
your Accumulated Value in the Separate Account and the Fixed Account. The
information included below describes the benefits, features, charges, and other
major provisions of the Policies.
APPLICATION FOR A POLICY -- The Policy is designed to meet the needs of
individuals and for corporations who wish to provide coverage and benefits for
key employees. If you wish to purchase the Policy you may submit an application
to Security Benefit. A Policy can be issued on the life of an Insured for Ages
18 up to and including Age 85 with evidence of insurability satisfactory to
Security Benefit. The Insured's Age is calculated as of the Insured's last
birthday as of the Policy Date. Acceptance is subject to Security Benefit's
evaluation of the risk, and Security Benefit reserves the right to request
additional information and to reject an application.
Each Policy is issued with a Policy Date, which is the date used to determine
the Monthly Payment Date, Policy Months, Policy Years, and Policy Monthly,
Quarterly, Semiannual and Annual Anniversaries. If the application is
accompanied by all or a portion of the initial premium and is accepted by
Security Benefit, the Policy Date is usually the date the application and
premium payment were received at Security Benefit's Home Office. If an
application is not accompanied by all or a portion of the initial premium
payment, the Policy Date is usually the date the application is accepted by
Security Benefit. Security Benefit first becomes obligated under the Policy on
the date the total initial premium is received or on the date the application is
accepted, whichever is later. Security Benefit will take any monthly deductions
due on the Monthly Payment Date on or next following the date Security Benefit
becomes obligated. The initial premium must be received within 20 days after the
Policy is issued, although Security Benefit may waive the 20-day requirement at
its discretion. If Security Benefit does not receive the initial premium or the
application is rejected by Security Benefit, the Policy will be canceled and any
partial premium received will be refunded.
Subject to Security Benefit's approval, a Policy may be backdated, but the
Policy Date may not be more than six months prior to the date of the
application. Backdating can be advantageous if the Insured's lower issue Age
results in lower cost of insurance rates. If the Policy is backdated, the
minimum initial premium required will include sufficient premium to cover the
backdating period. Monthly deductions will be made for the period the Policy
Date is backdated.
Insured's are assigned to underwriting (risk) classes which are used in
calculating the cost of insurance charges. In assigning Insureds to underwriting
classes, Security Benefit will normally use the medical or paramedical
underwriting method, which may require a medical examination of a proposed
Insured, although other forms of underwriting may be used when deemed
appropriate by Security Benefit.
PREMIUMS -- The Policy is a flexible-premium policy, and it provides
considerable flexibility, subject to the limitations described below, to pay
premiums at your discretion. Security Benefit usually requires a Policyowner to
pay a minimum initial premium equal to at least 1/12 of the Guaranteed Death
Benefit Premium for the first Policy Year, which will be based upon the Policy's
Specified Amount and Death Benefit Option, any Riders added to the Policy, and
the Age, gender (unless unisex cost of insurance rates apply, see "Cost of
Insurance," page 19), rating class, and underwriting class of the Insured.
Thereafter, subject to the limitations described below, a Policyowner may choose
the amount and frequency of premium payments. The Policy, therefore, provides
you with the flexibility to vary premium payments to reflect varying financial
conditions. Security Benefit may reduce the minimum initial premium required
under certain circumstances, such as for a group or sponsored arrangement.
When applying for a Policy, you will determine a Planned Periodic Premium
that provides for the payment of level premiums over a specified period of time.
Additional premiums may be paid monthly under the Secur-O-Matic plan where you
authorize Security Benefit to withdraw premiums from your checking account each
month on the 7th, 14th, 21st, or 28th day of each month. The minimum initial
premium required must be paid before Security Benefit will accept the
Secur-O-Matic plan.
The amount, frequency and period of time over which a Policyowner pays
premiums may affect whether the Policy will be classified as a modified
endowment contract, which is a type of life insurance contract subject to
different tax treatment for certain pre-death distributions than conventional
life insurance contracts. Accordingly, variations from the Planned Periodic
Premiums on a Policy that is not otherwise a modified endowment contract may
result in the Policy becoming a modified endowment contract for tax purposes.
Payment of the Planned Periodic Premium will not guarantee that a Policy will
remain in force. Instead, the duration of the Policy depends upon the Policy's
Accumulated Value. Even if Planned Periodic Premiums are paid, the Policy will
lapse at any time Accumulated Value less Policy Debt is insufficient to pay the
current monthly deduction and a Grace Period expires without sufficient payment,
unless the Guaranteed Death Benefit Premium provision or Extended Guaranteed
Death Benefit Rider is in effect. See "Guaranteed Death Benefit Premium" below,
"Lapse," page 18 and "Optional Insurance Benefits," page 28.
Any premium payment must be at least $50. Security Benefit also may reject or
limit any premium payment that would result in an immediate increase in the net
amount at risk under the Policy, although such a premium may be accepted with
satisfactory evidence of insurability. See "Cost of Insurance," page 19. A
premium payment would result in an immediate increase in the net amount at risk
if the death benefit under a Policy is, or upon acceptance of the premium would
be, equal to a Policyowner's Accumulated Value multiplied by a death benefit
percentage. See "Death Benefit," page 14. If satisfactory evidence of
insurability is not received, the payment, or portion thereof may be returned.
All or a portion of a premium payment will be rejected and returned to the
Policyowner if it would exceed the maximum premium limitations prescribed by
federal tax law, as determined by Security Benefit.
Security Benefit will deduct any applicable premium tax from each premium
payment. See "Charges and Deductions," page 19. The remainder of the premium,
known as the net premium, will be allocated as described below under "Allocation
of Net Premiums." Additional payments will first be treated as additional
premium payments unless a Policyowner indicates that the payment is a repayment
of Policy Debt.
GUARANTEED DEATH BENEFIT PREMIUM -- You may decide to pay the Guaranteed Death
Benefit Premium. If you pay the Guaranteed Death Benefit Premium in advance on
at least a monthly basis you will keep the Policy in force during the first five
Policy Years even if during that period Net Cash Surrender Value is insufficient
to cover the monthly deduction on any Monthly Payment Date. The Guaranteed Death
Benefit Premium is a Planned Periodic Premium in an amount determined by
Security Benefit based upon the Policy's Specified Amount and Death Benefit
Option, any Riders added to the Policy, and the Age, gender (unless unisex cost
of insurance rates apply), rating class, and underwriting class of the Insured.
Security Benefit will send a reminder notice if the amount of premiums paid on a
Policy, less outstanding Policy Debt and any Partial Withdrawals, is less than
an amount equal to the monthly Guaranteed Death Benefit Premium times the number
of Policy Months the Policy has been in force. The Guaranteed Death Benefit will
no longer be in effect and may not be reinstated if the required payment is not
made within 61 days, measured from the date of notice. A Policy Loan taken in
the first five Policy Years may cause the Guaranteed Death Benefit to terminate.
As a result, the Policy will not have the protection from lapse provided by the
Guaranteed Death Benefit Premium during the first five Policy Years. See
"Lapse," page 18 and, for a discussion of the Extended Guaranteed Death Benefit
Premium Rider, see "Optional Insurance Benefits," page 28.
ALLOCATION OF NET PREMIUMS -- In the application for the Policy, you select the
Variable Accounts or the Fixed Account to which net premium payments will be
allocated. During the Free-Look Period, net premiums will be allocated to the
Money Market Variable Account, which invests in Series C of the Fund (except for
amounts allocated to the Loan Account to secure a Policy loan). The Accumulated
Value will be automatically allocated according to your instructions contained
in the application the later of 20 days after the Policy is issued or 45 days
after the application is completed, or, if longer, upon receipt of the minimum
initial premium (the "Free-Look Period"). Net premiums received after the
Free-Look Period will be allocated upon receipt among the Variable Accounts and
the Fixed Account according to your most recent instructions. Available
allocation alternatives include the eleven Variable Accounts and the Fixed
Account.
You may change the allocation of net premiums by submitting a proper written
request to Security Benefit's Home Office. The minimum amount that you may
allocate to a Variable Account or the Fixed Account is the greater of $25 or 10%
of the net premium. Security Benefit allows allocation of only a whole
percentage of net premium. You may change net premium allocation instructions 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. Security Benefit reserves the right
to discontinue telephone net premium allocation instructions.
DOLLAR COST AVERAGING OPTION -- Security Benefit currently offers an option
under which you may dollar cost average your Accumulated Value by authorizing
Security Benefit to make periodic transfers of Accumulated Value from any one
Variable Account to one or more of the other Variable Accounts. 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 values. The option will
result in the transfer of Accumulated Value to one or more Variable Accounts.
Amounts transferred under this option will be credited at the Variable Account
price as of the end of the Valuation Dates on which the transfers are effected.
Since the price of a Variable Account's Accumulation Units will vary, the
amounts allocated to a Variable Account will result in the crediting of a
greater number of units when the Accumulation Unit price is low and a lesser
number of units when the Accumulation Unit price is high. Similarly, the amounts
transferred from a Variable Account will result in a debiting of a greater
number of units when the Accumulation Unit price is low and a lesser number of
units when the Accumulation Unit price is high. Dollar cost averaging does not
guarantee profits, nor does it assure that you will not have losses.
You may request a Dollar Cost Averaging Request form from the SEB
Administration Department. On the form, you must designate whether Accumulated
Value is to be transferred on the basis of a specific dollar amount, a fixed
period or earnings only, the Variable Accounts to and from which the transfers
will be made, the desired frequency of the transfers, which may be on a monthly
or quarterly basis, and the length of time during which the transfers shall
continue or the total amount to be transferred over time.
To elect the Dollar Cost Averaging Option, your Accumulated Value must be at
least $10,000 and a Dollar Cost Averaging Request in proper form must be
received by Security Benefit at its Home Office. You may not have Dollar Cost
Averaging and Asset Reallocation Options in effect at the same time. After
Security Benefit has received a Dollar Cost Averaging Request in proper form at
its Home Office, Security Benefit will transfer Accumulated Value in the amounts
you designate from the Variable Account from which transfers are to be made to
the Variable Account or Accounts you have chosen. The minimum amount that may be
transferred from any Variable Account is $100. After the Free-Look Period,
Security Benefit will effect the first transfer on the monthly or quarterly
anniversary, whichever corresponds to the period you selected, of the date of
receipt at Security Benefit's Home Office of a Dollar Cost Averaging Request in
proper form, until the total amount elected has been transferred, until
Accumulated Value in the Variable Account from which transfers are made has been
depleted, or until the Policy enters the Grace Period. Amounts periodically
transferred under this option are not currently subject to any transfer charges
that may be imposed by Security Benefit.
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
Accumulated Value in the Variable Account that has not been transferred will
remain in that Variable Account, subject to monthly deductions, unless you
instruct 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 Variable Account has been depleted, or
after the Dollar Cost Averaging Option has been canceled, you must complete a
new Dollar Cost Averaging Request and send it to Security Benefit's Home Office.
The Accumulated Value at the time the request is made must be at least $10,000.
Security Benefit may discontinue, modify, or suspend the Dollar Cost Averaging
Option at any time.
Accumulated Value may also be dollar cost averaged to or from the Fixed
Account subject to certain restrictions described in "The Fixed Account," page
25.
ASSET REALLOCATION OPTION -- Security Benefit currently offers an option under
which you may authorize Security Benefit to automatically transfer your
Accumulated Value each quarter to maintain a particular percentage allocation
among the Variable Accounts. The Accumulated Value allocated to each Variable
Account will grow or decline in value at different rates during the quarter.
Asset Reallocation automatically reallocates the Accumulated Value in the
Variable Accounts each quarter to the allocation you select. Asset Reallocation
is intended to transfer Accumulated Value from those Variable Accounts that have
increased in value to those Variable Accounts that have declined in value. Over
time, this method of investing may help you buy low and sell high, although
there can be no assurance of this. This reallocation method does not guarantee
profits, nor does it assure that you will not have losses. If you choose this
option, it is possible that Accumulated Value may, at any time, be less than the
Accumulated Value that you would have experienced had the Option not been
selected.
To elect the Asset Reallocation Option, the Accumulated Value must be at
least $10,000 and an Asset Reallocation Request in proper form must be received
by Security Benefit at its Home Office. You may request an Asset Reallocation
Request form. On the form, you must indicate the applicable Variable Accounts
and the percentage of Accumulated Value to be reallocated on a quarterly basis
to each Variable Account. If the Asset Reallocation Option is elected, all
Accumulated Value that is invested in the Variable Accounts must be included in
Asset Reallocation. You may not have Dollar Cost Averaging and Asset
Reallocation Options in effect at the same time.
The Asset Reallocation Option will result in the transfer of Accumulated
Value to one or more of the Variable Accounts on the date of Security Benefit's
receipt of the Asset Reallocation Request in proper form and on each quarterly
anniversary of that date thereafter. The amounts transferred will be credited at
the Variable Account Accumulation Unit price as of the end of the Valuation
Dates on which the transfers are effected. Amounts periodically transferred
under this option are not currently subject to any transfer charges that may be
imposed by Security Benefit.
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
Accumulated Value in the Variable Accounts that has not been transferred will
remain in those Variable Accounts, subject to monthly deductions, regardless of
the percentage allocation unless you instruct otherwise. If you wish to continue
Asset Reallocation after it has been canceled, you may complete a new Asset
Reallocation Request form and send it to Security Benefit's Home Office. The
Accumulated Value must be at least $10,000 at the time the request is made.
Security Benefit may discontinue, modify, or suspend, and reserves the right to
charge a fee for the Asset Reallocation Option at any time.
Accumulated Value invested in the Fixed Account may be included in the Asset
Reallocation Program, subject to the restrictions on transfers from the Fixed
Account as described in "The Fixed Account," page 25.
TRANSFER OF ACCUMULATED VALUE -- After the Free-Look Period you may transfer the
Accumulated Value among the Variable Accounts upon proper written request to
Security Benefit's Home Office. You may transfer Accumulated Value (other than
transfers in connection with the Dollar Cost Averaging or 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, except that this minimum amount does not apply to transfers under the
Dollar Cost Averaging and Asset Reallocation Options. Currently, there are no
limitations on the number of transfers between Variable Accounts, nor any
minimum amount required to be remaining in a given Variable Account after a
transfer (except as required under the Dollar Cost Averaging and Asset
Reallocation Options). However, no transfer may be made if a Policy is in the
Grace Period and a payment required to avoid lapse is not paid. See "Lapse,"
page 18. No charges are currently imposed upon such transfers; however, Security
Benefit reserves the right to allow six free transfers in any Policy Year and to
charge $25 for each additional transfer. Security Benefit further reserves the
right at a future date to limit the size of transfers and remaining balances, to
limit the number and frequency of transfers, and to discontinue telephone
transfers.
After the Free-Look Period you may transfer Accumulated Value from the
Variable Accounts to the Fixed Account; however, transfers from the Fixed
Account to the Variable Accounts are restricted as described in "The Fixed
Account," page 25.
DEATH BENEFIT -- When the Policy is issued, Security Benefit will determine the
initial amount of insurance based on the instructions provided in the
application. That amount will be shown on the specifications page of the Policy
and is called the "Specified Amount." The minimum Specified Amount at issuance
of a Policy is $100,000. Security Benefit may reduce the minimum Specified
Amount required at issuance under certain circumstances, such as for a group or
sponsored arrangement.
For so long as the Policy remains in force, Security Benefit will, upon proof
of the death of an Insured, pay death benefit proceeds to a named Beneficiary.
Death benefit proceeds will consist of the death benefit under the Policy, plus
any insurance proceeds provided by Rider, reduced by any outstanding Policy Debt
(and, if in the Grace Period, any overdue charges).
You may select one of two death benefit options: Option A or Option B.
Generally, an applicant designates the death benefit option in the application.
If no option is designated, Security Benefit will assume you selected Option A.
Subject to certain restrictions, you can change the death benefit option
selected. So long as the Policy remains in force, the death benefit under either
option will never be less than the Specified Amount of the Policy.
OPTION A. Under Option A, the death benefit will be equal to the Specified
Amount of the Policy or, if greater, Accumulated Value (determined as of the end
of the Valuation Period during which the Insured dies) multiplied by a death
benefit percentage. The death benefit percentages vary according to the Age of
the Insured and will be at least equal to the cash value corridor in Section
7702 of the Internal Revenue Code, which addresses the definition of a life
insurance policy for tax purposes. The death benefit percentage is 250% for an
Insured at Age 40 or under, and it declines for older Insureds. A table showing
the death benefit percentages is in the Appendix to this Prospectus and in the
Policy. If you seek favorable investment performance reflected in increasing
Accumulated Value rather than increasing insurance coverage, you should choose
Option A.
OPTION B. Under Option B, the death benefit will be equal to the Specified
Amount of the Policy plus the Accumulated Value (determined as of the end of the
Valuation Period during which the Insured dies) or, if greater, Accumulated
Value multiplied by a death benefit percentage. The specified percentage is the
same as that used in connection with Option A and as stated in the Appendix. The
death benefit under Option B will always vary as Accumulated Value varies.
Therefore, if you seek favorable investment performance reflected in increased
insurance coverage, you should choose Option B.
EXAMPLES OF OPTIONS A AND B. The following examples demonstrate the
determination of death benefits under Options A and B. The examples show three
Policies -- Policies I, II, and III -- with the same Specified Amount, but
Accumulated Values that vary as shown, and which assume an Insured is Age 40 at
the time of death and that there is no outstanding Policy Debt.
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POLICY I POLICY II POLICY III
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Specified Amount..................... $100,000 $100,000 $100,000
Accumulated Value on Date of Death... $ 25,000 $ 50,000 $ 75,000
Death Benefit Percentage............. 250% 250% 250%
Death Benefit Under Option A......... $100,000 $125,000 $187,500
Death Benefit Under Option B......... $125,000 $150,000 $187,500
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Under Option A, the death benefit for Policy I is equal to $100,000, since
the death benefit is the greater of the Specified Amount ($100,000) or the
Accumulated Value at the date of death multiplied by the death benefit
percentage ($25,000 x 250% = $62,500). In contrast, for both Policies II and III
under Option A, the Accumulated Value multiplied by the death benefit percentage
($50,000 x 250% = $125,000 for Policy II; $75,000 x 250% = $187,500 for Policy
III) is greater than the Specified Amount ($100,000), so the death benefit is
equal to the higher value. Under Option B, the death benefit for Policy I is
equal to $125,000 since the death benefit is the greater of Specified Amount
plus Accumulated Value ($100,000 + $25,000 = $125,000) or the Accumulated Value
multiplied by the death benefit percentage ($25,000 x 250% = $62,500).
Similarly, in Policy II, Specified Amount plus Accumulated Value ($100,000 +
$50,000 = $150,000) is greater than Accumulated Value multiplied by the death
benefit percentage ($50,000 x 250% = $125,000). In contrast, in Policy III, the
Accumulated Value multiplied by the death benefit percentage ($75,000 x 250% =
$187,500) is greater than the Specified Amount plus Accumulated Value ($100,000
+ $75,000 = $175,000), so the death benefit is equal to the higher value.
All calculations of death benefit will be made as of the end of the Valuation
Period during which the Insured dies. Death benefit proceeds may be paid to a
Beneficiary in a lump sum or under a payment plan offered under the Policy.
Consult the Policy for details.
CHANGES IN DEATH BENEFIT OPTION -- You may request that the death benefit option
under the Policy be changed from Option A to Option B, or from Option B to
Option A. You may change death benefit options only once per Policy Year, and
requests should be made in writing to Security Benefit's Home Office. You may
change from Option B to Option A without evidence of insurability; a change from
Option A to Option B requires evidence of insurability satisfactory to Security
Benefit. The effective date of any such change shall be the Monthly Payment Date
on or next following Security Benefit's acceptance of the request.
A change in the death benefit from Option A to Option B will result in a
reduction in the Specified Amount of the Policy by the amount of the Policy's
Accumulated Value, with the result that the death benefit payable under Option B
at the time of the change will equal that which would have been payable under
Option A immediately prior to the change. The change in option will affect the
determination of the death benefit from that point on since Accumulated Value
will then be added to the new Specified Amount, and the death benefit will then
vary with Accumulated Value. This change will not be permitted if it would
result in a Specified Amount of less than $100,000 although Security Benefit
reserves the right to waive this minimum under certain circumstances, such as
for a group or sponsored arrangement. No charge is currently made on a change
from Option A to Option B.
A change in the death benefit option from Option B to Option A will result
in an increase in the Specified Amount of the Policy by the amount of the
Policy's Accumulated Value, with the result that the death benefit payable under
Option A at the time of the change will equal that which would have been payable
under Option B immediately prior to the change. However, the change in option
will affect the determination of the death benefit from that point on since the
Accumulated Value will no longer be added to the Specified Amount in determining
the death benefit. From that point on, the death benefit will equal the new
Specified Amount (or, if higher, the Accumulated Value times the applicable
specified percentage). No charge is currently made on a change from Option B to
Option A.
A change in death benefit option may affect the monthly cost of insurance
charge since this charge varies with the net amount at risk, which generally is
the amount by which the death benefit exceeds Accumulated Value. See "Cost of
Insurance," page 19. Assuming that the Policy's death benefit would not be equal
to Accumulated Value times a death benefit percentage under either Option A or
B, changing from Option B to Option A will generally decrease the net amount at
risk, and therefore decrease the cost of insurance charges. Changing from Option
A to Option B will generally result in a net amount at risk that remains level.
Such a change, however, will result in an increase in the cost of insurance
charges over time, since the cost of insurance rates increase with the Insured's
Age.
CHANGES IN SPECIFIED AMOUNT -- You may request an increase or decrease in the
Specified Amount under a Policy after the first Policy Year subject to approval
from Security Benefit. You may change the Specified Amount only once per Policy
Year. Increasing the Specified Amount could increase the death benefit under a
Policy, and decreasing the Specified Amount could decrease the death benefit.
The amount of change in the death benefit will depend, among other things, upon
the death benefit option chosen by you and the degree to which the death benefit
under a Policy exceeds the Specified Amount prior to the change. Changing the
Specified Amount could affect the subsequent level of the death benefit while
the Policy is in force and the subsequent level of Policy values. An increase in
Specified Amount may increase the net amount at risk under a Policy, which will
increase your cost of insurance charge. Conversely, a decrease in Specified
Amount may decrease the net amount at risk, which will decrease your cost of
insurance charge. An increase in Specified Amount made while the Guaranteed
Death Benefit Premium or Extended Guaranteed Death Benefit Rider is in effect
will increase the respective premium requirements for these benefits.
You may request an increase or decrease in Specified Amount by written
application to Security Benefit's Home Office. It will become effective on the
Monthly Payment Date on or next following Security Benefit's acceptance of the
request. If you are not the Insured, Security Benefit will also require the
consent of the Insured before accepting a request.
INCREASES. Security Benefit will require additional evidence of insurability
satisfactory to Security Benefit for an increase in Specified Amount. No charge
is currently made in connection with an increase in Specified Amount.
DECREASES. Any decrease in Specified Amount will first be applied to the most
recent increases, then the next most recent increases successively, and finally
to the original Specified Amount. Security Benefit will not permit a decrease if
the Specified Amount falls below $100,000, although Security Benefit reserves
the right to waive the minimum Specified Amount under certain circumstances,
such as for a group or sponsored arrangement. No charge is currently made in
connection with a decrease. If a decrease in the Specified Amount would result
in total premiums paid exceeding the premium limitations prescribed under tax
law to qualify the Policy as a life insurance contract, Security Benefit will
refund the Policyowner the amount of such excess above the premium limitations,
as determined by Security Benefit.
Security Benefit reserves the right to disallow a requested decrease, and
will not permit a requested decrease, among other reasons, (1) if compliance
with the guideline premium limitations under tax law resulting from the
requested decrease would result in immediate termination of the Policy, or (2)
if, to effect the requested decrease, payments to you would have to be made from
Accumulated Value for compliance with the guideline premium limitations, and the
amount of such payments would exceed the Net Cash Surrender Value under the
Policy.
POLICY VALUES --
ACCUMULATED VALUE. The Accumulated Value is the sum of the amounts under the
Policy held in each Variable Account of the Separate Account and the Fixed
Account, as well as the amount set aside in Security Benefit's Loan Account to
secure any Policy Debt.
On each Valuation Date, Security Benefit will adjust the portion of the
Accumulated Value allocated to any particular Variable Account to reflect the
investment experience of that Variable Account and deduction of the
administrative and mortality and expense risk charges from that Variable
Account. On each Monthly Payment Date, Security Benefit will also adjust the
portion of the Accumulated Value allocated to a particular Variable Account to
reflect the assessment of the monthly deduction. See "Determination of
Accumulated Value," below. No minimum amount of Accumulated Value is guaranteed.
You bear the risk for the investment experience of Accumulated Value allocated
to the Variable Accounts.
NET CASH SURRENDER VALUE. The Net Cash Surrender Value of the Policy equals
the Accumulated Value less any outstanding Policy Debt. The Owner can surrender
a Policy at any time while the Insured is living and receive its Net Cash
Surrender Value. See "Surrender," page 17.
DETERMINATION OF ACCUMULATED VALUE -- Although the death benefit under a Policy
can never be less than the Policy's Specified Amount, the Accumulated Value will
vary to a degree that depends upon several factors, including investment
performance of the Variable Accounts to which Accumulated Value has been
allocated, payment of premiums, the amount of any outstanding Policy Debt,
Partial Withdrawals, and the charges assessed in connection with the Policy.
There is no guaranteed minimum Accumulated Value and you bear the entire
investment risk relating to the investment performance of Accumulated Value
allocated to the Variable Accounts.
Security Benefit will invest the amounts allocated to the Variable Accounts
in shares of the corresponding Series of the Fund. The investment performance of
the Variable Accounts 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 Variable Accounts are divided into accumulation units, which
are a measure of value used for bookkeeping purposes. When you allocate net
premiums to a Variable Account, the Policy is credited with accumulation units.
In addition, other transactions including loans, surrenders, Partial
Withdrawals, transfers, and assessment of charges against the Policy affect the
number of accumulation units credited to a Policy. The number of units credited
or debited in connection with any such transaction is determined by dividing the
dollar amount of such transactions by the unit price of the affected Variable
Account. The unit price of each Variable Account is determined on each Valuation
Date. The number of units credited will not change because of subsequent changes
in unit price.
The price of each Variable Account's units initially was $10. The unit price
of a Variable Account on any Valuation Date is calculated by adjusting the unit
price from the previous Valuation Date for (1) the investment performance of the
Variable Account, which is based upon the investment performance of the
corresponding Series of the Fund, (2) any dividends or distributions paid by the
corresponding Series, (3) the charges, if any, that may be assessed by Security
Benefit for income taxes attributable to the operation of the Variable Account,
(4) the mortality and expense risk charge deducted from the average daily net
assets of the Variable Account, and (5) the administrative charge deducted from
the average daily net assets of the Variable Account.
POLICY LOANS -- You may borrow money from Security Benefit using the Policy as
the only security for the loan by submitting a proper written request to
Security Benefit's Home Office. You may take a loan any time a Policy is in
force. The minimum loan amount is $1,000. The maximum loan amount is 80% of
Accumulated Value. You may borrow an amount in excess of 80% of Accumulated
Value, and the minimum loan amount may be less, on Policies issued in certain
states as required by applicable state law.
When you take a loan, an amount equal to the loan is transferred out of your
Accumulated Value in the Variable Accounts and the Fixed Account into the Loan
Account to secure the loan. Unless you request otherwise, loan amounts will be
deducted from the Variable Accounts and the Fixed Account in the proportion that
each bears to the Net Cash Surrender Value.
For Policy Debt outstanding in the first ten Policy Years, the Policy loan
interest rate is 8.0% per year and for Policy Debt outstanding thereafter, is
currently 6.0% per year (Security Benefit reserves the right to charge up to
6.50% per year), which is equivalent to an annual effective rate of 8.0% and
6.0%, respectively. Security Benefit will credit interest monthly on amounts
held in the Loan Account to secure the loan at an annual rate of 6.0%.
You may repay all or part of the loan at any time while the Policy is in
force. Interest on a loan is accrued daily, and is due for the prior year on
each Policy Anniversary. If interest is not paid when due, it will be added to
the amount of the loan principal and interest will begin accruing thereon from
that date. An amount equal to the loan interest charged will be transferred to
the Loan Account from the Variable Accounts and Fixed Account on a proportional
basis.
Upon receipt of any loan repayment, Security Benefit will transfer an amount
equal to the repayment from the Loan Account into the Variable Accounts and
Fixed Account in accordance with the most recent premium allocation instructions
unless otherwise requested. In addition, Security Benefit will transfer any
interest earned on the loan balance held in the Loan Account on each Policy
Anniversary to each of the Variable Accounts and Fixed Account in accordance
with your most recent premium allocation instructions.
While the amount to secure the loan is held in the Loan Account, you forgo
the investment experience of the Variable Accounts and the current interest rate
of the Fixed Account on the loaned amount. Thus a loan, whether or not repaid,
will have a permanent effect on the Policy's values and may have an effect on
the amount and duration of the death benefit. If not repaid, the Policy Debt
will be deducted from the amount of death benefit paid upon the death of the
Insured, the Accumulated Value paid upon surrender or maturity, or the refund of
premium upon exercise of the Free-Look Right.
A loan may affect the length of time the Policy remains in force. The Policy
will lapse when Net Cash Surrender Value is insufficient to cover the monthly
deduction against the Policy's Accumulated Value on any Monthly Payment Date,
and the minimum payment required is not made during the Grace Period. Moreover,
the Policy may enter the Grace Period more quickly when a loan is outstanding,
because the loaned amount is not available to cover the monthly deduction.
Additional payments or repayment of a portion of Policy Debt may be required to
keep the Policy in force. See "Lapse," page 18.
A loan will not be treated as a distribution from the Policy, and will not
result in taxable income to the Policyowner unless the Policy is a Modified
Endowment Contract, in which case a loan will be treated as a distribution that
may give rise to taxable income.
For information on the tax treatment of loans, see "Federal Income Tax
Considerations," page 20.
BENEFITS AT MATURITY -- If the Insured is living on the Policy Anniversary next
following the Insured's Age 95, Security Benefit will pay you, as a benefit, the
Net Cash Surrender Value. Payment ordinarily will be made within seven days of
the Policy Anniversary, although payments may be postponed in certain
circumstances. See "Payments," page 27.
SURRENDER -- You may fully surrender a Policy at any time during the life of the
Insured. The amount received in the event of a full surrender is the Policy's
Net Cash Surrender Value, which is equal to its Accumulated Value less any
outstanding Policy Debt.
You may surrender a Policy by sending a written request together with the
Policy to Security Benefit's Home Office. Security Benefit will determine the
proceeds as of the end of the Valuation Period during which the request for a
surrender is received. At various times, requests may be made to surrender a
policy for which good payment has not yet been received. Accordingly, payment of
surrender proceeds may be delayed until such time as good payment has been
collected, which may take up to 15 days. You may elect to have the proceeds paid
in cash or applied under a payment plan offered under the Policy. See "Payment
Plan," page 28. For information on the tax effects of a surrender of a Policy,
see "Federal Income Tax Considerations," page 20.
PARTIAL WITHDRAWAL BENEFITS -- Security Benefit offers a partial surrender
benefit by which you can obtain a portion of the Net Cash Surrender Value: the
Partial Withdrawal Benefit. The Partial Withdrawal Benefit is available on and
after the last day of the first Policy Year. Under this Benefit, you may make up
to four "Partial Withdrawals" of Net Cash Surrender Value each Policy Year after
the first Policy Year.
A Partial Withdrawal must be for at least $500, and the Policy's Net Cash
Surrender Value after the withdrawal must be at least $1,000, plus an amount
equal to the sum of the monthly deductions scheduled to be deducted from the
Policy's Accumulated Value in the 36-month period immediately following a
Partial Withdrawal. In addition, the amount of a Partial Withdrawal is further
limited on Policies on which you choose death benefit Option A so that the
withdrawal will not cause the Specified Amount to be less than $100,000,
although Security Benefit reserves the right to waive the minimum Specified
Amount under certain circumstances, such as for a group or sponsored
arrangement.
You may make a Partial Withdrawal by submitting a proper written request to
Security Benefit's Home Office. At various times, requests may be made to
withdraw Accumulated Value for which good payment has not yet been received.
Accordingly, Security Benefit may delay payment of a Partial Withdrawal until
such time as good payment has been collected, which may take up to 15 days. As
of the effective date of any withdrawal, your Accumulated Value and Net Cash
Surrender Value will be reduced by the amount of the withdrawal. The amount of
the withdrawal will be allocated proportionately to the Policyowner's Value in
the Variable Accounts and the Fixed Account unless otherwise requested by you.
If the Insured dies after the request for a withdrawal is sent to Security
Benefit and prior to the withdrawal being effected, the amount of the withdrawal
will be deducted from the death benefit proceeds, which will be determined
without taking into account the withdrawal. No fee is currently charged for a
Partial Withdrawal.
When a Partial Withdrawal is made on a Policy on which you have selected
death benefit Option A, the Specified Amount under the Policy is decreased by
the lesser of (1) the amount of the Partial Withdrawal or (2) if the death
benefit prior to the withdrawal is greater than the Specified Amount, the
amount, if any, by which the Specified Amount exceeds the difference between the
death benefit and the amount of the Partial Withdrawal. A Partial Withdrawal
will not change the Specified Amount of a Policy on which you have selected
death benefit Option B. However, assuming that the death benefit is not equal to
Accumulated Value times a death benefit percentage, the Partial Withdrawal will
reduce the death benefit by the amount of the Partial Withdrawal. To the extent
the death benefit is based upon the Accumulated Value times the death benefit
percentage applicable to the Insured, a Partial Withdrawal may cause the death
benefit to decrease by an amount greater than the amount of the Partial
Withdrawal. See "Death Benefit," page 14.
For information on the tax treatment of Partial Withdrawals, see "Federal
Income Tax Considerations," page 20.
RIGHT TO EXAMINE A POLICY -- FREE-LOOK RIGHT -- The Policyowner has a Free-Look
Right, under which the Policy may be returned within 20 days after the
Policyowner receives it, or within 45 days after the Owner completes the
application for insurance, whichever is later. To exercise the Free-Look Right,
the Policy can be mailed or delivered to Security Benefit or its agent. The
returned Policy will be treated as if Security Benefit never issued it, and
Security Benefit will promptly refund the full amount of the premium paid. If
the Owner has taken a loan during a Free-Look Period, the Policy Debt will be
deducted from the amount refunded. During the Free-Look Period, net premiums
will be allocated to the Money Market Variable Account, which invests in Series
C of the Fund (except for amounts allocated to the Loan Account to secure a
Policy loan). See "Allocation of Net Premiums," page 12.
LAPSE -- The Policy will lapse only when the Net Cash Surrender Value is
insufficient to cover the current monthly deduction against the Policy's
Accumulated Value on any Monthly Payment Date, and a Grace Period expires
without the Policyowner making a sufficient payment. If Net Cash Surrender Value
is insufficient to cover the current monthly deduction on a Monthly Payment
Date, the Owner must pay during the Grace Period a minimum of three times the
full monthly deduction due on the Monthly Payment Date when the insufficiency
occurred to avoid termination of the Policy. Security Benefit will not accept
any payment if it would cause the Policyowner's total premium payments to exceed
the maximum permissible premium for the Policy's Specified Amount under the
Internal Revenue Code. This is unlikely to occur unless the Policyowner has
outstanding Policy Debt, in which case he or she could repay a sufficient
portion of the Policy Debt to avoid termination. In this instance, the
Policyowner may wish to repay a portion of Policy Debt to avoid recurrence of
the potential lapse. If premium payments have not exceeded the maximum
permissible premiums for the Policy's Specified Amount, the Policyowner may wish
to make larger or more frequent premium payments to avoid recurrence of the
potential lapse.
If Net Cash Surrender Value is insufficient to cover the monthly deduction on
a Monthly Payment Date, Security Benefit will deduct the amount that is
available. Security Benefit will notify the Policyowner (and any assignee of
record) of the payment required to keep the Policy in force. The Policyowner
will then have a "Grace Period" of 61 days, measured from the date the notice is
sent, to make the required payment. The Policy will remain in force through the
Grace Period. Failure to make the required payment within the Grace Period will
result in termination of coverage under the Policy, and the Policy will lapse
with no value. If the required payment is made during the Grace Period, any
premium paid will be allocated among the Variable Accounts of the Separate
Account and the Fixed Account in accordance with the Policyowner's current
premium allocation instructions. Any monthly deduction due will be charged to
the Variable Accounts and the Fixed Account on a proportionate basis. If the
Insured dies during the Grace Period, the death benefit proceeds will equal the
amount of the death benefit immediately prior to the commencement of the Grace
Period, reduced by any unpaid monthly deductions and any Policy Debt, unless the
Guaranteed Death Benefit Premium or Extended Guaranteed Death Benefit Rider is
in effect, in which case, the death benefit will not be reduced by any unpaid
monthly deductions.
REINSTATEMENT -- Security Benefit will reinstate a lapsed Policy (but not a
Policy which has been surrendered for its Net Cash Surrender Value) at any time
within three years after the end of the Grace Period, but before the Maturity
Date provided Security Benefit receives the following: (1) a written application
from the Policyowner; (2) evidence of insurability satisfactory to Security
Benefit; and (3) payment of all monthly deductions that were due and unpaid
during the Grace Period, and payment of a premium at least sufficient to keep
the Policy in force for three months after the date of reinstatement.
When the Policy is reinstated, the Accumulated Value will be equal to the
Accumulated Value on the date of the lapse subject to the following: If the
Policy is reinstated after the first Monthly Payment Date following lapse, the
Accumulated Value will be reduced by the amount of Policy Debt on the date of
lapse and no Policy Debt will exist on the date of the reinstatement. If the
Policy is reinstated on the Monthly Payment Date next following lapse, any
Policy Debt on the date of lapse will also be reinstated. No interest on amounts
held in Security Benefit's Loan Account to secure Policy Debt will be paid or
credited between lapse and reinstatement. Reinstatement will be effective as of
the Monthly Payment Date on or next following the date of approval by Security
Benefit, and Accumulated Value minus, if applicable, Policy Debt will be
allocated among the Variable Accounts and the Fixed Account in accordance with
the Policyowner's most recent premium allocation instructions.
CHARGES AND DEDUCTIONS
PREMIUM TAX -- Security Benefit deducts a premium tax from each premium payment
under a Policy prior to allocation of the net premium to your Accumulated Value.
The premium tax consists of the following item:
STATE AND LOCAL PREMIUM TAX CHARGE. Security Benefit assesses a charge
against each premium to pay applicable state and local premium taxes. Premium
taxes vary from state to state, and in some instances, among municipalities.
Premium tax rates currently range from .75% to 5%, but are subject to change by
a governmental entity.
DEDUCTIONS FROM ACCUMULATED VALUE -- Security Benefit deducts a charge called
the monthly deduction from a Policy's Accumulated Value in the Variable Accounts
and Fixed Account. This charge is deducted beginning on the Monthly Payment Date
on or next following the date Security Benefit first becomes obligated under the
Policy, and on each Monthly Payment Date thereafter. The monthly deduction
consists of the following items:
COST OF INSURANCE. This monthly charge compensates Security Benefit for the
anticipated cost of paying death benefits in excess of Accumulated Value to
Beneficiaries of Insureds who die. The amount of the charge is equal to a
current cost of insurance rate multiplied by the net amount at risk under a
Policy at the beginning of the Policy Month. The net amount at risk for these
purposes is equal to the amount of death benefit payable at the beginning of the
Policy Month divided by 1.0032737 (a discount factor to account for return
deemed to be earned during the month) less the Accumulated Value at the
beginning of the Policy Month.
The Policy contains guaranteed cost of insurance rates that may not be
increased. The guaranteed rates are no greater than certain of the 1980
Commissioners Standard Ordinary Mortality Tables (and where unisex cost of
insurance rates apply, the 1980 Commissioners Ordinary Mortality Table B). These
rates are based on the Age, rating class (determined by tobacco use), and
underwriting class of the Insured. They are also based on the gender of the
Insured, except that unisex rates are used where appropriate under applicable
law, including in the State of Montana and in Policies purchased by employers
and employee organizations in connection with employment-related insurance or
benefit programs. As of the date of this Prospectus, Security Benefit charges
"current rates" that are lower (i.e., less expensive) than the guaranteed rates,
and Security Benefit may also charge current rates in the future. Like the
guaranteed rates, the current rates also vary with the Age, gender, rating
class, and underwriting class of the Insured. In addition, they also vary with
the size of the Specified Amount, and the policy duration. Policies with
Specified Amounts in excess of $250,000 receive more favorable rates than
Policies with smaller Specified Amounts. The cost of insurance rate generally
increases with the Age of the Insured.
If there have been increases in the Specified Amount, then for purposes of
calculating the cost of insurance charge, the Accumulated Value will first be
applied to the initial Specified Amount. If the Accumulated Value exceeds the
initial Specified Amount divided by 1.0032737, the excess will then be applied
to any increase in Specified Amount in the order of the increases. If the death
benefit equals Accumulated Value multiplied by the applicable death benefit
percentage, any increase in Accumulated Value will cause an automatic increase
in the death benefit. The underwriting class and duration for such increase will
be the same as that used for the most recent increase in Specified Amount (that
has not been eliminated through a subsequent decrease in Specified Amount).
OPTIONAL INSURANCE BENEFITS CHARGES. The monthly deduction will include
charges for any optional insurance benefits added to the Policy by Rider. See
"Optional Insurance Benefits," page 28.
DEDUCTIONS FROM THE VARIABLE ACCOUNTS --
ADMINISTRATIVE CHARGE. Security Benefit deducts a daily administrative charge
from the average daily net assets of each Variable Account. The daily
administrative charge is equal to an annual rate of .35% in the first ten Policy
Years and .25% thereafter. Security Benefit, however, reserves the right to
charge up to an annual rate of .35% in all Policy Years. The administrative
charge is assessed to reimburse Security Benefit for the expenses associated
with administration and maintenance of the Policies. Security Benefit does not
expect to profit from this charge.
MORTALITY AND EXPENSE RISK CHARGE. Security Benefit deducts a daily charge
from the assets of each Variable Account for mortality and expense risks assumed
by Security Benefit. This charge is equal to an annual rate of .90% of the
average daily net assets of each Variable Account in the first ten Policy Years
and .70% thereafter. Security Benefit, however, reserves the right to charge up
to .90% in all Policy Years.
The mortality and expense risk charge is assessed to compensate Security
Benefit for assuming certain mortality and expense risks under the Policies. The
mortality risk assumed is that Insureds, as a group, may live for a shorter
period of time than estimated and, therefore, the cost of insurance charges
specified in the Policy will be insufficient to meet actual claims. The expense
risk assumed is that other expenses incurred in issuing and administering the
Policies and operating the Separate Account will be greater than the charges
assessed for such expenses. Security Benefit will realize a gain from this
charge to the extent it is not needed to provide the mortality benefits and
expenses under the Policies, and will 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 promotional expenses.
OTHER CHARGES -- Security Benefit may charge the Variable Accounts for federal
income taxes incurred by Security Benefit that are attributable to the Separate
Account and its Variable Accounts. No such charge is currently assessed. See
"Charge for Security Benefit Income Taxes," page 23.
Security Benefit bears the operating expenses of the Separate Account.
Each Variable Account purchases shares of the corresponding Series of the
underlying Fund. Each Series incurs certain charges including the investment
advisory fee and certain operating expenses. You will indirectly bear a pro rata
portion of Fund fees and expenses. The Fund is a corporation that is governed by
its Board of Directors. The Fund's advisory fees and its expenses are not fixed
or specified under the terms of the Policy. The prospectus of the Fund more
fully describes the advisory fees and other expenses.
GUARANTEE OF CERTAIN CHARGES -- Security Benefit guarantees that certain charges
will not increase. This includes the charge for mortality and expense risks, the
administrative charge, and the guaranteed cost of insurance rates.
OTHER INFORMATION
FEDERAL INCOME TAX CONSIDERATIONS -- The following discussion provides a general
description of the federal income tax considerations relating to the Policy.
This discussion is based upon Security Benefit's understanding of the present
federal income tax laws as they are currently interpreted by the Internal
Revenue Service ("IRS"). This discussion is not intended as tax advice. Because
of the inherent complexity of such laws, and the fact that tax results will vary
according to the particular circumstances of the individual involved, you may
need tax advice if you are contemplating the purchase of the Policy. It should,
therefore, be understood that these comments concerning federal income tax
consequences are not an exhaustive discussion of all tax questions that might
arise under the Policy, and that special rules which are not discussed herein
may apply in certain situations. Moreover, no representation is made as to the
likelihood of continuation of federal income tax or estate or gift tax laws, or
of the current interpretations by the IRS or the courts. Future legislation may
adversely affect the tax treatment of life insurance policies or other tax rules
described in this discussion or that relate directly or indirectly to life
insurance policies. Finally, these comments do not take into account any state
or local income tax considerations which may be involved in the purchase of the
Policy.
While Security Benefit believes that the Policy meets the statutory
definition of life insurance, and hence will receive federal income tax
treatment consistent with that of fixed life insurance, the area of the tax law
relating to the definition of life insurance does not explicitly address all
relevant issues (including, for example, the treatment of the Guaranteed Death
Benefit Premium and Extended Guaranteed Death Benefit Rider). Security Benefit
reserves the right to make changes to the Policy if changes are deemed
appropriate by Security Benefit to attempt to assure qualification of the Policy
as a life insurance contract. If a Policy were determined not to qualify as life
insurance, the Policy would not provide the tax advantages normally provided by
life insurance. The discussion below summarizes the tax treatment of life
insurance contracts. The death benefit under a Policy should be excludable from
the gross income of the Beneficiary (whether the Beneficiary is a corporation,
individual or other entity) under Section 101(a)(1) of the Internal Revenue Code
("IRC") for purposes of the regular federal income tax and the owner generally
should not be deemed to be in constructive receipt of the cash values, including
increments thereof, under the Policy until a full surrender thereof, maturity of
the Policy, or Partial Withdrawal. In addition, certain Policy loans may be
taxable in the case of Policies that are Modified Endowment Contracts.
Prospective Policyowners that intend to use Policies to fund deferred
compensation arrangements for their employees are urged to consult their tax
advisors with respect to the tax consequences of such arrangements. Prospective
corporate owners should consult their tax advisors about the treatment of life
insurance in their particular circumstances for purposes of the alternative
minimum tax applicable to corporations and the environmental tax under IRC
Section 59A.
DIVERSIFICATION REQUIREMENTS. To comply with regulations under Section 817(h)
of the IRC, each Series of the Fund is required to diversify its investments.
Generally, a Series is required to diversify its investments so that on the last
day of each quarter of a calendar year, no more than 55% of the value of its
assets is represented by any one investment, no more than 70% is represented by
any two investments, no more than 80% is represented by any three investments,
and no more than 90% is represented by any four investments. Securities of a
single issuer generally are treated for purposes of Section 817(h) as a single
investment. However, for this purpose, each U.S. Government agency or
instrumentality is treated as a separate issuer, and any security issued,
guaranteed, or insured (to the extent so guaranteed or insured) by the U.S. or
by an agency or instrumentality of the U.S. is treated as a security issued by
the U.S. Government or its agency or instrumentality, whichever is applicable.
In certain circumstances, owners of variable life insurance 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 includible in the variable
contract owner's gross income. The IRS has stated in published rulings that a
variable contract owner will be considered the owner of separate account assets
if the contract owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the Policyowner), rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued.
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 Policy, as
deemed appropriate by Security Benefit, to attempt to prevent a Policyowner from
being considered the owner of a pro rata share of the assets of the Separate
Account. Moreover, in the event that regulations or rulings are adopted, there
can be no assurance that the Series will be able to operate as currently
described in the Prospectus, or that the Fund will not have to change any
Series` investment objective or investment policies.
TAX TREATMENT OF POLICIES. The Technical and Miscellaneous Revenue Act of
1988 established a new class of life insurance contracts referred to as Modified
Endowment Contracts. With the enactment of this legislation, the Policies will
be treated for tax purposes in one of two ways. Policies that are not classified
as Modified Endowment Contracts will be taxed as conventional life insurance
contracts, as described below. Taxation of pre-death distributions from Policies
that are classified as Modified Endowment Contracts is somewhat different, as
described below.
A life insurance contract becomes a "Modified Endowment Contract" if, at any
time during the first seven contract years, the sum of actual premiums paid
exceeds the sum of the "seven-pay premium." Generally, the "seven-pay premium"
is the level annual premium, such that if paid for each of the first seven
years, will fully pay for all future death and endowment benefits under a
contract. For example, if the "seven-pay premiums" were $1,000, the maximum
premiums that could be paid during the first seven years to avoid "Modified
Endowment" treatment would be $1,000 in the first year, $2,000 through the first
two years, and $3,000 through the first three years, etc. Under this test, a
Policy may or may not be a Modified Endowment Contract, depending on the amount
of premium paid during each of the Policy's first seven contract years. Changes
in death benefits under, or in other terms of, a Policy may require "retesting"
of a Policy to determine if it is to be classified as a Modified Endowment
Contract.
CONVENTIONAL LIFE INSURANCE POLICIES. If a Policy is not a Modified Endowment
Contract, upon full surrender or maturity of a Policy for its Net Cash Surrender
Value, the excess, if any, of the Net Cash Surrender Value plus any outstanding
Policy Debt over the cost basis under a Policy will be treated as ordinary
income for federal income tax purposes. Such a Policy's cost basis will usually
equal the premiums paid less any premiums previously recovered in Partial
Withdrawals. Under Section 7702 of the IRC, if a Partial Withdrawal occurring
within 15 years of the Policy Date is accompanied by a reduction in benefits
under the Policy, special rules apply to determine whether part or all of the
cash received is paid out of the income of the Policy and is taxable. Cash
distributed to a Policyowner on Partial Withdrawals occurring more than 15 years
after the Policy Date will be taxable as ordinary income to the Policyowner to
the extent that it exceeds the cost basis under a Policy. It is believed that
the Guaranteed Death Benefit Premium and Extended Guaranteed Death Benefit Rider
features of the Policy should not result in a deemed distribution under the
Policy, but, to date, the IRS has not issued guidance regarding the tax
treatment of features similar to these features; accordingly, the law on this
point cannot be regarded as fully settled. If a Rider providing level term
insurance for a business associate is added to a Policy, then you may be deemed
to receive distributions under the Policy equal to the cost of the level term
insurance deducted from Accumulated Value, which may give rise to taxable
income.
Security Benefit also believes that loans received under Policies that are
not Modified Endowment Contracts will be treated as indebtedness of the owner,
and that no part of any loan under the Policy will constitute income to the
Owner unless the Policy is surrendered or upon maturity of the Policy. Interest
paid (or accrued by an accrual basis taxpayer) on a loan under a Policy that is
not a Modified Endowment Contract may be deductible, subject to several
limitations, depending on the use to which the proceeds are put and the tax
rules applicable to you. If, for example, the loan proceeds are used by an
individual for business or investment purposes, all or part of the interest
expense may be deductible. Generally, if the Policy loan is used for personal
purposes by an individual, the interest expense is not deductible. The
deductibility of loan interest (whether incurred under a Policy loan or on other
indebtedness) also may be subject to other limitations. For example, where the
interest is paid (or accrued by an accrual basis taxpayer) on a loan under a
Policy covering the life of an officer, employee, or person financially
interested in your trade or business, the interest may be deductible to the
extent that the interest is attributable to the first $50,000 of the Policy
Debt. Other tax law provisions may limit the deduction of interest payable on
loan proceeds that are used to purchase or carry certain life insurance
policies.
MODIFIED ENDOWMENT CONTRACTS. Pre-death distributions from Modified Endowment
Contracts may give rise to taxable income. Upon full surrender or maturity of
the Policy, you would recognize ordinary income for federal income tax purposes
equal to the amount by which the Net Cash Surrender Value plus Policy Debt
exceeds the investment in the Policy (usually the premiums paid plus certain
pre-death distributions that were taxable less any premiums previously recovered
that were excludable from gross income). Upon Partial Withdrawals and Policy
loans, you would recognize ordinary income to the extent allocable to income
(which includes all previously non-taxed gains) on the Policy. The amount
allocated to income is the amount by which the Accumulated Value of the Policy
exceeds investment in the Policy immediately before the distribution. Under a
tax law provision, if two or more policies which are classified as Modified
Endowment Contracts are purchased from any one insurance company, including
Security Benefit, during any calendar year, all such policies will be aggregated
for purposes of determining the portion of the pre-death distribution allocable
to income on the policies and the portion allocable to investment in the
policies.
Amounts received under a Modified Endowment Contract that are included in
gross income are subject to an additional tax equal to 10% of the amount
included in gross income, unless an exception applies. The 10% additional tax
does not apply to any amount received: (i) when the taxpayer is at least 59 1/2
years old; (ii) which is attributable to the taxpayer becoming disabled; or
(iii) which is part of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the taxpayer and his
or her beneficiary.
If a Policy was not originally a Modified Endowment Contract but becomes one,
under Treasury Department regulations which are yet to be prescribed, pre-death
distributions received in anticipation of a failure of a Policy to meet the
seven-pay premium test are to be treated as pre-death distributions from a
Modified Endowment Contract (and, therefore, are to be taxable as described
above) even though, at the time of the distribution(s) the Policy was not yet a
Modified Endowment Contract. For this purpose, pursuant to the IRC, any
distribution made within two years before the Policy is classified as a Modified
Endowment Contract shall be treated as being made in anticipation of the
Policy's failing to meet the seven-pay premium test.
It is unclear whether interest paid (or accrued by an accrual basis taxpayer)
on Policy Debt with respect to a Modified Endowment Contract constitutes
interest for federal income tax purposes. If it does constitute interest, it may
be deductible, subject to several limitations, depending on the use to which the
proceeds are put and the tax rules applicable to you. If, for example, the loan
proceeds are used by an individual for business or investment purposes, all or
part of the interest expense may be deductible. Generally, if the Policy loan is
used for personal purposes by an individual, the interest expense is not
deductible. The deductibility of loan interest (whether incurred under a Policy
loan or on other indebtedness) also may be subject to other limitations. For
example, where the interest is paid (or accrued by an accrual basis taxpayer) on
a loan under a Policy covering the life of an officer, employee, or person
financially interested in your trade or business, the interest may be deductible
to the extent that the interest is attributable to the first $50,000 of the
Policy Debt. Other tax law provisions may limit the deduction of interest
payable on loan proceeds that are used to purchase or carry certain life
insurance policies.
Security Benefit tests each premium payment to determine whether the
application of the premium will cause your policy to be classified as a Modified
Endowment Contract. Security Benefit will notify you in writing if your policy
becomes a Modified Endowment Contract. The written notice includes instructions
on the opportunities you have to reverse the Modified Endowment Contract status
of your policy.
REASONABLENESS REQUIREMENT FOR CHARGES. Another provision of the tax law
deals with allowable charges for mortality costs and other expenses that are
used in making calculations to determine whether a contract qualifies as life
insurance for federal income tax purposes. These calculations must be based upon
(i) mortality charges that meet the reasonable mortality charge requirements set
forth in the IRC and (ii) other charges reasonably expected to be actually paid.
The Treasury Department is expected to promulgate regulations governing
reasonableness standards for mortality and other charges. The area of the law
relating to reasonableness standards for mortality and other charges is
currently based on statutory language and IRS pronouncements which do not
explicitly address all relevant issues. Accordingly, while Security Benefit
believes that the mortality costs and other expenses used in making calculations
to determine whether the Policy qualifies as life insurance meet the current
standards, it cannot offer complete assurance since the law in this area is not
fully developed. It is possible that future regulations will contain standards
that would require Security Benefit to modify its mortality and other charges
used for the purposes of the calculations in order to retain the qualification
of the Policy as life insurance for federal income tax purposes, and Security
Benefit reserves the right to make any such modifications.
ACCELERATED BENEFIT FOR TERMINAL ILLNESS. An Accelerated Benefit for Terminal
Illness Rider (the "Accelerated Benefit Rider") is available in connection with
the Policy. Benefits under the Accelerated Benefit Rider may be taxable. In
addition, there may be a question as to whether a life insurance policy that has
an accelerated living benefits rider can meet certain technical aspects of the
definition of "life insurance contract" under the IRC. The IRS has issued
proposed regulations, and legislation has been introduced, providing (i) that
accelerated living benefits which meet certain requirements can be received
without incurring a federal income tax and (ii) for the treatment of accelerated
living benefits riders under the definitional requirements of a life insurance
contract. The precise rules which will be incorporated in any final regulations
or legislation are not known. Security Benefit reserves the right to (but is not
obligated to) modify the Accelerated Benefit Rider to conform with the rules
under any final regulations or legislation. Policyowners considering adding an
Accelerated Benefit Rider or exercising rights under that rider should first
consult a qualified tax advisor.
OTHER. Federal estate and gift and state and local estate, inheritance, and
other tax consequences of ownership or receipt of Policy proceeds depend on the
jurisdiction and the circumstances of each owner or Beneficiary.
You should consult a qualified tax advisor for complete information on
federal, state, local and other tax considerations.
SECURITY BENEFIT DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY
POLICY.
CHARGE FOR SECURITY BENEFIT INCOME TAXES -- For federal income tax purposes,
variable life insurance generally is treated in a manner consistent with fixed
life insurance. Security Benefit will review the question of a charge to the
Separate Account for Security Benefit's federal income taxes periodically.
Security Benefit may deduct a charge for any federal income taxes incurred by
Security Benefit that are attributable to the Separate Account. This might
become necessary if the tax treatment of Security Benefit 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 life
insurance 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 for
such taxes, if any, attributable to the Separate Account.
VOTING OF FUND SHARES -- In accordance with its view of present applicable law,
Security Benefit will exercise voting rights attributable to the shares of each
Series of the Fund held in the Variable Accounts at any regular and special
meetings of the shareholders of the Fund on matters requiring shareholder voting
under the Investment Company Act of 1940. Security Benefit will exercise these
voting rights based on instructions received from persons having the voting
interest in corresponding Variable Accounts of the Separate Account. However, if
the Investment Company Act of 1940 or any regulations thereunder should be
amended, or if the present interpretation thereof should change, and as a result
Security Benefit determines that it is permitted to vote the shares of the Fund
in its own right, it may elect to do so.
The person having the voting interest under a Policy is the Policyowner.
Unless otherwise required by applicable law, the number of votes as to which you
will have the right to instruct will be determined by dividing your Accumulated
Value in a Variable Account by the net asset value per share of the
corresponding Series of the Fund. Fractional votes will be counted. The number
of votes as to which you will have the right to instruct will be determined as
of the date coincident with the date established by the Fund for determining
shareholders eligible to vote at the meeting of the Fund. If required by the
Securities and Exchange Commission, Security Benefit reserves the right to
determine in a different fashion the voting rights attributable to the shares of
the Fund based upon the instructions received from Policyowners. Voting
instructions may be cast in person or by proxy.
Voting rights attributable to your Accumulated Value held in each Variable
Account for which no timely voting instructions are received will be voted by
Security Benefit in the same proportion as the voting instructions which are
received in a timely manner for all Policies participating in that Variable
Account. Security Benefit will also exercise the voting rights from assets in
each Variable Account which are not otherwise attributable to Policyowners, if
any, in the same proportion as the voting instructions which are received in a
timely manner for all Policies participating in that Variable Account and
generally will exercise voting rights attributable to shares of Series of the
Fund held in its General Account, if any, in the same proportion as votes cast
with respect to shares of Series of the Fund held by the Separate Account and
other separate accounts of Security Benefit, in the aggregate.
DISREGARD OF VOTING INSTRUCTIONS -- Security Benefit may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that voting rights be exercised so as to cause a change in
the subclassification or investment objective of a Series or to approve or
disapprove an investment advisory contract. In addition, Security Benefit itself
may disregard voting instructions of changes initiated by Policyowners in the
investment policy or the investment adviser (or portfolio manager) of a Series,
provided that Security Benefit's disapproval of the change is reasonable and is
based on a good faith determination that the change would be contrary to state
law or otherwise inappropriate, considering the Series' objectives and purpose,
and considering the effect the change would have on Security Benefit. In the
event Security Benefit does disregard voting instructions, a summary of that
action and the reasons for such action will be included in the next annual
report to Policyowners. Such annual report sets forth the financial statements
of the separate account.
REPORT TO OWNERS -- Security Benefit will send to you, at least annually, a
statement setting forth a summary of the transactions which occurred during the
year and indicating the death benefit, Specified Amount, Accumulated Value, Net
Cash Surrender Value, and any Policy Debt. In addition, the statement will
indicate the allocation of Accumulated Value among the Fixed Account and the
Variable Accounts and any other information required by law. Confirmations will
be sent out upon premium payments, transfers, loans, loan repayments,
withdrawals, and surrenders.
You will also receive an annual and a semiannual report containing financial
statements for the Fund, which will include a list of the portfolio securities
of the Fund, as required by the Investment Company Act of 1940, and/or such
other reports as may be required by federal securities law.
SUBSTITUTION OF INVESTMENTS -- Security Benefit reserves the right, subject to
compliance with the law as then in effect, to make additions to, deletions from,
or substitutions for the securities that are held by the Separate Account or any
Variable Account or that the Separate Account or any Variable Account may
purchase. If shares of any or all of the Series of the Fund should no longer be
available for investment, or if, in the judgment of Security Benefit's
management, further investment in shares of any or all Series of the Fund should
become inappropriate in view of the purposes of the Policies, Security Benefit
may substitute shares of another Series of the Fund or of a different fund for
shares already purchased, or to be purchased in the future under the Policies.
Where required, Security Benefit will not substitute any shares attributable
to your interest in a Variable Account or the Separate Account without notice,
your approval, or prior approval of the Securities and Exchange Commission and
without following the filing or other procedures established by applicable state
insurance regulators.
Security Benefit also reserves the right to establish additional Variable
Accounts of the Separate Account, each of which would invest in a new Series of
the Fund, or in shares of another investment company, a series thereof, or
suitable investment vehicle, with a specified investment objective. New Variable
Accounts may be established when, in the sole discretion of Security Benefit,
marketing needs or investment conditions warrant, and any new Variable Accounts
will be made available to existing Policyowners on a basis to be determined by
Security Benefit. Security Benefit may also eliminate one or more Variable
Accounts if, in its sole discretion, marketing, tax, or investment conditions so
warrant.
In the event of any such substitution or change, Security Benefit may, by
appropriate endorsement, make such changes in this and other policies as may be
necessary or appropriate to reflect such substitution or change. If deemed by
Security Benefit to be in the best interests of persons having voting rights
under the Policies, the Separate Account may be operated as a management
investment company under the Investment Company Act of 1940 or any other form
permitted by law, it may be deregistered under that Act in the event such
registration is no longer required, or it may be combined with other separate
accounts of Security Benefit or an affiliate thereof. Subject to compliance with
applicable law, Security Benefit also may combine one or more Variable Accounts
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 -- Security Benefit reserves the right to make any
change without consent of Policyowners to the provisions of the Policy to comply
with, or give Policyowners the benefit of, any Federal or State statute, rule,
or regulation, including but not limited to, requirements for life insurance
contracts under the Internal Revenue Code, under regulations of the United
States Treasury Department or any state.
PERFORMANCE INFORMATION
Performance information for the Variable Accounts of the Separate Account may
appear in advertisements, sales literature, or reports to you or prospective
purchasers. Performance information in advertisements or sales literature may be
expressed in any fashion permitted under applicable law, which may include
presentation of a change in your Accumulated Value attributable to the
performance of one or more Variable Accounts, or as a change in your death
benefit. Performance quotations may be expressed as a change in your Accumulated
Value over time or in terms of the average annual compounded rate of return on
your Accumulated Value, based upon a hypothetical Policy in which premiums have
been allocated to a particular Variable Account over certain periods of time
that will include one, five and ten years, or from the commencement of operation
of the Variable Account if less than one, five, or ten years. Performance
information based upon a hypothetical Policy may also be quoted for periods
beginning prior to the availability of the Policies based upon performance of
the Fund and the charges under the Policy. Any such quotation may reflect the
deduction of all applicable charges to the Policy including premium tax, the
cost of insurance, the administrative charge, and the mortality and expense risk
charge. Performance information for the Fund may be simultaneously shown.
Performance information for a Variable Account may be compared, in
advertisements, sales literature, and reports to Policyowners to, among other
things: (i) other variable life separate accounts or investment, savings, or
insurance products tracked by research firms, rating services, companies,
publications, or persons who rank separate accounts or investment products on
overall performance or other criteria; and (ii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from the purchase of a
Policy. Reports and promotional literature may also contain other information
including (i) 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, and
(ii) the effects of tax-deferred compounding on your rate of return on
Accumulated Value (or returns in general), and may include a comparison at
various points in time of the return on the Policy (or tax-deferred returns in
general) with the return on a taxable basis.
Performance information for any Variable Account of the Separate Account
reflects only the performance of a hypothetical Policy whose Accumulated Value
is allocated to the Variable Account 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 of the Fund in which the Variable Account invests, and the market
condition during the given period of time, and should not be considered as
representative of what may be achieved in the future.
THE FIXED ACCOUNT
You may allocate all or a portion of your net premium payments and transfer
Accumulated Value to the Fixed Account of Security Benefit. Amounts allocated to
the Fixed Account become part of the General Account of Security Benefit, which
supports insurance and annuity obligations. Because of exemptive and
exclusionary provisions, interests in the Fixed Account have not been registered
under the Securities Act of 1933, and the Fixed Account has not been registered
as an investment company under the Investment Company Act of 1940. Accordingly,
neither the Fixed Account nor any interest therein is generally subject to the
provisions of these Acts and, as a result, the staff of the Securities and
Exchange Commission has not reviewed the disclosure in this Prospectus relating
to the Fixed Account. Disclosures regarding the Fixed Account may, however, be
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in the
Prospectus. For more details regarding the Fixed Account, see the Policy itself.
GENERAL DESCRIPTION -- 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 the investment of the assets of its General Account.
You may elect to allocate net premium payments to the Fixed Account, the
Separate Account, or both. You may also transfer Accumulated Value from the
Variable Accounts of the Separate Account to the Fixed Account, or from the
Fixed Account to the Variable Accounts, subject to the limitations described
below. Security Benefit guarantees that the Accumulated Value in the Fixed
Account will be credited with a minimum interest rate of .32737% per month,
compounded monthly, for a minimum effective annual rate of 4%. Such interest
will be paid regardless of the actual investment experience of the Fixed
Account. In addition, Security Benefit may in its sole discretion pay interest
at a rate ("Current Rate") that exceeds 4%. (The portion of your Accumulated
Value that has been used to secure Policy Debt will be credited with an interest
rate of .48676% per month, compounded monthly, for an effective annual rate of
6%.)
Accumulated Value allocated or transferred to the Fixed Account during one
month may be credited with a different Current Rate than amounts allocated or
transferred to the Fixed Account in another month. Therefore, at any given time,
various portions of your Accumulated Value allocated to the Fixed Account may be
earning interest at different Current Rates, depending upon the month during
which such portions were originally allocated or transferred to the Fixed
Account. Security Benefit bears the full investment risk for the Accumulated
Value allocated to the Fixed Account.
DEATH BENEFIT -- The death benefit under the Policy will be determined in the
same fashion for a Policyowner who has Accumulated Value in the Fixed Account as
for a Policyowner who has Accumulated Value in the Variable Accounts. The death
benefit under Option A will be equal to the Specified Amount of the Policy or,
if greater, Accumulated Value multiplied by a death benefit percentage. Under
Option B, the death benefit will be equal to the Specified Amount of the Policy
plus the Accumulated Value or, if greater, Accumulated Value multiplied by a
death benefit percentage. See "Death Benefit," page 14.
POLICY CHARGES -- The mortality and expense risk and administrative charges are
not assessed against Accumulated Value allocated to the Fixed Account. Other
policy charges will be the same for Policyowners who allocate net premiums or
transfer Accumulated Value to the Fixed Account as for Policyowners who allocate
net premiums to the Variable Accounts. These charges consist of the premium tax,
consisting of the state and local premium tax charge, and the deductions from
Accumulated Value, including the charges for the cost of insurance, and the
charge for any optional insurance benefits added by rider. Any amounts that
Security Benefit pays for income taxes allocable to the Variable Accounts will
not be charged against the Fixed Account. In addition, the operating expenses of
the Variable Accounts, as well as the investment advisory fee charged by the
Fund, will not be paid directly or indirectly by you to the extent the
Accumulated Value is allocated to the Fixed Account; however, you will not
participate in the investment experience of the Variable Accounts.
TRANSFERS, SURRENDERS, WITHDRAWALS, AND POLICY LOANS -- Amounts may be
transferred after the Free-Look Period from the Variable Accounts to the Fixed
Account and from the Fixed Account to the Variable Accounts, subject to the
following limitations. You may transfer from the Fixed Account to the Variable
Accounts in any Policy Year not more than the greater of one third of the
Accumulated Value in the Fixed Account at the time of the transfer, $5,000 or
120% of the Accumulated Value transferred from the Fixed Account during the
previous Policy Year. Accumulated Value in the Fixed Account may be transferred
pursuant to the Dollar Cost Averaging or Asset Reallocation Options subject to
this limitation. The minimum amount that may be transferred is $500, except that
this minimum does not apply to transfers under the Dollar Cost Averaging or
Asset Reallocation Options. Currently, there is no charge imposed upon
transfers; however, Security Benefit reserves the right to assess a charge of
$25 per transfer in the future to the extent transfers exceed six in any Policy
Year and to impose other limitations on the number of transfers, the amount of
transfers, and the amount remaining in the Fixed Account or Variable Accounts
after a transfer.
You may also make full surrenders and Partial Withdrawals to the same extent
as a Policyowner who has invested in the Variable Accounts. See "Surrender,"
page 17 and "Partial Withdrawal Benefits," page 17. Policyowners allocating
Accumulated Value in the Fixed Account may borrow up to 80% of Net Cash
Surrender Value. See "Policy Loans," page 16. Transfers, surrenders, and
withdrawals payable from the Fixed Account, and Policy loans made from Contract
Value allocated to the Fixed Account, may be delayed for up to six months.
MORE ABOUT THE POLICY
OWNERSHIP -- The Policyowner is the individual named as such in the application
or in any later change shown in Security Benefit's records. While the Insured is
living, the Policyowner alone has the right to receive all benefits and exercise
all rights that the Policy grants or Security Benefit allows.
JOINT OWNERS. If more than one person is named as Policyowner, they are joint
owners. Any Policy transaction requires the signature of all persons named
jointly. Unless otherwise provided, if a joint owner dies, ownership passes to
the surviving joint owner(s). When the last joint owner dies, ownership passes
through that person's estate, unless otherwise provided.
BENEFICIARY -- The Beneficiary is the individual named as such in the
application or any later change shown in Security Benefit's records. You may
change the Beneficiary at any time during the life of the Insured by written
request, which must be received by Security Benefit at its Home Office. The
change will be effective as of the date this form is signed. Contingent and/or
concurrent Beneficiaries may be designated. You may designate a permanent
Beneficiary, whose rights under the Policy cannot be changed without his or her
consent. Unless otherwise provided, if no designated Beneficiary is living upon
the death of the Insured, the Policyowner or Policyowner's estate is the
Beneficiary.
Security Benefit will pay the death benefit proceeds to the Beneficiary.
Unless otherwise provided, in order to receive proceeds at the Insured's death,
the Beneficiary must be living at the time of the Insured's death.
EXCHANGE OF INSURED -- After the first Policy Year and subject to approval from
Security Benefit, you may exchange the named Insured on the Policy upon written
application, evidence of insurability satisfactory to Security Benefit, and
payment of a charge of $100. The exchange is effective the first Monthly Payment
Date on or after the exchange is approved. Coverage on the new Insured will
become effective on the exchange date. Coverage on the current Insured will
terminate on the day preceding the exchange date. The Policy Date will not be
changed unless the new Insured was born after the Policy Date. In such case, the
Policy Date will be changed to the Policy anniversary on or next following the
birth date of the new Insured. The cost of insurance charge will be based on the
new Insured's Age, gender, risk class and underwriting class.
Security Benefit reserves the right to disallow a requested exchange of the
named Insured, and will not permit a requested exchange, among other reasons,
(1) if compliance with the guideline premium limitations under tax law resulting
from the exchange of Insured would result in the immediate termination of the
Policy, or (2) if, to effect the requested exchange of Insured, payments to you
would have to be made from Accumulated Value for compliance with the guideline
premium limitations, and the amount of such payments would exceed the Net Cash
Surrender Value under the Policy.
A fee of $100 will be charged to cover the costs of processing the exchange
of Insured. This amount will not be credited to or deducted from Accumulated
Value, but must be paid directly to Security Benefit by you before the request
for an exchange of Insured will be processed.
EXCHANGE OF POLICY DURING FIRST 24 MONTHS -- During the first 24 months
following the Policy Date, if the Policy has not lapsed, you may exchange the
Policy for a fixed-benefit life insurance policy issued and made available for
exchange by Security Benefit. The exchange will be made without evidence of
insurability, and the new policy will have the same Specified Amount, Policy
Date, Age, rating class and underwriting class for the Insured as the exchanged
Policy.
An exchange will be effective on the Monthly Payment Date following Security
Benefit's receipt of written notice of your request to exchange in proper form
and payment of any fee. Security Benefit reserves the right to charge a fee of
up to $200 to effect an exchange. This fee will not be deducted from Accumulated
Value, but must be paid directly to Security Benefit. Any outstanding Policy
Debt must be repaid on or before the effective date of the exchange.
THE CONTRACT -- This Policy is a contract between you and Security Benefit. The
entire contract consists of the Policy, a copy of the initial application, all
subsequent applications to change the Policy, and endorsements, all Riders, and
all additional Policy information sections (Specifications Pages) added to the
Policy.
PAYMENTS -- Security Benefit will pay death benefit proceeds, Net Cash Surrender
Value on surrender, Partial Withdrawals, and loan proceeds based on allocations
made to the Variable Accounts, and will effect a transfer between Variable
Accounts or from a Variable Account to the Fixed Account within seven days after
Security Benefit receives all the information needed to process a payment.
However, Security Benefit can postpone the calculation or payment of such a
payment or transfer of amounts based on investment performance of the Variable
Accounts if:
* The New York Stock Exchange is closed on other than customary weekend and
holiday closing or trading on the New York Stock Exchange is restricted as
determined by the SEC; or
* An emergency exists, as determined by the SEC, as a result of which disposal
of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the Account's net assets; or
* The SEC by order permits postponement for the protection of Policyowners.
ASSIGNMENT -- You may assign a Policy as collateral security for a loan or other
obligation. No assignment will bind Security Benefit unless the original, or a
copy, is received at Security Benefit's Home Office, and will be effective only
when recorded by Security Benefit. An assignment does not change the ownership
of the Policy. However, after an assignment, the rights of any Policyowner or
Beneficiary will be subject to the assignment. The entire Policy, including any
attached payment option or Rider, will be subject to the assignment. Security
Benefit will rely solely on the assignee's statement as to the amount of the
assignee's interest. Security Benefit will not be responsible for the validity
of any assignment. Unless otherwise provided, the assignee may exercise all
rights this Policy grants except (a) the right to change the Policyowner or
Beneficiary; and (b) the right to elect a payment option. Assignment of a Policy
that is a Modified Endowment Contract may generate taxable income. (See "Federal
Income Tax Considerations," page 20.)
ERRORS ON THE APPLICATION -- If the Age or gender of the Insured has been
misstated, the death benefit under this Policy will be the greater of that which
would be purchased by the most recent cost of insurance charge at the correct
Age and gender, or the death benefit derived by multiplying Accumulated Value by
the death benefit percentage for the correct Age and gender. If the Insured's
Age, or gender is misstated in the application, the Accumulated Value will be
modified by recalculating all prior cost of insurance charges and other monthly
deductions based on the correct Age and gender. If unisex cost of insurance
rates apply, no adjustment will be made for a misstatement of gender. See "Cost
of Insurance," page 19.
INCONTESTABILITY -- Security Benefit may contest the validity of this Policy if
any material misstatements are made in the application. However, this Policy
will be incontestable after the expiration of the following: the initial
Specified Amount cannot be contested after the Policy has been in force during
the Insured's lifetime for two years from the date the Policy was issued; if the
Insured is changed, the Policy cannot be contested after it has been in force
during the new Insured's lifetime for two years from the effective date of the
exchange; and an increase in the Specified Amount cannot be contested after the
increase has been in force during an Insured's lifetime for two years from its
effective date.
PAYMENT IN CASE OF SUICIDE -- If the Insured dies by suicide, while sane or
insane, within two years from the Policy Date, Security Benefit will limit the
death benefit proceeds to the premium payments less any withdrawal amounts and
less any Policy Debt. If the Insured has been changed and the new Insured dies
by suicide, while sane or insane, within two years of the exchange date, the
death benefit proceeds will be limited to the Net Cash Surrender Value as of the
exchange date, plus the premiums paid since the exchange date, less the sum of
any increases in Debt, withdrawal amounts, and any dividends paid in cash since
the exchange date. If an Insured dies by suicide, while sane or insane, within
two years of the effective date of any increase in the Specified Amount,
Security Benefit will refund the cost of insurance charges made with respect to
such increase.
DIVIDENDS -- The Policy 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. Any dividends that do become payable
will be paid in cash. Certain states do not allow the Policy to be issued as a
dividend-paying policy.
POLICY ILLUSTRATIONS -- Upon request, Security Benefit will send you an
illustration of future benefits under the Policy based on both guaranteed and
current cost factor assumptions. However, Security Benefit reserves the right to
charge a fee for requests for illustrations in excess of one per Policy Year.
PAYMENT PLAN -- Maturity, surrender, or withdrawal benefits may be used to
purchase a payment plan providing monthly income for the lifetime of the
Insured, and death benefit proceeds may be used to purchase a payment plan
providing monthly income for the lifetime of the Beneficiary. The monthly
payments consisting of proceeds plus interest will be paid in equal installments
for a period not to exceed 20 years. The purchase rates for the payment plan are
guaranteed not to exceed those shown in the Policy, but from time to time
Security Benefit may establish current rates that are lower (i.e., providing
greater income). This benefit is not available if the income would be less than
$25 a month. Maturity, surrender, or withdrawal benefits or death benefit
proceeds may be used to purchase any other payment plan that Security Benefit
makes available at that time.
OPTIONAL INSURANCE BENEFITS -- Subject to certain requirements, you may elect to
add one or more of the following optional insurance benefits to the Policy by a
Rider at the time of application for a Policy. These optional benefits are
described briefly below. The cost of any additional insurance benefits will be
deducted as part of the monthly deduction against Accumulated Value. See
"Charges and Deductions," page 19. The amounts of these benefits are fully
guaranteed at issue. Certain restrictions may apply and are described in the
applicable Rider. An insurance agent authorized to sell the Policy can describe
these extra benefits further. Samples of the provisions are available from
Security Benefit upon written request. Certain Riders are not available in all
states. For information relating to the federal income tax aspects of purchasing
a Policy Rider, see "Federal Income Tax Considerations," page 20.
WAIVER OF MONTHLY DEDUCTION RIDER. This Rider provides for the waiver of the
monthly deduction in the event the Insured is disabled for a period of six
months or longer prior to age 65.
ACCELERATED BENEFIT RIDER FOR TERMINAL ILLNESS. This Rider provides for
payment of up to the lesser of (i) 50% of the Specified Amount less any Policy
Debt or (ii) $250,000, upon receipt of satisfactory proof of terminal illness.
Such terminal illness must first be diagnosed while the Policy is in force. The
payment amount requested will be reduced by an actuarial discount which
compensates Security Benefit for interest not earned as a result of early
payment of a portion of the death benefit under the Policy. Premium payments
made after the payment of the Accelerated Benefit must be allocated to the Fixed
Account. Accelerated Benefit payments will not be made for less than $25,000
and, for any one Insured, will not be made for more than $500,000 under all
policies issued by Security Benefit. Security Benefit may charge a fee of up to
$200 to cover the costs of administration at the time of payment of an
Accelerated Benefit.
LEVEL TERM INSURANCE RIDER. This Rider provides level term insurance for a
family member and may not be issued on the Insured. The maximum amount of
insurance that may be provided under the Rider is an amount equal to the
Specified Amount under the Policy. Up to five Level Term Insurance Riders may be
added to a Policy.
EXTENDED GUARANTEED DEATH BENEFIT RIDER. You may elect to extend the
Guaranteed Death Benefit beyond the first five Policy Years by adding this Rider
to the Policy at the time of application. This Rider provides an Extended
Guaranteed Death Benefit Premium which, if paid in advance on at least a monthly
basis, will keep the Policy in force beyond the first five Policy Years even if
Net Cash Surrender Value is insufficient to cover the monthly deduction on any
Monthly Payment Date. The length of the Extended Guaranteed Death Benefit period
is 10 to 30 Policy Years (depending on the Age of the Insured on the Policy
Date). The amount of the Extended Guaranteed Death Benefit Premium is determined
by Security Benefit based upon the Policy's Specified Amount and Death Benefit
Option, any Riders added to the Policy, and the Age, gender (unless unisex cost
of insurance rates apply), rating class, and underwriting class of the Insured.
Security Benefit will send a reminder notice if the amount of premiums paid on a
Policy to which this Rider has been added, less outstanding Policy Debt and any
Partial Withdrawals, is less than an amount equal to the monthly Extended
Guaranteed Death Benefit Premium times the number of Policy Months the Policy
has been in force. If the required payment is not made within 61 days, measured
from the date of the notice, the Extended Guaranteed Death Benefit will no
longer be in effect and may not be reinstated. A Policy Loan taken while the
Extended Guaranteed Death Benefit Rider is in effect may cause this benefit to
terminate. As a result, the Policy will not have the protection from lapse
provided by the Extended Guaranteed Death Benefit Rider. The Extended Guaranteed
Death Benefit Premium is not applied to purchase the Rider, but is applied to
the Policy and may be the same as the Planned Periodic Premium.
DISTRIBUTION OF THE POLICY -- Security Distributors, Inc. ("SDI") is principal
underwriter (distributor) of the Policies. SDI is registered as a broker/ dealer
with the SEC and is a member of the National Association of Securities Dealers
("NASD"). SDI acts as principal underwriter under a Distribution Agreement with
Security Benefit.
Security Benefit and SDI have Sales Agreements with various broker/dealers
under which the Policy will be sold by registered representatives of the
broker/dealers. The registered representatives are required to be authorized
under applicable state regulations to sell Variable Life Insurance. The
broker/dealers are required to be registered with the SEC and members of the
NASD. The compensation payable to a broker/dealer for sales of the Policy may
vary with the Sales Agreement, but is not expected to exceed 2% of premium and
3% of the monthly cost of insurance charge. Broker/dealers may also receive
annual compensation of up to .20% of Accumulated Value less Policy Debt,
depending upon the circumstances. This annual compensation will be computed and
payable monthly. In addition, Security Benefit may also pay override payments,
expense allowances, bonuses, wholesaler fees, and training allowances.
Registered representatives earn commissions from the broker/dealers with whom
they are affiliated for selling Security Benefit's Policies. Compensation
arrangements vary among broker/dealers. 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, expense-paid educational seminars and merchandise. Security
Benefit makes no separate deductions, other than previously described, from
premiums to pay sales commissions or sales expenses.
MORE ABOUT SECURITY BENEFIT
MANAGEMENT -- The directors and officers of Security Benefit are listed below,
together with information as to their principal occupations during the past five
years and certain other current affiliations. Unless otherwise indicated, the
business address of each director and officer is c/o Security Benefit Life
Insurance Company, 700 SW Harrison Street, Topeka, Kansas 66636.
HOWARD R. FRICKE
- ----------------
POSITION--Chief Executive Officer and Director
PRINCIPAL OCCUPATIONS--Chairman of the Board, Chief Executive Officer and
Director, Security Benefit Life Insurance Company from March 1988 to present.
Chairman of the Board, President, Chief Executive Officer and Director, Security
Benefit Life Insurance Company from February 1988 to March 1998.
THOMAS R. CLEVENGER
- -------------------
P.O. Box 8514, Wichita, KS 67208
POSITION--Director
PRINCIPAL OCCUPATIONS--Consultant, Investments, Wichita, Kansas since 1990;
President, Fourth Financial Corporation, Topeka, Kansas prior to 1990.
SISTER LORETTO MARIE COLWELL
- ----------------------------
1700 SW 7th Street, Topeka, KS 66606
POSITION--Director
PRINCIPAL OCCUPATIONS--President and Chief Executive Officer, St. Francis
Hospital and Medical Center, Topeka, Kansas since 1991; various senior
management and marketing positions, St. James Community Hospital, Butte, Montana
prior to 1991.
JOHN C. DICUS
- -------------
700 Kansas Avenue, Topeka, KS 66603
POSITION--Director
PRINCIPAL OCCUPATIONS--Chairman of the Board, Capitol Federal Savings and Loan
Association, Topeka, Kansas.
STEVEN J. DOUGLASS
- ------------------
3231 E. 6th Street, Topeka, KS 66607
POSITION--Director
PRINCIPAL OCCUPATIONS--President and Chief Executive Officer, Payless
ShoeSource, Inc., Topeka, Kansas, since April 1996; various senior management
positions, May Department Stores, Inc., St. Louis, Missouri prior to 1996.
WILLIAM W. HANNA
- ----------------
P.O. Box 2256, Wichita, KS 67201
POSITION--Director
PRINCIPAL OCCUPATIONS--Director, Chief Operating Officer and President, Koch
Industries, Inc., Wichita, Kansas.
JOHN E. HAYES, JR.
- ------------------
200 Gulf Boulevard, Belleair Shore, FL 33786
POSITION--Director
PRINCIPAL OCCUPATIONS--Retired 1998 to present. Chairman of the Board, President
and Chief Executive Officer, Western Resources, Inc., Topeka, Kansas 1989 to
1998; Chairman, President and Chief Executive Officer, Southwestern Bell
Telephone Company, Topeka, Kansas prior to 1989.
LAIRD G. NOLLER
- ---------------
2245 Topeka Boulevard, Topeka, KS 66611
POSITION--Director
PRINCIPAL OCCUPATIONS--President, Noller Automotive Group, Topeka, Kansas.
FRANK C. SABATINI
- -----------------
120 SW 6th Street, Topeka, KS 66603
POSITION--Director
PRINCIPAL OCCUPATIONS--Chairman of the Board, Capital City Bank, Topeka, Kansas.
ROBERT C. WHEELER
- -----------------
P.O. Box 148, Topeka, KS 66601
POSITION--Director
PRINCIPAL OCCUPATIONS--President, Hill's Pet Nutrition, Inc., Topeka, Kansas.
KRIS A. ROBBINS
- ---------------
POSITION--President and Chief Operating Officer
PRINCIPAL OCCUPATIONS--President and Chief Operating Officer, Security Benefit
Life Insurance Company since March 1998; Executive Vice President and Chief
Operating Officer, Security Benefit Life Insurance Company from July 1997 to
March 1998; various senior management positions, Providian Corp., Louisville,
Kentucky from 1985 to 1997.
MALCOLM E. ROBINSON
- -------------------
POSITION--Senior Vice President and Assistant to the President
PRINCIPAL OCCUPATIONS--Senior Vice President and Assistant to the President,
Security Benefit Life Insurance Company.
RICHARD K RYAN
- --------------
POSITION--Senior Vice President, Product and Market Development
PRINCIPAL OCCUPATIONS--Senior Vice President, Security Benefit Life Insurance
Company.
DONALD J. SCHEPKER
- ------------------
POSITION--Senior Vice President, Chief Financial Officer, and Treasurer
PRINCIPAL OCCUPATIONS--Senior Vice President, Chief Financial Officer and
Treasurer, Security Benefit Life Insurance Company.
ROGER K. VIOLA
- --------------
POSITION--Senior Vice President, General Counsel and Secretary
PRINCIPAL OCCUPATIONS--Senior Vice President, General Counsel and Secretary,
Security Benefit Life Insurance Company.
GREG GARVIN
- -----------
POSITION--Senior Vice President, Sales and Distribution
PRINCIPAL OCCUPATIONS--Senior Vice President, Sales and Distribution, Security
Benefit Life Insurance Company from December 1998 to present; Vice President,
Security Benefit Life Insurance Company, April 1998 to December 1998; Vice
President Aegon/Commonwealth General, Louisville, KY from 1996 - 1998; Executive
Vice President, Consenco/Bankmark, Louisville, KY, 1993 to 1996; President,
Investor Life Services/USFG, Cincinnati, OH 1988 to 1993; President, Goldome
Agency, Buffalo, NY from 1983 to 1988.
JAMES R. SCHMANK
- ----------------
POSITION--Senior Vice President
PRINCIPAL OCCUPATIONS--Senior Vice President, Security Benefit Life Insurance
Company.
VENETTE K. DAVIS
- ----------------
POSITION--Senior Vice President, Market Implementation
PRINCIPAL OCCUPATIONS--Senior Vice President, Market Implementation, Security
Benefit Life Insurance Company.
J. CRAIG ANDERSON
- -----------------
POSITION--Senior Vice President, Human Resources
PRINCIPAL OCCUPATIONS--Senior Vice President, Human Resources, Security Benefit
Life Insurance Company from March 1998 to present; Vice President, Human
Resources, Security Benefit Life Insurance Company, June 1996 to March 1998;
Vice President and Associate Counsel, Security Benefit Life Insurance Company,
1985 to June 1996.
OFFICERS AND DIRECTORS OF SBL WHO ARE ALSO CONNECTED WITH THE FUND OR ITS
AFFILIATED PERSONS:
JOHN D. CLELAND
- ---------------
PRINCIPAL OCCUPATIONS--Senior Vice President and Managing Member Representative,
Security Management Company, LLC
JAMES R. SCHMANK
- ----------------
PRINCIPAL OCCUPATIONS--President and Managing Member Representative, Security
Management Company, LLC
No officer or director listed above receives any compensation from the
Separate Account. No separately allocable compensation has been paid by Security
Benefit or any of its affiliates to any person listed for services rendered to
the Account.
STATE REGULATION -- Security Benefit is subject to the laws of the State of
Kansas governing insurance companies, and to regulation by the Commissioner of
Insurance of the State of Kansas. In addition, it is subject to the insurance
laws and regulations of the other states and jurisdictions in which it is
licensed or may become licensed to operate. Security Benefit must file an Annual
Statement in a prescribed form with the Kansas Commissioner of Insurance and
with regulatory authorities of other states on or before March 1 in each year.
This statement covers the operations of Security Benefit for the preceding year
and its financial condition as of December 31 of that year. Security Benefit's
affairs are subject to review and examination at any time by the Commissioner of
Insurance or his or her agents, and subject to full examination of Security
Benefit's operations at periodic intervals.
TELEPHONE TRANSFER PRIVILEGES -- You may request a transfer of Accumulated Value
and may request 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 may be liable for any losses due to
fraudulent or unauthorized instructions if it fails to comply with its
procedures. Security Benefit's procedures require that any person requesting a
transfer by telephone provide the Policy Account Number and the Owner's Tax
Identification Number, and such instructions must be received on a recorded
line.
Telephone instructions received by Security Benefit by 3:00 p.m. Central time
on any Valuation Date will be effected as of the end of that Valuation Date in
accordance with your instructions (presuming that the Free-Look Period has
expired). Security Benefit reserves the right to deny any telephone transfer or
request. If all telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), you might not be able to request
transfers and loans 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 Policy, and
agrees that neither Security Benefit, nor any of its affiliates will be liable
for any loss, damages, cost, or expense (including attorney's fees) arising out
of any requests effected, provided that Security Benefit complied with its
procedures. As a result of this policy on telephone requests, you may bear the
risk of loss arising from the telephone transfer privileges. 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 -- Legal matters in connection with the issue and sale of the
Policies described in this Prospectus and the organization of Security Benefit,
its authority to issue the Policies under Kansas law, and the validity of the
forms of the Policies under Kansas law have been passed on by Amy J. Lee,
Associate General Counsel of Security Benefit.
REGISTRATION STATEMENT -- A Registration Statement under the Securities Act of
1933 has been filed with the SEC relating to the offering described in this
Prospectus. This Prospectus does not include all of the information set forth in
the Registration Statement, as portions 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, D.C., upon payment of the SEC's prescribed fees
and may also be obtained at the SEC's web site, http://www.sec.gov.
EXPERTS -- The Consolidated Financial Statements for Security Benefit Life
Insurance Company and Subsidiaries at December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998 and Security Varilife
Separate Account at December 31, 1998 and for each of the three years in the
period ended December 31, 1998 appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon, appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
FINANCIAL STATEMENTS -- Financial Statements for the Separate Account at
December 31, 1998 and for each of the three years in the period ended December
31, 1998 and the Consolidated Financial Statements of Security Benefit Life
Insurance Company and subsidiaries at December 31, 1998, and 1997 and for each
of the three years in the period ended December 31, 1998, are set forth herewith
starting on page 33. The most current financial statements of Security Benefit
Life Insurance Company and subsidiaries are those as of the end of the most
recent fiscal year. Security Benefit does not prepare financial statements on a
basis consistent with and comparable to its annual statements on an interim
basis and believes that any incremental benefit to prospective policy holders
that may result from preparing and delivering more current financial statements,
though unaudited, does not justify the additional cost that would be incurred.
In addition, Security Benefit represents that there have been no adverse changes
in the financial condition or operations of Security Benefit between the end of
the most current fiscal year and the date of this Prospectus.
The Financial Statements of Security Benefit should be distinguished from the
Financial Statements of the Separate Account, and should be considered only as
bearing upon the ability of Security Benefit to meet its obligations under the
Policies.
<PAGE>
Report of Independent Auditors
The Contract Owners of Security Varilife Separate Account and
the Board of Directors of Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of Security Varilife Separate
Account (the Account) (comprised of the individual series indicated therein) as
of December 31, 1998, and the related statements of operations and changes in
net assets for each of the three years in the period then ended. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments owned as of December 31, 1998 by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the individual series of the
Security Varilife Separate Account at December 31, 1998, and the results of
their operations and changes in their net assets for each of the three years in
the period then ended in conformity with generally accepted accounting
principles.
February 5, 1999
<PAGE>
Security Varilife Separate Account
Balance Sheet
December 31, 1998
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 60,613 shares at net asset value of
$34.27 per share (cost, $1,729) ................................. $2,077
Series B (Growth-Income Series) - 8,586 shares at net asset value
of $39.68 per share (cost, $348) ................................ 341
Series C (Money Market Series) - 5,669 shares at net asset value of
$12.53 per share (cost, $72) .................................... 71
Series D (Worldwide Equity Series) - 46,709 shares at net asset
value of $6.74 per share (cost, $301) ........................... 315
Series E (High Grade Income Series) - 8,488 shares at net asset
value of $12.42 per share (cost, $103) .......................... 105
Series J (Emerging Growth Series) - 12,365 shares at net asset
value of $22.51 per share (cost, $248) .......................... 278
Series K (Global Aggressive Bond Series) - 3,619 shares at net
asset value of $9.56 per share (cost, $37) ...................... 35
Series M (Specialized Asset Allocation Series) - 6,341 shares at
net asset value of $12.87 per share (cost, $75) ................. 82
Series N (Managed Asset Allocation Series) - 2,442 shares at net
asset value of $16.01 per share (cost, $29) ..................... 39
Series O (Equity Income Series) - 20,227 shares at net asset value
of $18.35 per share (cost, $313) ................................ 371
Series S (Social Awareness Series) - 1,003 shares at net asset
value of $28.40 per share (cost, $22) ........................... 29
-----
Total assets $3,743
=====
<PAGE>
NET ASSETS
Net assets are represented by (NOTE 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
------------------------------
Growth Series:
Accumulation units .......................... 83,617 $24.84 $2,077
Growth-Income Series:
Accumulation units .......................... 17,727 19.22 341
Money Market Series:
Accumulation units .......................... 6,041 11.76 71
Worldwide Equity Series:
Accumulation units .......................... 20,982 15.00 315
High Grade Income Series:
Accumulation units .......................... 7,916 13.32 105
Emerging Growth Series:
Accumulation units .......................... 14,754 18.87 278
Global Aggressive Bond Series:
Accumulation units .......................... 2,627 13.17 35
Specialized Asset Allocation Series:
Accumulation units .......................... 5,836 13.98 82
Managed Asset Allocation Series:
Accumulation units .......................... 2,409 16.22 39
Equity Income Series:
Accumulation units .......................... 19,752 18.79 371
Social Awareness Series:
Accumulation units .......................... 1,277 22.97 29
------
Total net assets $3,743
======
SEE ACCOMPANYING NOTES.
<PAGE>
Security Varilife Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH
GROWTH- MONEY WORLDWIDE GRADE EMERGING
GROWTH INCOME MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dividend distributions $ 8 $ 5 $ 1 $ 4 $ 5 $ 2
Expenses (NOTE 2):
Mortality and expense risk
fee - - - - - -
Administrative fee and
insurance costs (132) (38) (11) (48) (5) (47)
---------------------------------------------------------------------------
Net investment gain (loss) (124) (33) (10) (44) - (45)
Capital gain distributions 104 30 - 21 1 24
Realized gain on investments 59 7 2 1 - 8
Unrealized appreciation
(depreciation) on
investment 215 (23) - 24 1 6
---------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 378 14 2 46 2 38
---------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 254 (19) (8) 2 2 (7)
Net assets at beginning of year 1,320 278 46 227 86 222
Variable account deposits
(NOTES 2 AND 3) 547 101 199 102 20 83
Terminations and withdrawals
(NOTES 2 AND 3) (29) (16) (165) (13) (2) (18)
Mortality adjustment (15) (3) (1) (3) (1) (2)
---------------------------------------------------------------------------
Net assets at end of year $2,077 $341 $ 71 $315 $105 $278
===========================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBAL SPECIALIZED MANAGED
AGGRESSIVE ASSET ASSET EQUITY SOCIAL
BOND ALLOCATION ALLOCATION INCOME AWARENESS
SERIES SERIES SERIES SERIES SERIES
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend distributions $ 3 $ 2 $ 1 $ 5 $ -
Expenses (NOTE 2):
Mortality and expense risk
fee - - - - -
Administrative fee and
insurance costs (1) (4) (2) (18) (1)
-------------------------------------------------------------
Net investment gain (loss) 2 (2) (1) (13) (1)
Capital gain distributions 1 4 - 12 1
Realized gain on investments - - 1 17 1
Unrealized appreciation
(depreciation) on
investments (2) 4 4 (2) 5
-------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1) 8 5 27 7
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 1 6 4 14 6
Net assets at beginning of year 24 57 31 302 24
Variable account deposits
(NOTES 2 AND 3) 12 20 4 91 3
Terminations and withdrawals
(NOTES 2 AND 3) (2) - - (33) (4)
Mortality adjustment - (1) - (3) -
-------------------------------------------------------------
Net assets at end of year $35 $82 $39 $371 $29
=============================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Security Varilife Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH
GROWTH- MONEY WORLDWIDE GRADE EMERGING
GROWTH INCOME MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dividend distributions $ 5 $ 5 $ 3 $ 4 $ 5 $ 1
Expenses (NOTE 2):
Mortality and expense risk
fee (7) (2) - (2) (1) (2)
Administrative fee and
insurance costs (77) (21) (10) (28) (5) (31)
---------------------------------------------------------------------------
Net investment gain (loss) (79) (18) (7) (26) (1) (32)
Capital gain distributions 49 13 - 10 - 5
Realized gain (loss) on
investments 43 11 (1) 8 - 15
Unrealized appreciation
(depreciation) on
investments 89 10 - (13) 2 16
---------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 181 34 (1) 5 2 36
---------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 102 16 (8) (21) 1 4
Net assets at beginning of year 502 113 31 150 69 157
Variable account deposits
(NOTES 2 AND 3) 752 153 426 124 18 108
Terminations and withdrawals
(NOTES 2 AND 3) (36) (4) (403) (26) (2) (47)
---------------------------------------------------------------------------
Net assets at end of year $1,320 $278 $ 46 $227 $86 $222
===========================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
GLOBAL SPECIALIZED MANAGED
AGGRESSIVE ASSET ASSET EQUITY SOCIAL
BOND ALLOCATION ALLOCATION INCOME AWARENESS
SERIES SERIES SERIES SERIES SERIES
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend distributions $ 2 $ 1 $ - $ 2 $ -
Expenses (NOTE 2):
Mortality and expense risk
fee - - - (2) -
Administrative fee and
insurance costs (1) (3) (1) (13) (1)
-------------------------------------------------------------
Net investment gain (loss) 1 (2) (1) (13) (1)
Capital gain distributions 1 1 - 3 1
Realized gain (loss) on
investments - - - 4 -
Unrealized appreciation
(depreciation) on
investments (1) 1 4 46 2
-------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments - 2 4 53 3
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 1 - 3 40 2
Net assets at beginning of year 13 36 23 141 12
Variable account deposits
(NOTES 2 AND 3) 10 21 5 121 13
Terminations and withdrawals
(NOTES 2 AND 3) - - - - (3)
-------------------------------------------------------------
Net assets at end of year $24 $57 $31 $302 $24
============================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Security Varilife Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH
GROWTH- MONEY WORLDWIDE GRADE EMERGING
GROWTH INCOME MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dividend distributions $ 3 $ 2 $ 1 $ 3 $ 3 $ -
Expenses (NOTE 2):
Mortality and expense risk
fee (3) (1) (1) (1) - (1)
Administrative fee and
insurance costs (31) (10) (7) (9) (4) (15)
----------------------------------------------------------------------------
Net investment loss (31) (9) (7) (7) (1) (16)
Capital gain distributions 19 9 - 3 - 4
Realized gain on
investments 14 5 3 2 - 2
Unrealized appreciation
(depreciation) on
investments 32 (3) (1) 3 (3) 8
----------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 65 11 2 8 (3) 14
----------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 34 2 (5) 1 (4) (2)
Net assets at beginning of
year 201 61 143 17 39 53
Variable account deposits
(NOTES 2 AND 3) 278 57 401 133 34 112
Terminations and withdrawals
(NOTES 2 AND 3) (11) (7) (508) (1) - (6)
----------------------------------------------------------------------------
Net assets at end of year $502 $113 $ 31 $150 $69 $157
============================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
<TABLE>
<CAPTION>
GLOBAL SPECIALIZED MANAGED
AGGRESSIVE ASSET ASSET EQUITY SOCIAL
BOND ALLOCATION ALLOCATION INCOME AWARENESS
SERIES SERIES SERIES SERIES SERIES
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend distributions $ 1 $ - $ - $ - $ -
Expenses (NOTE 2):
Mortality and expense risk
fee - - - (1) -
Administrative fee and
insurance costs (1) (1) - (2) -
------------------------------------------------------------
Net investment loss - (1) - (3) -
Capital gain distributions - - - - -
Realized gain on - - - - 1
investments
Unrealized appreciation
(depreciation) on
investments 1 3 2 14 -
------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1 3 2 14 1
------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations 1 2 2 11 1
Net assets at beginning of
year - 1 - - 3
Variable account deposits
(NOTES 2 AND 3) 12 34 21 130 13
Terminations and withdrawals
(NOTES 2 AND 3) - (1) - - (5)
------------------------------------------------------------
Net assets at end of year $13 $36 $23 $141 $12
============================================================
</TABLE>
<PAGE>
Security Varilife Separate Account
Notes to Financial Statements
December 31, 1998, 1997 and 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Security Varilife Separate Account (the Account) is a separate account of
Security Benefit Life Insurance Company (SBL). The Account is registered as a
unit investment trust under the Investment Company Act of 1940, as amended. All
activity in the account relates to Security Elite Benefit, a variable life
product sold by SBL. Deposits received by the Account are invested in the SBL
Fund, a mutual fund not otherwise available to the public. As directed by the
owners, amounts deposited may be invested in shares of Series A (Growth Series -
emphasis on capital appreciation), Series B (Growth-Income Series - emphasis on
capital appreciation with secondary emphasis on income), Series C (Money Market
Series - emphasis on capital preservation while generating interest income),
Series D (Worldwide Equity Series - emphasis on long-term capital growth through
investment in foreign and domestic common stocks and equivalents), Series E
(High Grade Income Series - emphasis on current income with security of
principal), Series J (Emerging Growth Series - emphasis on capital
appreciation), Series K (Global Aggressive Bond Series - emphasis on high
current income with secondary emphasis on capital appreciation), Series M
(Specialized Asset Allocation Series - emphasis on high total return consisting
of capital appreciation and current income), Series N (Managed Asset Allocation
Series - emphasis on high level of total return), Series O (Equity Income Series
emphasis on substantial dividend income and capital appreciation) and Series S
(Social Awareness Series emphasis on capital appreciation).
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company, LLC (SMC), a
limited liability company controlled by its members, SBL and Security Benefit
Group, Inc., a wholly-owned subsidiary of SBL. SMC has engaged T. Rowe Price
Associates, Inc. to provide sub-advisory services for the Managed Asset
Allocation Series and the Equity Income Series and Meridian Investment
Management Corporation to provide sub-advisory services for the Specialized
Asset Allocation Series, and Strong Capital Management, Inc. to provide
sub-advisory services to the Small Cap Series. Lexington Management Corporation
(LMC) served as sub-advisor for the Worldwide Equity Series until November 1,
1998, when LMC was replaced by OppenheimerFunds, Inc. Effective December 31,
1998, LMC resigned as sub-advisor for Global Aggressive Bond Series, which
thereafter will be advised by SMC.
INVESTMENT VALUATION
Investments in mutual fund shares are carried in the balance sheet at market
value (net asset value of the underlying mutual fund). The first-in, first-out
cost method is used to determine realized gains and losses. Security
transactions are accounted for on the trade date.
The cost of investments purchased and proceeds from investments sold during the
year ended December 31 were as follows
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ------------------------- ------------------------
PROCEEDS PROCEEDS PROCEEDS
COST OF FROM COST OF FROM COST OF FROM
PURCHASES SALES PURCHASES SALES PURCHASES SALES
---------------------- ------------------------- ------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Growth Series ..................... $694 $211 $847 $161 $312 $ 56
Growth-Income Series .............. 155 76 186 42 70 20
Money Market Series ............... 263 240 436 420 426 543
Worldwide Equity Series ........... 131 68 156 74 144 15
High Grade Income Series .......... 25 7 24 9 38 5
Emerging Growth Series ............ 147 105 127 93 124 30
Global Aggressive Bond Series ..... 15 2 14 2 13 1
Specialized Asset Allocation Series 26 5 24 4 35 2
Managed Asset Allocation Series ... 5 2 5 1 22 1
Equity Income Series .............. 109 55 128 17 131 4
Social Awareness Series ........... 4 5 17 7 14 6
</TABLE>
REINVESTMENT OF DIVIDENDS
Dividend and capital gain distributions paid by the mutual fund to the Account
are reinvested in additional shares of each respective series. Dividend income
and capital gain distributions are recorded as income on the ex-dividend date.
FEDERAL INCOME TAXES
The operations of the account are part of the operations of SBL. Under current
law, no federal income taxes are allocated by SBL to the operations of the
Account.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. SECURITY VARILIFE SEPARATE ACCOUNT CONTRACT CHARGES
SBL deducts a daily administrative charge equal to an annual rate of .35% of the
average daily net assets of each account. Mortality and expense risks assumed by
SBL are compensated for by a fee equivalent to an annual rate of .90% of the
average daily net assets of each account.
A deduction for cost of insurance and cost of any riders also is made monthly
and is equal to a current cost of insurance rate multiplied by the net amount at
risk under a policy at the beginning of the policy month. The net amount at risk
for these purposes is equal to the amount of death benefit payable at the
beginning of the policy month divided by 1.0032737 less the accumulated value at
the beginning of the month. These charges amounted to $297,000, $185,000 and
$78,000 during 1998, 1997 and 1996, respectively.
When applicable, an amount for state and local premium taxes is deducted from
each premium payment as provided by pertinent state law.
3. SUMMARY OF UNIT TRANSACTIONS
UNITS
----------------------------------
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------
(IN THOUSANDS)
Growth Series:
Account deposits ....................... 25 40 19
Terminations, withdrawals and expenses . 7 6 3
Growth-Income Series:
Account deposits ....................... 5 10 4
Terminations, withdrawals and expenses . 3 2 1
Money Market Series:
Account deposits ....................... 17 38 37
Terminations, withdrawals and expenses . 15 37 48
Worldwide Equity Series:
Account deposits ....................... 7 10 12
Terminations, withdrawals and expenses . 4 4 1
High Grade Income Series:
Account deposits ....................... 2 2 3
Terminations, withdrawals and expenses 1 1 -
Emerging Growth Series:
Account deposits ....................... 5 7 9
Terminations, withdrawals and expenses . 4 5 2
Global Aggressive Bond Series:
Account deposits ....................... 1 1 1
Terminations, withdrawals and expenses . - - -
Specialized Asset Allocation Series:
Account deposits ....................... 2 2 3
Terminations, withdrawals and expenses . - - -
Managed Asset Allocation Series:
Account deposits ....................... - - 2
Terminations, withdrawals and expenses . - - -
Equity Income Series:
Account deposits ....................... 5 8 10
Terminations, withdrawals and expenses . 3 1 -
Social Awareness Series:
Account deposits ....................... - 1 1
Terminations, withdrawals and expenses . - - -
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying consolidated balance sheets of Security Benefit
Life Insurance Company and Subsidiaries (the Company) as of December 31, 1998
and 1997, and the related consolidated statements of income, changes in
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security Benefit
Life Insurance Company and Subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 5, 1999
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
1998 1997
-------------------------
ASSETS (IN THOUSANDS)
Investments:
Securities available-for-sale:
Fixed maturities............................... $2,120,369 $1,650,324
Equity securities.............................. 158,291 120,508
Fixed maturities held-to-maturity................ 264,283 452,411
Mortgage loans................................... 57,400 64,251
Real estate...................................... 2,875 3,056
Policy loans..................................... 88,385 85,758
Cash............................................. 28,419 30,896
Other invested assets............................ 49,308 42,395
-------------------------
Total investments................................... 2,769,330 2,449,599
Accrued investment income........................... 31,740 30,034
Accounts receivable................................. 20,373 22,227
Reinsurance recoverable............................. 407,891 397,519
Property and equipment, net......................... 20,869 19,669
Deferred policy acquisition costs................... 168,483 159,441
Other assets........................................ 17,381 15,537
Separate account assets............................. 4,416,194 3,716,639
-------------------------
$7,852,261 $6,810,665
=========================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy reserves and annuity account values....... $2,699,894 $2,439,713
Policy and contract claims....................... 9,768 10,955
Other policyholder funds......................... 20,496 21,582
Accounts payable and accrued expenses............ 47,168 35,343
Income taxes payable............................. 24,622 10,960
Deferred income tax liability.................... 60,724 58,261
Long-term debt and other borrowings.............. 60,000 65,000
Other liabilities................................ 14,276 17,331
Separate account liabilities..................... 4,416,194 3,716,639
-------------------------
Total liabilities................................... 7,353,142 6,375,784
Stockholder's equity:
Common stock, $10 par value; 1,000,000 shares
authorized; 700,010 issued and outstanding..... 7,000 ---
Retained earnings................................ 462,019 409,432
Accumulated other comprehensive income, net...... 30,100 25,449
-------------------------
Total stockholder's equity.......................... 499,119 434,881
-------------------------
$7,852,261 $6,810,665
=========================
See accompanying notes to consolidated financial statements.
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Insurance premiums and other considerations............ $ 24,187 $ 24,640 $ 28,848
Net investment income.................................. 174,048 184,975 194,783
Asset based fees....................................... 88,721 72,025 55,977
Other product charges.................................. 7,749 9,163 10,470
Realized gains (losses) on investments................. 4,261 4,929 (244)
Other revenues......................................... 17,307 21,389 24,391
-----------------------------------
Total revenues........................................... 316,273 317,121 314,225
Benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances................ 94,552 102,640 108,705
Benefit claims in excess of account balances......... 4,662 4,985 7,541
Traditional life insurance benefits.................... 12,617 17,472 18,222
Supplementary contract payments........................ 9,694 9,660 11,121
Increase in traditional life reserves.................. 1,699 7,050 8,580
Other benefits......................................... 13,227 7,801 11,416
-----------------------------------
Total benefits........................................... 136,451 149,608 165,585
Commissions and other operating expenses................. 63,998 59,576 52,044
Amortization of deferred policy acquisition costs........ 25,447 26,179 25,930
Interest expense......................................... 5,075 5,305 4,285
Other expenses........................................... 3,354 3,381 1,667
-----------------------------------
Total benefits and expenses.............................. 234,325 244,049 249,511
-----------------------------------
Income before income taxes............................... 81,948 73,072 64,714
Income taxes............................................. 22,361 21,567 20,871
-----------------------------------
Net income............................................... $ 59,587 $ 51,505 $ 43,843
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE
STOCK EARNINGS INCOME TOTAL
----------------------------------------------
Balance at December 31, 1995... $ --- $314,084 $ 11,607 $325,691
Comprehensive income:
Net income................. --- 43,843 --- 43,843
Unrealized losses, net..... --- --- (12,086) (12,086)
---------
Comprehensive income......... 31,757
----------------------------------------------
Balance at December 31, 1996... --- 357,927 (479) 357,448
Comprehensive income:
Net income................. --- 51,505 --- 51,505
Unrealized gains, net...... --- --- 25,928 25,928
---------
Comprehensive income......... 77,433
----------------------------------------------
Balance at December 31, 1997.. --- 409,432 25,449 434,881
Common stock issued......... 7,000 (7,000) --- ---
Comprehensive income:
Net income................ --- 59,587 --- 59,587
Unrealized gains, net..... --- --- 4,651 4,651
---------
Comprehensive income........ 64,238
----------------------------------------------
Balance at December 31, 1998... $7,000 $462,019 $ 30,100 $499,119
==============================================
See accompanying notes to consolidated financial statements.
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................................... $ 59,587 $ 51,505 $ 43,843
Adjustments to reconcile net income to
net cash provided by operating activities:
Annuity and interest sensitive life products:
Interest credited to account balances......................... 94,552 102,640 108,705
Charges for mortality and administration...................... (297) (10,582) (13,115)
Increase (decrease) in traditional life policy reserves......... 1,699 (3,101) 10,697
Increase (decrease) in accrued investment income................ (1,706) 2,127 (1,538)
Policy acquisition costs deferred............................... (34,068) (37,999) (36,865)
Policy acquisition costs amortized.............................. 25,447 26,179 25,930
Accrual of discounts on investments............................. (2,708) (2,818) (3,905)
Amortization of premiums on investments......................... 8,452 9,138 11,284
Depreciation and amortization................................... 4,441 3,959 3,748
Other........................................................... 10,144 (8,444) (3,379)
--------------------------------------
Net cash provided by operating activities.......................... 165,543 132,604 145,405
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities available-for-sale............................. 436,773 368,901 870,240
Fixed maturities held-to-maturity............................... 157,729 124,013 58,874
Equity securities available-for-sale............................ 13,293 48,495 3,643
Mortgage loans.................................................. 8,924 3,739 12,545
Real estate..................................................... --- 946 2,935
Separate account assets......................................... --- 9,180 5,214
Other invested assets........................................... 2,929 7,865 26,293
--------------------------------------
619,648 563,139 979,744
Acquisition of investments:
Fixed maturities available-for-sale............................. (878,753) (219,736) (936,376)
Fixed maturities held-to-maturity............................... (1,287) (1,188) (52,422)
Equity securities available-for-sale............................ (42,641) (67,004) (68,222)
Mortgage loans.................................................. (2,054) (1,447) (4,538)
Real estate..................................................... (756) (712) (2,637)
Other invested assets........................................... (7,441) (7,518) (22,782)
--------------------------------------
(932,932) (297,605) (1,086,977)
Purchase of property and equipment................................. (4,617) (4,144) (1,879)
Net increase in policy loans....................................... (2,627) (8,654) (6,370)
Net cash transferred per coinsurance agreement..................... --- (218,043) ---
--------------------------------------
Net cash provided by (used in) investing activities................ (320,528) 34,693 (115,482)
</TABLE>
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Issuance of long-term debt......................................... $ --- $ --- $ 65,000
Repayment of long-term debt........................................ (5,000) --- ---
Annuity and interest sensitive life products:
Deposits credited to account balances........................... 475,522 167,517 202,129
Withdrawals from account balances............................... (318,014) (312,228) (305,530)
--------------------------------------
Net cash provided by (used in) financing activities................ 152,508 (144,711) (38,401)
--------------------------------------
Increase (decrease) in cash........................................ (2,477) 22,586 (8,478)
Cash at beginning of year.......................................... 30,896 8,310 16,788
--------------------------------------
Cash at end of year................................................ $ 28,419 $ 30,896 $ 8,310
======================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest........................................................ $ 5,443 $ 5,307 $ 2,966
======================================
Income taxes.................................................... $ 8,269 $ 27,920 $ 16,213
======================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND ORGANIZATION
The operations of Security Benefit Life Insurance Company (SBL or the
Company) consist primarily of marketing and distributing annuities, mutual
funds, life insurance and related products throughout the United States.
The Company and/or its subsidiaries offer a diversified portfolio of
investment products comprised primarily of individual and group annuities
and mutual fund products through multiple distribution channels. In recent
years, the Company's new business activities increasingly have been
concentrated in the individual flexible premium variable annuity markets.
On July 31, 1998, the Company converted from a mutual life insurance
company to a stock life insurance company under a mutual holding company
structure pursuant to a Plan of Conversion (the Conversion). In connection
with the Conversion, Security Benefit Corp. (SBC), a Kansas domiciled
intermediate stock holding company, and Security Benefit Mutual Holding
Company (SBMHC), a Kansas domiciled mutual holding company, were formed. On
the same date, all of the initial shares of common stock of SBL, except for
shares issued to SBL Directors in accordance with Kansas law, were issued
to SBC. In addition, all of the initially issued shares of common stock of
SBC, consisting of 1,000 shares of Class B common stock, were issued to
SBMHC. As a result of the Conversion, SBMHC indirectly owned, through its
ownership of SBC, all of the issued and outstanding common stock of SBL
(except shares required by law to be held by SBL Directors). In accordance
with Kansas law, SBMHC must at all times hold at least 51% of the voting
stock of SBC.
BASIS OF PRESENTATION
The consolidated financial statements include the operations and accounts
of the Company and its subsidiaries including Security Management Company,
LLC and Security Benefit Group, Inc. (which includes First Security Benefit
Life Insurance and Annuity Company of New York; Security Distributors,
Inc.; Security Benefit Academy, Inc.; and Creative Impressions, Inc.).
Significant intercompany transactions have been eliminated in
consolidation.
ACCOUNTING CHANGE
In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) Statement No. 130, "Reporting Comprehensive Income." Statement No.
130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this Statement had no
impact on the Company's net income or stockholder's equity. Statement No.
130 requires unrealized gains or losses on the Company's available-for-sale
securities, which prior to adoption were reported separately in equity, to
be included in other comprehensive income.
USE OF ESTIMATES
The preparation of consolidated financial statements requires management to
make estimates and assumptions that affect amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
INVESTMENTS
Fixed maturities are classified as either held-to-maturity or
available-for-sale. Fixed maturities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the securities
to maturity. Held-to-maturity securities are stated at amortized cost,
adjusted for amortization of premiums and accrual of discounts. Fixed
maturities not classified as held-to-maturity and equity securities are
classified as available-for-sale. Equity securities are comprised of common
stock, preferred stock and mutual funds.
Securities available-for-sale are reported in the accompanying consolidated
financial statements at fair value. Any valuation changes resulting from
changes in the fair value of these securities are reflected as a component
of accumulated other comprehensive income. These unrealized gains or losses
in accumulated other comprehensive income are reported, net of taxes and
adjustments to deferred policy acquisition costs.
The amortized cost of fixed maturities is adjusted for amortization of
premiums and accrual of discounts. Premiums and discounts are recognized
over the estimated lives of the assets adjusted for prepayment activity.
Distributions from mutual funds are included in investment income. Realized
gains and losses on sales of investments are recognized in revenues on the
specific-identification method.
Mortgage loans are reported at amortized cost. Real estate investments are
carried at the lower of depreciated cost or estimated realizable value.
Policy loans are reported at unpaid principal. Investments accounted for by
the equity method include investments in, and advances to, various joint
ventures and partnerships.
The operations of the Company are subject to risk resulting from interest
rate fluctuations to the extent that there is a difference between the
amount of the Company's interest-earning assets and the amount of
interest-bearing liabilities that are prepaid/withdrawn, mature or reprice
in specified periods. The principal objective of the Company's
asset/liability management activities is to provide maximum levels of net
investment income while maintaining acceptable levels of interest rate and
liquidity risk and while facilitating the funding needs of the Company. The
Company periodically may use derivative financial instruments to modify its
interest rate sensitivity to levels deemed to be appropriate based on the
Company's current economic outlook.
Such derivative financial instruments are for purposes other than trading
and are classified as available-for-sale in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Accordingly, these instruments are stated at fair value with the change in
fair value reported as a component of accumulated other comprehensive
income.
DEFERRED POLICY ACQUISITION COSTS
To the extent recoverable from future policy revenues and gross profits,
commissions and other policy-issue, underwriting and marketing costs that
are primarily related to the acquisition or renewal of life insurance and
deferred annuity business have been deferred.
Traditional life insurance deferred policy acquisition costs are being
amortized in proportion to premium revenues over the premium-paying period
of the related policies using assumptions consistent with those used in
computing policy benefit reserves.
For interest sensitive life and deferred annuity business, deferred policy
acquisition costs are amortized in proportion to the present value
(discounted at the crediting rate) of expected gross profits from
investment, mortality and expense margins. That amortization is adjusted
retrospectively when estimates of current or future gross profits to be
realized from a group of products are revised. Deferred policy acquisition
costs are adjusted for the impact on estimated gross profits of net
unrealized gains and losses on securities.
PROPERTY AND EQUIPMENT
Property and equipment, including home-office real estate, furniture and
fixtures, and data-processing hardware and related systems, are recorded at
cost, less accumulated depreciation. The provision for depreciation of
property and equipment is computed using the straight-line method over the
estimated lives of the related assets.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying
balance sheets represent funds that are separately administered for the
benefit of contractholders who bear the investment risk. The separate
account assets and liabilities are carried at fair value. Revenues and
expenses related to separate account assets and liabilities, to the extent
of benefits paid or provided to the separate account contractholders, are
excluded from the amounts reported in the consolidated statements of
income. Investment income and gains or losses arising from separate
accounts accrue directly to the contractholders and, therefore, are not
included in investment earnings in the accompanying statements of income.
Revenues to the Company from the separate accounts consist principally of
contract maintenance charges, administrative fees, and mortality and
expense risk charges.
POLICY RESERVES AND ANNUITY ACCOUNT VALUES
Liabilities for future policy benefits for traditional life products are
computed using a net level-premium method, including assumptions as to
investment yields, mortality and withdrawals, and other assumptions that
approximate expected experience.
Liabilities for future policy benefits for interest sensitive life and
deferred annuity products represent accumulated contract values without
reduction for potential surrender charges and deferred front-end contract
charges that are amortized over the life of the policy. Interest on
accumulated contract values is credited to contracts as earned. Crediting
rates ranged from 3.4% to 8% during 1998, from 3.8% to 7.25% during 1997
and from 3.5% to 7.25% during 1996.
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and income tax bases of assets and
liabilities and are measured using the enacted tax rates and laws. Deferred
income tax expenses or credits reflected in the Company's statements of
income are based on the changes in deferred tax assets or liabilities from
period to period (excluding unrealized gains and losses on securities
available-for-sale).
RECOGNITION OF REVENUES
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these traditional products
are recognized as revenues when due. Revenues from interest sensitive life
insurance products and deferred annuities consist of policy charges for the
cost of insurance, policy administration charges and surrender charges
assessed against contractholder account balances during the period.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash: The carrying amounts reported in the balance sheet for these
instruments approximate their fair values.
Investment securities: Fair values for fixed maturities are based on quoted
market prices if available. For fixed maturities not actively traded, fair
values are estimated using values obtained from independent pricing
services or estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality and maturity of
the investments. The fair values for equity securities are based on quoted
market prices.
Mortgage loans and policy loans: Fair values for mortgage loans and policy
loans are estimated using discounted cash flow analyses based on market
interest rates for similar loans to borrowers with similar credit ratings.
Loans with similar characteristics are aggregated for purposes of the
calculations. The carrying amounts reported in the consolidated balance
sheets approximate their fair values.
Investment-type contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using the assumption
reinsurance method, whereby the amount of statutory profit the assuming
company would realize from the business is calculated. Those amounts are
then discounted at a rate of return commensurate with the rate presently
offered by the Company on similar contracts.
Long-term debt: Fair values for long-term debt are estimated using
discounted cash flow analyses based on current borrowing rates for similar
types of borrowing arrangements.
2. INVESTMENTS
Information as to the amortized cost, gross unrealized gains and losses,
and fair values of the Company's portfolio of fixed maturities and equity
securities at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............. $ 204,414 $ 5,254 $ 8 $ 209,660
Obligations of states and political
subdivisions.......................... 27,583 2,310 --- 29,893
Corporate securities.................... 1,053,782 33,400 10,716 1,076,466
Mortgage-backed securities.............. 628,020 12,530 2,550 638,000
Asset-backed securities................. 166,144 2,113 1,907 166,350
-------------------------------------------------
Totals.................................. $2,079,943 $55,607 $15,181 $2,120,369
=================================================
Equity securities....................... $ 140,999 $18,271 $ 979 $ 158,291
=================================================
HELD-TO-MATURITY
Obligations of states and political
subdivisions.......................... $ 61,473 $ 3,196 $ --- $ 64,669
Corporate securities.................... 93,413 7,718 360 100,771
Mortgage-backed securities.............. 96,987 1,640 --- 98,627
Asset-backed securities................. 12,410 289 --- 12,699
-------------------------------------------------
Totals.................................. $ 264,283 $12,843 $ 360 $ 276,766
=================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............ $ 214,088 $ 3,313 $ --- $ 217,401
Obligations of states and political
subdivisions......................... 24,008 1,365 8 25,365
Corporate securities.................... 742,123 27,986 1,674 768,435
Mortgage-backed securities.............. 510,991 11,429 2,137 520,283
Asset-backed securities................. 117,907 1,030 97 118,840
----------------------------------------------------
Totals.................................. $1,609,117 $45,123 $3,916 $1,650,324
====================================================
Equity securities....................... $ 109,763 $11,220 $ 475 $ 120,508
====================================================
HELD-TO-MATURITY
Obligations of states and political
subdivisions......................... $ 74,802 $ 2,094 $ 30 $ 76,866
Corporate securities.................... 108,609 5,295 201 113,703
Mortgage-backed securities.............. 227,131 2,725 364 229,492
Asset-backed securities................. 41,869 297 1 42,165
----------------------------------------------------
Totals.................................. $ 452,411 $10,411 $ 596 $ 462,226
====================================================
</TABLE>
The prior-year financial statements have been reclassified to conform to
the requirements of FASB Statement No. 130. After making these balance
sheet reclassifications, the following amounts were included in accumulated
other comprehensive income for the years ended December 31, 1998, 1997 and
1996:
1998 1997 1996
-------------------------------
Unrealized holding gains (losses)
arising during the year................ $10,523 $ 60,638 $(37,942)
Less: Realized gains (losses) included
in net income.......................... 4,757 4,929 (244)
-------------------------------
Other comprehensive income (loss),
before deferred taxes and the unlocking
of deferred policy acquisition costs... 5,766 55,709 (37,698)
Deferred income taxes.................... (2,033) (13,913) 6,203
Unlocking of deferred policy acquisition
costs.................................. 918 (15,868) 19,409
-------------------------------
Other comprehensive income (loss), net... $ 4,651 $ 25,928 $(12,086)
===============================
The amortized cost and fair value of fixed maturities at December 31, 1998,
by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less................. $ 48,041 $ 48,326 $ 1,508 $ 1,528
Due after one year through five years... 176,414 180,716 8,485 8,977
Due after five years through 10 years... 567,478 579,461 36,368 38,562
Due after 10 years...................... 493,846 507,516 108,525 116,373
Mortgage-backed securities.............. 628,020 638,000 96,987 98,627
Asset-backed securities................. 166,144 166,350 12,410 12,699
------------------------------------------------
$2,079,943 $2,120,369 $264,283 $276,766
================================================
</TABLE>
The composition of the Company's portfolio of fixed maturities by quality
rating at December 31, 1998 is as follows:
CARRYING
QUALITY RATING AMOUNT %
-------------------------------------------------------------------
(IN THOUSANDS)
AAA.................................... $1,055,819 44.3%
AA..................................... 215,520 9.0
A...................................... 469,855 19.7
BBB.................................... 422,600 17.7
Noninvestment grade.................... 220,858 9.3
=======================
$2,384,652 100.0%
=======================
Major categories of net investment income for the years ended December 31,
1998, 1997 and 1996 are summarized as follows:
1998 1997 1996
-------------------------------
(IN THOUSANDS)
Interest on fixed maturities............ $154,529 $167,646 $174,592
Dividends and distributions on
equity securities .................... 10,945 7,358 5,817
Interest on mortgage loans ............. 5,388 6,017 6,680
Interest on policy loans................ 5,381 6,282 6,372
Interest on short-term investments...... 2,377 2,221 1,487
Other................................... 865 (166) 4,199
-------------------------------
Total investment income................. 179,485 189,358 199,147
Less investment expenses................ 5,437 4,383 4,364
-------------------------------
Net investment income................... $174,048 $184,975 $194,783
===============================
Proceeds from sales of fixed maturities and equity securities and related
realized gains and losses, including valuation adjustments, for the years
ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996
----------------------------------
(IN THOUSANDS)
Proceeds from sales................... $196,849 $333,498 $393,189
Gross realized gains.................. 9,801 11,889 9,407
Gross realized losses................. 4,939 6,640 9,723
Net realized gains (losses), net of associated amortization of deferred
policy acquisition costs, for the years ended December 31, 1998, 1997 and
1996 consist of the following:
1998 1997 1996
--------------------------------
(IN THOUSANDS)
Fixed maturities........................ $2,976 $ 861 $(1,329)
Equity securities....................... 1,886 4,388 1,013
Other................................... (105) (320) 72
--------------------------------
4,757 4,929 (244)
Amortization of deferred policy
acquisition costs..................... (496) --- ---
--------------------------------
Net realized gains (losses)............. $4,261 $4,929 $ (244)
================================
There were no deferred losses at December 31, 1998 or 1997 resulting from
terminated and expired futures contracts. There were no outstanding
agreements to sell securities at December 31, 1998, 1997 or 1996. The
notional amount of interest rate exchange agreements outstanding at
December 31, 1998 was $88,450,000. These agreements have maturities ranging
from September 2002 to December 2005. Under these agreements, the Company
receives variable interest rates based on the three-month LIBOR rate and
pays fixed interest rates ranging from 5.54% to 7.5%.
The Company has a diversified portfolio of commercial and residential
mortgage loans outstanding in 14 states. The loans are somewhat
geographically concentrated in the midwestern and southwestern United
States with the largest outstanding balances at December 31, 1998 being in
the states of Kansas (31%), Iowa (16%) and Texas (14%).
3. EMPLOYEE BENEFIT PLANS
Substantially all Company employees are covered by a qualified,
noncontributory defined benefit pension plan sponsored by the Company and
certain of its affiliates. Benefits are based on years of service and an
employee's highest average compensation over a period of five consecutive
years during the last 10 years of service. The Company's policy has been to
contribute funds to the plan in amounts required to maintain sufficient
plan assets to provide for accrued benefits. In applying this general
policy, the Company considers, among other factors, the recommendations of
its independent consulting actuaries, the requirements of federal pension
law and the limitations on deductibility imposed by federal income tax law.
Plan assets are invested in public mutual funds with varying investment
objectives which are managed by an affiliated entity. Unrealized gains on
plan assets were $669,000 and $628,000 at December 31, 1998 and 1997,
respectively.
In addition to the Company's defined benefit pension plan, the Company
provides certain medical and life insurance benefits to full-time employees
who have retired after the age of 55 with five years of service. The plan
is contributory, with retiree contributions adjusted annually, and contains
other cost-sharing features such as deductibles and coinsurance.
Contributions vary based on the employee's years of service earned after
age 40. The Company's portion of the costs is frozen after 2002 with all
future cost increases passed on to the retirees. Retirees in the plan prior
to July 1, 1993 are covered 100% by the Company.
The following table sets forth the plans' funded status and amounts
recognized in the financial statements at December 31 and for the years
then ended:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------------------------------
1998 1997 1998 1997
-------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation at year end.......... $(13,306) $(12,487) $(4,962) $(4,361)
Fair value of plan assets at year end... 11,363 11,279 --- ---
-------------------------------------------
Funded status of the plan............... $ (1,943) $ (1,208) $(4,962) $(4,361)
===========================================
Accrued benefit cost recognized in the
consolidated balance sheets........... $ (253) $ (404) $(5,323) $(5,053)
Net periodic benefit cost............... 719 1,999 474 786
Benefits paid........................... 2,475 1,563 197 170
Contributions........................... 870 865 --- ---
</TABLE>
PENSION BENEFITS OTHER BENEFITS
------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS 1998 1997 1998 1997
------------------------------------
Discount rate....................... 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets...... 9.00% 9.00% --- ---
Rate of compensation increase....... 4.50% 4.50% --- ---
The annual assumed rate of increase in the per capita cost of covered
benefits is 8% for 1998 and 9% for 1997, and is assumed to decrease
gradually to 5% for 2001 and remain at that level thereafter.
The health care cost trend rate has a significant effect on the amount
reported. For example, increasing the assumed health care cost trend rates
by one percentage point each year would increase the accumulated
postretirement benefit obligation as of December 31, 1998 by $228,000 and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1998 by $68,000.
The Company has a profit-sharing and savings plan for which substantially
all employees are eligible after one year of employment with the Company.
Company contributions to the profit-sharing and savings plan charged to
operations were $2,176,000, $2,065,000 and $1,783,000 for 1998, 1997 and
1996, respectively.
4. REINSURANCE
The Company assumes and cedes reinsurance with other companies to provide
for greater diversification of business, to allow management to control
exposure to potential losses arising from large risks, and to provide
additional capacity for growth. Life insurance in force ceded at December
31, 1998 and 1997 was $7.0 billion and $7.4 billion, respectively.
Principal reinsurance transactions for the years ended December 31, 1998,
1997 and 1996 are summarized as follows:
1998 1997 1996
-------------------------------
(IN THOUSANDS)
Reinsurance ceded:
Premiums paid.......................... $46,391 $33,872 $25,442
===============================
Commissions received................... $ 5,647 $ 5,173 $ 4,669
-------------------------------
Claim recoveries....................... $20,166 $12,136 $ 5,235
===============================
In the accompanying financial statements, premiums, benefits, settlement
expenses and deferred policy acquisition costs are reported net of
reinsurance ceded; policy liabilities and accruals are reported gross of
reinsurance ceded. The Company remains liable to policyholders if the
reinsurers are unable to meet their contractual obligations under the
applicable reinsurance agreements. To minimize its exposure to significant
losses from reinsurance insolvencies, the Company evaluates the financial
condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities or economic
characteristics of reinsurers. At December 31, 1998 and 1997, the Company
had established receivables totaling $407,891,000 and $397,519,000,
respectively, for reserve credits, reinsurance claims and other receivables
from its reinsurers. Substantially all of these receivables are
collateralized by assets of the reinsurers held in trust. The amount of
reinsurance assumed is not significant.
In 1997, the Company transferred, through a 100% coinsurance agreement,
$318 million in policy reserves and claim liabilities reduced by a ceding
commission of $63 million and other related items. The agreement related to
a block of universal life and traditional life insurance business. The
Company recorded a pretax gain of $14.625 million which is deferred in
other liabilities and amortized to income over the estimated life of the
business transferred, estimated to be 15 years. Amortization of this
deferred gain during 1998 amounted to $1,358,000.
5. INCOME TAXES
The Company files a life/nonlife consolidated federal income tax return
with SBMHC. The provision for income taxes includes current federal income
tax expense or benefit and deferred income tax expense or benefit due to
temporary differences between the financial reporting and income tax bases
of assets and liabilities. Such differences relate principally to
liabilities for future policy benefits and accumulated contract values,
deferred compensation, deferred policy acquisition costs, postretirement
benefits, deferred selling commissions, depreciation expense and unrealized
gains (losses) on securities available-for-sale.
Income tax expense (benefit) consists of the following for the years ended
December 31, 1998, 1997 and 1996:
1998 1997 1996
--------------------------------
(IN THOUSANDS)
Current................................. $21,931 $32,194 $12,528
Deferred................................ 430 (10,627) 8,343
--------------------------------
$22,361 $21,567 $20,871
================================
The provision for income taxes differs from the amount computed at the
statutory federal income tax rate due primarily to dividends-received
deductions and tax credits.
Net deferred tax assets or liabilities consist of the following:
DECEMBER 31
1998 1997
-------------------
(IN THOUSANDS)
Deferred tax assets:
Future policy benefits............................ $ 5,432 $ 9,869
Employee benefits................................. 8,110 6,487
Deferred gain on coinsurance agreement............ 4,475 4,970
Other............................................. 11,147 8,747
-------------------
Total deferred tax assets............................ 29,164 30,073
Deferred tax liabilities:
Deferred policy acquisition costs................. $55,540 $53,173
Net unrealized appreciation on securities
available-for-sale.............................. 20,034 18,115
Deferred gain on investments...................... 7,772 8,378
Depreciation...................................... 1,499 1,935
Other............................................. 5,043 6,733
-------------------
Total deferred tax liabilities....................... 89,888 88,334
-------------------
Net deferred tax liabilities......................... $60,724 $58,261
===================
6. CONDENSED FAIR VALUE INFORMATION
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosures of fair value information about financial instruments,
whether recognized or not recognized in a company's balance sheet, for
which it is practicable to estimate that value. The methods and assumptions
used by the Company to estimate the following fair value disclosures for
financial instruments are set forth in NOTE 1.
SFAS No. 107 excludes certain insurance liabilities and other nonfinancial
instruments from its disclosure requirements. However, the liabilities
under all insurance contracts are taken into consideration in the Company's
overall management of interest rate risk that minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts. The fair value amounts presented
herein do not include an amount for the value associated with customer or
agent relationships, the expected interest margin (interest earnings in
excess of interest credited) to be earned in the future on investment-type
products or other intangible items. Accordingly, the aggregate fair value
amounts presented herein do not necessarily represent the underlying value
of the Company; likewise, care should be exercised in deriving conclusions
about the Company's business or financial condition based on the fair value
information presented herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Supplementary contracts
without life contingencies............ $ 27,105 $ 27,353 $ 29,890 $ 30,189
Individual and group annuities.......... 2,147,665 2,005,939 1,894,605 1,713,509
Long-term debt.......................... 60,000 69,909 65,000 71,793
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases various equipment under several operating lease
agreements. Total expense for all operating leases amounted to $1,155,000,
$1,018,000 and $1,108,000 during 1998, 1997 and 1996, respectively. The
Company has aggregate future lease commitments at December 31, 1998 of
$4,406,000 for noncancelable operating leases consisting of $1,272,000 in
1999, $1,231,000 in 2000, $1,082,000 in 2001 and $821,000 in 2002. There
are no noncancelable lease commitments beyond 2002.
In addition, in 2001, under the terms of one of the operating leases, the
Company has the option to renew the lease for another five years, purchase
the asset for approximately $4.7 million, or return the asset to the lessor
and pay a termination charge of approximately $3.7 million.
In connection with its investments in low-income housing partnerships, the
Company is committed to invest additional capital of $9,190,000 in 1999.
Guaranty fund assessments are levied on the Company by life and health
guaranty associations in most states in which it is licensed to cover
losses of policyholders of insolvent or rehabilitated insurers. In some
states, these assessments can be partially recovered through a reduction in
future premium taxes. The Company cannot predict whether and to what extent
legislative initiatives may affect the right to offset. Based on
information from the National Organization of Life and Health Guaranty
Association and information from the various state guaranty associations,
the Company believes that it is probable that these insolvencies will
result in future assessments. The Company regularly evaluates its reserve
for these insolvencies and updates its reserve based on the Company's
interpretation of information recently received. The associated costs for a
particular insurance company can vary significantly based on its premium
volume by line of business in a particular state and its potential for
premium tax offset. The Company accrued no additional reserves for these
insolvencies in 1998. At December 31, 1998, the Company has reserved
$2,142,000 to cover current and estimated future assessments, net of
related premium tax credits.
8. LONG-TERM DEBT AND OTHER BORROWINGS
The Company has a $61.5 million line-of-credit facility from the Federal
Home Loan Bank of Topeka. Any borrowings in connection with this facility
bear interest at 0.1% over the Federal Funds rate. No amounts were
outstanding at December 31, 1998 and 1997.
The Company has two separate $5 million advances from the Federal Home Loan
Bank of Topeka. The advances are due February 26, 1999 and February 28,
2001 and carry interest rates of 5.76% and 6.04%, respectively.
In May 1996, the Company issued $50 million of 8.75% surplus notes maturing
on May 15, 2016. The surplus notes were issued pursuant to Rule 144A under
the Securities Act of 1933. The surplus notes have repayment conditions and
restrictions whereby each payment of interest on or principal of the
surplus notes may be made only with the prior approval of the Kansas
Insurance Commissioner and only out of surplus funds that the Kansas
Insurance Commissioner determines to be available for such payment under
the Kansas Insurance Code.
9. RELATED-PARTY TRANSACTIONS
The Company owns shares of mutual funds managed by Security Management
Company, LLC with net asset values totaling $108,285,000 and $85,950,000 at
December 31, 1998 and 1997, respectively. These amounts are included in
equity securities on the consolidated balance sheets.
10. STATUTORY INFORMATION
The Company and its insurance subsidiary prepare statutory-basis financial
statements in accordance with accounting practices prescribed or permitted
by the Kansas and New York Insurance regulatory authorities, respectively.
Accounting practices used to prepare statutory-basis financial statements
for regulatory filings of life insurance companies differ in certain
instances from generally accepted accounting principles (GAAP). Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as state
laws, regulations and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed;
such practices may differ from state to state, may differ from company to
company within a state and may change in the future. In addition, in March
1998, the NAIC adopted the codification of Statutory Accounting Principles
(the Codification). Once implemented, the definitions of what comprises
prescribed versus permitted statutory accounting practices may result in
changes to accounting policies that insurance enterprises use to prepare
their statutory financial statements. The implementation date is ultimately
dependent on an insurer's state of domicile. The Company does not expect a
material impact on its statutory financial statements resulting from the
implementation of codification. Statutory capital and surplus of the
insurance operations are $427,350,000 and $382,005,000 at December 31, 1998
and 1997, respectively. Statutory net income of the insurance operations
are $50,371,000, $42,950,000 and $37,946,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
11. IMPACT OF YEAR 2000 (UNAUDITED)
Over the past few years, the Company has been assessing the potential
impact of the year 2000 on its systems, procedures, customers and business
processes. The year 2000 assessment provided information used to determine
what system components needed to be changed or replaced to minimize the
impact of the calendar change from 1999 to 2000.
The Company will continue to use internal and external resources to modify,
replace and test the year 2000 changes. All identified modifications to
critical operating systems have been completed as of December 31, 1998, and
the Company continues to validate completed systems to ensure ongoing
compliance. Management estimates 100% of the identified modifications to
other less-important operating systems will be completed by June 30, 1999.
In any event, all identified modifications are expected to be completed
prior to any anticipated impact on Company operations. Total costs of the
modifications have been immaterial to the Company's operations and have
been expensed as incurred.
The Company does face the risk that one or more of its critical suppliers
or customers (external relationships) will not be able to interact with the
Company due to the third party's inability to resolve its own year 2000
issues. The Company completed an inventory of external relationships, is
engaged in discussions with such third parties and is requesting
information as to those parties' year 2000 plans and states of readiness.
The Company, however, is unable to predict with certainty to what extent
its external relationships will be year 2000 ready. However, third-party
vendors of the Company's primary administrative systems have represented to
the Company that the systems are or will be year 2000 ready.
While the Company believes that it has addressed its year 2000 concerns,
the Company has begun to strengthen its contingency/recovery plans aimed at
ensuring the continuity of critical business functions before, on and after
December 31, 1999. The Company expects contingency/recovery planning to be
substantially complete by July 1, 1999. The year 2000 contingency plans
will be reviewed periodically throughout 1999 and revised as needed. The
Company believes its year 2000 contingency plans, coupled with existing
disaster recovery and business resumption plans, minimize the impact year
2000 issues may have on its business and customers.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX
DEATH BENEFIT PERCENTAGES
<S> <C> <C> <C> <C> <C> <C> <C>
AGE PERCENTAGE AGE PERCENTAGE AGE PERCENTAGE AGE PERCENTAGE
0-40 250% 50 185% 60 130% 70 115%
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
</TABLE>
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET, TOPEKA, KANSAS 66636
SECURITY ELITE BENEFIT
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
IMPORTANT INFORMATION ABOUT THIS ILLUSTRATION
Security Elite Benefit is a flexible premium variable life insurance policy
offered by Security Benefit. Under the policy, net premiums and Accumulated
Value may be allocated among eleven underlying investment accounts ("Variable
Accounts") and the Fixed Account of Security Benefit.
THE PURPOSE OF THIS ILLUSTRATION IS TO SHOW HOW THE PERFORMANCE OF THE
VARIABLE ACCOUNTS COULD AFFECT THE DEATH BENEFITS, ACCUMULATED VALUES AND NET
CASH SURRENDER VALUES OF A HYPOTHETICAL POLICY OVER AN EXTENDED PERIOD OF TIME
ASSUMING HYPOTHETICAL RATES OF RETURN EQUIVALENT TO CONSTANT GROSS ANNUAL RATES
OF 0%, 6% AND 12% (AFTER ANY DEDUCTION FOR EXPENSES AND CHARGES SHOWN BELOW).
The rates of return shown on these tables are hypothetical and should not be
deemed a representation of past rates of return, or a projection or prediction
of future rates of return. Actual rates of return may be more or less than those
shown and will depend on a number of factors, including the premium allocation
chosen by the Policyowner. The policies illustrated include the following:
1. Male, age 40, Preferred Rating Class (based on tobacco use), Option A,
$10,000 annual premium, Current Cost of Insurance Rates and Current
Mortality and Expense Risk and Administrative Charges (page 59).
2. Male, age 40, Preferred Rating Class (based on tobacco use), Option A,
$10,000 annual premium, Guaranteed Cost of Insurance Rates and Guaranteed
Mortality and Expense Risk and Administrative Charges (page 60).
3. Male, age 40, Preferred Rating Class (based on tobacco use), Option B,
$25,000 annual premium, Current Cost of Insurance Rates and Current
Mortality and Expense Risk and Administrative Charges (page 61).
4. Male, age 40, Preferred Rating Class (based on tobacco use), Option B,
$25,000 annual premium, Guaranteed Cost of Insurance Rates and Guaranteed
Mortality and Expense Risk and Administrative Charges (page 62).
The values would be different from those shown if the gross annual investment
rates of return averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below those averages for individual policy years.
The fourth column of each table, labeled "Total Premiums Paid Plus Interest
at 5%," shows the amount that would accumulate if an amount equal to the annual
premium (after taxes) were invested to earn interest at 5% compounded annually.
These illustrations assume that no policy loans have been made. No
representation can be made by Security Benefit that the assumed rates of return
can be achieved for any one year or sustained over any period of time. These
illustrations assume that all premiums are paid when due and that no policy
loans have been made. A POLICY MAY LAPSE DUE TO INSUFFICIENT PREMIUMS, EXCESSIVE
LOANS OR WITHDRAWALS, OR POOR FUND PERFORMANCE.
The amounts shown for the Death Benefits and Net Cash Surrender Values
reflect the fact that the net investment return on the Variable Accounts is
lower than the gross investment return on the assets as a result of charges
levied against the Accounts, including "Current" or "Guaranteed" daily mortality
and expense risk charges. (The "Current" mortality and expense charge is equal
to an annual rate of .90% of the average daily net assets of each Account in the
first ten Policy Years and .70% thereafter, and the "Guaranteed" rate is .90%
for all Policy Years. The "Current" administrative charge is equal to an annual
rate of .35% in the first ten Policy Years and .25% thereafter, and the
"Guaranteed" rate is .35% in all Policy Years.) These values also take into
account the following: (i) a premium load of 2.5%, although the premium load may
be more or less than this amount depending on the state in which the policy is
issued; and, (ii) a "Current" or "Guaranteed" monthly charge for cost of
insurance. (The illustrations based on "CURRENT COST OF INSURANCE RATE AND
CURRENT MORTALITY AND EXPENSE RISK AND ADMINISTRATIVE CHARGES" assume that the
charges currently assessed by Security Benefit are charged throughout the life
of the policy. The illustrations based on "GUARANTEED COST OF INSURANCE RATES
AND GUARANTEED MORTALITY AND EXPENSE RISK AND ADMINISTRATIVE CHARGES" assume
that the maximum monthly charges permitted under the policy are assessed
throughout the life of the policy). In addition, the values reflect other
charges that are paid by the underlying Fund in which the Variable Accounts
invest, including investment advisory fees, which are indirectly borne by the
Variable Accounts. The expenses of the Fund are not fixed or specified under the
terms of the policy and are described in the Fund Prospectus. The expenses of
the Fund are assumed to be equal to an annual rate of 1.01% of the aggregate
average daily net assets of the Fund. The amounts shown would differ if unisex
rates were used or if the insured were female and female rates were used. The
amounts would also differ if the insured were a tobacco user and standard rates
were used.
The total Fund expense of 1.01% is an estimated average expense of the
expenses associated with the Series available under the Policy. For the year
ended December 31, 1998, the total expenses of each Series of the Fund were the
following percentages of the average daily net assets of the Series: 0.81% for
Series A, 0.80% for Series B; 0.57% for Series C; 1.26% for Series D; 0.83% for
Series E; 0.82% for Series J; 1.66% for Series K; 1.24% for Series M; 1.22% for
Series N; 1.08% for Series O; and 0.82% for Series S. The estimated Fund expense
of 1.01% may be more or less than the Fund expenses incurred depending on the
actual expenses of the Series underlying the Variable Account(s) to which
Accumulated Value is allocated.
After deduction of the charges and Fund expenses described above, the
illustrated gross annual investment rates of return of 0%, 6%, and 12%
correspond to approximate net annual rates of -2.25%, 3.62%, and 9.48% in the
tables based on guaranteed charges. In the tables based on current charges, the
illustrated gross annual investment rates of return of 0%, 6% and 12% correspond
to approximate net annual rates of -2.25%, 3.62%, and 9.48% in the first ten
Policy Years and -1.95%, 3.93% and 9.82% thereafter. The hypothetical values
shown in the tables do not reflect any charges against the Variable Accounts for
income taxes that may be attributable to the Variable Accounts in the future,
since Security Benefit is not currently making these charges. In the event that
these charges are to be made, the gross annual investment rate would have to
exceed 0%, 6% or 12% by an amount sufficient to cover the tax charges in order
to produce the death benefits and Net Cash Surrender Values illustrated.
This illustration reflects Security Benefit's current interpretation of
Internal Revenue Code Section 7702 and 7702A and may not reflect a Policyowner's
actual tax consequences. Based upon comparison of annual premium and future
benefits under our current interpretation, this policy will not be subject to
tax treatment as a modified endowment contract if the premiums as illustrated
are paid when scheduled. The tests were done based on the values under the
illustration bases. Tests done under other bases may produce different results.
It is suggested that a Policyowner consult his or her professional tax advisor
regarding the interpretation of the current and proposed tax laws. Additional
information about the policy, including a description of death benefits,
transfers, partial withdrawal benefits, and policy loans, is contained under
"Summary of the Policy" and "The Policy" in this Prospectus.
We will furnish upon request a comparable illustration reflecting the
proposed Insured's Age, gender (unless unisex rates apply), Underwriting Class,
Rating Class, Specified Amount, Death Benefit Option and premium amounts
requested. In addition, upon request, illustrations will be furnished reflecting
allocation of premiums to specified Variable Accounts. Such illustrations will
reflect the expenses of the Series of the Fund in which the Variable Account
invests.
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636
SECURITY ELITE BENEFIT
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male, Age 40, Preferred
Initial Specified Amount: $750,000, Option A
Initial Annual Premium: $10,000
BASED ON CURRENT COST OF INSURANCE RATES AND CURRENT MORTALITY
AND EXPENSE RISK AND ADMINISTRATIVE CHARGES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROSS
TOTAL ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PREMIUMS ----------------------------------------------------------------------------------------
END OF INTEREST NET CASH NET CASH NET CASH
POLICY ANNUAL INTEREST SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AGE PREMIUMS AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $10,000 $10,500 $9,006 $750,000 $9,561 $750,000 $10,117 $750,000
2 42 $10,000 $21,525 $16,691 $750,000 $18,316 $750,000 $20,007 $750,000
3 43 $10,000 $33,101 $24,220 $750,000 $27,408 $750,000 $30,861 $750,000
4 44 $10,000 $45,256 $31,597 $750,000 $36,851 $750,000 $42,771 $750,000
5 45 $10,000 $58,019 $38,825 $750,000 $46,658 $750,000 $55,840 $750,000
6 46 $10,000 $71,420 $45,906 $750,000 $56,842 $750,000 $70,181 $750,000
7 47 $10,000 $85,491 $52,844 $750,000 $67,419 $750,000 $85,918 $750,000
8 48 $10,000 $100,266 $59,642 $750,000 $78,404 $750,000 $103,187 $750,000
9 49 $10,000 $115,779 $66,302 $750,000 $89,812 $750,000 $122,136 $750,000
10 50 $10,000 $132,068 $72,827 $750,000 $101,660 $750,000 $142,930 $750,000
11 51 $10,000 $149,171 $79,463 $750,000 $114,314 $750,000 $166,253 $750,000
12 52 $10,000 $167,130 $85,985 $750,000 $127,494 $750,000 $191,924 $750,000
13 53 $10,000 $185,986 $92,394 $750,000 $141,225 $750,000 $220,179 $750,000
14 54 $10,000 $205,786 $98,692 $750,000 $155,528 $750,000 $251,279 $750,000
15 55 $10,000 $226,575 $104,881 $750,000 $170,427 $750,000 $285,509 $750,000
16 56 $10,000 $248,404 $110,964 $750,000 $185,948 $750,000 $323,185 $750,000
17 57 $10,000 $271,324 $116,942 $750,000 $202,116 $750,000 $364,653 $750,000
18 58 $10,000 $295,390 $122,816 $750,000 $218,958 $750,000 $410,295 $750,000
19 59 $10,000 $320,660 $128,589 $750,000 $236,502 $750,000 $460,532 $750,000
20 60 $10,000 $347,193 $134,262 $750,000 $254,778 $750,000 $515,826 $750,000
25 65 $10,000 $501,135 $160,288 $750,000 $357,561 $750,000 $885,929 $1,080,833
30 70 $10,000 $697,609 $179,998 $750,000 $481,141 $750,000 $1,474,669 $1,710,616
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All Premiums illustrated are assumed to be paid at the beginning of the Policy
Year.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636
SECURITY ELITE BENEFIT
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male, Age 40, Preferred
Initial Specified Amount: $750,000, Option A
Initial Annual Premium: $10,000
BASED ON GUARANTEED COST OF INSURANCE RATES AND GUARANTEED MORTALITY
AND EXPENSE RISK AND ADMINISTRATIVE CHARGES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROSS
TOTAL ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PREMIUMS ----------------------------------------------------------------------------------------
END OF INTEREST NET CASH NET CASH NET CASH
POLICY ANNUAL INTEREST SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AGE PREMIUMS AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $10,000 $10,500 $7,795 $750,000 $8,311 $750,000 $8,829 $750,000
2 42 $10,000 $21,525 $15,302 $750,000 $16,810 $750,000 $18,380 $750,000
3 43 $10,000 $33,101 $22,523 $750,000 $25,498 $750,000 $28,720 $750,000
4 44 $10,000 $45,256 $29,452 $750,000 $34,372 $750,000 $39,914 $750,000
5 45 $10,000 $58,019 $36,085 $750,000 $43,429 $750,000 $52,038 $750,000
6 46 $10,000 $71,420 $42,408 $750,000 $52,660 $750,000 $65,167 $750,000
7 47 $10,000 $85,491 $48,418 $750,000 $62,062 $750,000 $79,394 $750,000
8 48 $10,000 $100,266 $54,109 $750,000 $71,634 $750,000 $94,821 $750,000
9 49 $10,000 $115,779 $59,471 $750,000 $81,368 $750,000 $111,556 $750,000
10 50 $10,000 $132,068 $64,493 $750,000 $91,256 $750,000 $129,722 $750,000
11 51 $10,000 $149,171 $69,150 $750,000 $101,279 $750,000 $149,445 $750,000
12 52 $10,000 $167,130 $73,414 $750,000 $111,413 $750,000 $170,860 $750,000
13 53 $10,000 $185,986 $77,249 $750,000 $121,626 $750,000 $194,118 $750,000
14 54 $10,000 $205,786 $80,613 $750,000 $131,884 $750,000 $219,388 $750,000
15 55 $10,000 $226,575 $83,473 $750,000 $142,158 $750,000 $246,871 $750,000
16 56 $10,000 $248,404 $85,787 $750,000 $152,414 $750,000 $276,793 $750,000
17 57 $10,000 $271,324 $87,522 $750,000 $162,626 $750,000 $309,424 $750,000
18 58 $10,000 $295,390 $88,655 $750,000 $172,779 $750,000 $345,083 $750,000
19 59 $10,000 $320,660 $89,132 $750,000 $182,832 $750,000 $384,116 $750,000
20 60 $10,000 $347,193 $88,884 $750,000 $192,732 $750,000 $426,923 $750,000
25 65 $10,000 $501,135 $73,363 $750,000 $237,438 $750,000 $715,007 $872,309
30 70 $10,000 $697,609 $20,979 $750,000 $265,100 $750,000 $1,161,118 $1,346,897
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All Premiums illustrated are assumed to be paid at the beginning of the Policy
Year.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636
SECURITY ELITE BENEFIT
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male, Age 40, Preferred
Initial Specified Amount: $750,000, Option B
Initial Annual Premium: $25,000
BASED ON CURRENT COST OF INSURANCE RATES AND CURRENT MORTALITY
AND EXPENSE RISK AND ADMINISTRATIVE CHARGES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROSS
TOTAL ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PREMIUMS ----------------------------------------------------------------------------------------
END OF INTEREST NET CASH NET CASH NET CASH
POLICY ANNUAL INTEREST SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AGE PREMIUMS AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $25,000 $26,250 $23,296 $773,296 $24,708 $774,708 $26,121 $776,121
2 42 $25,000 $53,813 $44,916 $794,916 $49,122 $799,122 $53,494 $803,494
3 43 $25,000 $82,753 $66,051 $816,051 $74,418 $824,419 $83,463 $833,463
4 44 $25,000 $113,141 $86,711 $836,711 $100,631 $850,631 $116,275 $866,275
5 45 $25,000 $145,048 $106,906 $856,906 $127,791 $877,791 $152,198 $902,198
6 46 $25,000 $178,550 $126,648 $876,648 $155,935 $905,935 $191,528 $941,528
7 47 $25,000 $213,728 $145,947 $895,947 $185,097 $935,097 $234,588 $984,588
8 48 $25,000 $250,664 $164,811 $914,812 $215,314 $965,314 $281,731 $1,031,731
9 49 $25,000 $289,447 $183,253 $933,253 $246,625 $996,625 $333,346 $1,083,346
10 50 $25,000 $330,170 $201,279 $951,279 $279,068 $1,029,068 $389,855 $1,139,856
11 51 $25,000 $372,928 $219,568 $969,568 $313,638 $1,063,638 $453,099 $1,203,099
12 52 $25,000 $417,825 $237,501 $987,501 $349,568 $1,099,568 $522,551 $1,272,551
13 53 $25,000 $464,966 $255,084 $1,005,084 $386,911 $1,136,911 $598,820 $1,348,820
14 54 $25,000 $514,464 $272,324 $1,022,324 $425,722 $1,175,722 $682,577 $1,432,577
15 55 $25,000 $566,437 $289,228 $1,039,228 $466,061 $1,216,061 $774,555 $1,524,555
16 56 $25,000 $621,009 $305,802 $1,055,802 $507,986 $1,257,986 $875,562 $1,625,562
17 57 $25,000 $678,310 $322,053 $1,072,053 $551,560 $1,301,560 $986,485 $1,736,485
18 58 $25,000 $738,475 $337,988 $1,087,988 $596,848 $1,346,848 $1,108,296 $1,858,296
19 59 $25,000 $801,649 $353,612 $1,103,612 $643,917 $1,393,917 $1,242,064 $1,992,064
20 60 $25,000 $867,981 $368,931 $1,118,931 $692,838 $1,442,838 $1,388,964 $2,138,964
25 65 $25,000 $1,257,836 $440,017 $1,190,017 $966,635 $1,716,635 $2,368,930 $3,118,930
30 70 $25,000 $1,750,401 $499,000 $1,249,000 $1,292,489 $2,042,489 $3,927,041 $4,677,041
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All Premiums illustrated are assumed to be paid at the beginning of the Policy
Year.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636
SECURITY ELITE BENEFIT
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male, Age 40, Preferred
Initial Specified Amount: $750,000, Option B
Initial Annual Premium: $25,000
BASED ON GUARANTEED COST OF INSURANCE RATES AND GUARANTEED MORTALITY
AND EXPENSE RISK AND ADMINISTRATIVE CHARGES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROSS
TOTAL ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PREMIUMS ----------------------------------------------------------------------------------------
END OF INTEREST NET CASH NET CASH NET CASH
POLICY ANNUAL INTEREST SURRENDER DEATH SURRENDER DEATH SURRENDER DEATH
YEAR AGE PREMIUMS AT 5% VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $25,000 $26,250 $22,070 $772,070 $23,443 $773,444 $24,818 $774,818
2 42 $25,000 $53,813 $43,512 $793,512 $47,598 $797,598 $51,848 $801,848
3 43 $25,000 $82,753 $64,331 $814,331 $72,482 $822,482 $81,291 $831,291
4 44 $25,000 $113,141 $84,527 $834,527 $98,105 $848,105 $113,363 $863,363
5 45 $25,000 $145,048 $104,100 $854,100 $124,482 $874,482 $148,295 $898,296
6 46 $25,000 $213,728 $141,352 $891,352 $179,516 $929,516 $227,767 $977,767
8 48 $25,000 $250,664 $159,029 $909,029 $208,199 $958,199 $272,892 $1,022,892
9 49 $25,000 $289,447 $176,065 $926,065 $237,669 $987,669 $322,037 $1,072,037
10 50 $25,000 $330,170 $192,453 $942,453 $267,932 $1,017,932 $375,561 $1,125,561
11 51 $25,000 $372,928 $208,171 $958,171 $298,977 $1,048,977 $433,839 $1,183,839
12 52 $25,000 $417,825 $223,188 $973,188 $330,788 $1,080,788 $497,277 $1,247,277
13 53 $25,000 $464,966 $237,470 $987,470 $363,340 $1,113,340 $566,309 $1,316,309
14 54 $25,000 $514,464 $250,975 $1,000,975 $396,599 $1,146,599 $641,403 $1,391,403
15 55 $25,000 $566,437 $263,667 $1,013,667 $430,537 $1,180,537 $723,080 $1,473,080
16 56 $25,000 $621,009 $275,507 $1,025,507 $465,117 $1,215,117 $811,902 $1,561,902
17 57 $25,000 $678,310 $286,461 $1,036,461 $500,311 $1,250,311 $908,492 $1,658,492
18 58 $25,000 $738,475 $296,512 $1,046,512 $536,102 $1,286,102 $1,013,548 $1,763,548
19 59 $25,000 $801,649 $305,608 $1,055,608 $572,436 $1,322,436 $1,127,796 $1,877,796
20 60 $25,000 $867,981 $313,681 $1,063,681 $609,243 $1,359,243 $1,252,015 $2,002,015
25 65 $25,000 $1,257,836 $335,568 $1,085,568 $796,714 $1,546,715 $2,054,528 $2,804,528
30 70 $25,000 $1,750,401 $316,466 $1,066,466 $976,432 $1,726,432 $3,266,831 $4,016,831
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All Premiums illustrated are assumed to be paid at the beginning of the Policy
Year.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
<PAGE>
PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet.
The Security Elite Benefit Prospectus consisting of 63 pages (including
illustrations). The undertaking to file reports.
The signatures
Written consent of the following persons (included in the exhibits shown
below):
Ernst & Young LLP, Independent Auditors
The following exhibits:
1. (1) Certified resolution of the Board of Directors of the Depositor dated
September 13, 1993. (c)
(2) Not applicable.
(3) (a) Distribution Agreement Between Security Benefit Life Insurance
Company and Security Distributors, Inc. (c)
(b) Form of Selling Agreement Between Security Distributors, Inc. and
Various Broker/Dealers. (c)
(c) Not applicable
(4) Not applicable.
(5) (a) Flexible Premium Variable Life Insurance Policy. (c)
(b) Accelerated Benefit for Terminal Illness Rider. (c)
(c) Waiver of Monthly Deduction Rider. (c)
(d) Extended Guaranteed Death Benefit Rider. (c)
(e) Annual Renewable and Convertible Level Term Insurance Rider. (c)
(6) (a) Articles of Incorporation of Security Benefit Life Insurance
Company.(b)
(b) Bylaws of Security Benefit Life Insurance Company. (b)
(7) Not applicable.
(8) Not applicable.
(9) Purchase Agreement between Security Benefit Life Insurance Company and
SBL Fund. (c)
(10) Application for Flexible Premium Variable Life Insurance Policy and
General Questionnaire.(a)
2. Opinion and Consent of legal officer of Security Benefit as to the legality
of the Policies being registered.
3. Not applicable.
4. Not applicable.
5. Not applicable.
6. Consent of Independent Auditors.
7. Opinion of Actuary. (c)
8. Memorandum Describing Issuance, Transfer, and Redemption Procedures.(c)
9. Not applicable.
10. Powers of Attorney.
(a) Incorporated herein by reference to the Exhibits filed with
Post-Effective Amendment No. 3 to Registrant's Registration Statement
33-77322 (April 30, 1997).
(b) Incorporated herein by reference to the Exhibits filed with Variflex
Separate Account Post-Effective Amendment No. 20 under the Securities
Act of 1933 and Amendment No. 19 under the Investment Company Act of
1940 to Registration Statement No. 2-89328 (November 1, 1998).
(c) Incorporated herein by reference to the Exhibits filed in the
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement 33-77322 (March 1, 1999).
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereinafter duly adopted pursuant to authority
conferred in that section.
Pursuant to ss.26(e)(2)(A) of the Investment Company Act of 1940, the Depositor
hereby represents that the fees and charges deducted under the Contract, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Depositor.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Security Varilife Separate Account (Security Elite Benefit), certifies that it
meets all of the requirements for effectiveness of this Registration Statement
pursuant to rule 485(b) under the Securities Act of 1933 and has duly caused
this registration statement to be signed on its behalf by the undersigned
thereunto as duly authorized, in the City of Topeka, and State of Kansas on this
28th day of April, 1999.
SIGNATURES AND TITLES
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of the Board (The Depositor)
and Chief Executive Officer
By: ROGER K. VIOLA
-------------------------------------------
Thomas R. Clevenger Roger K. Viola, Senior Vice President,
Director General Counsel and Secretary as
Attorney-In-Fact for the Officers and
Sister Loretto Marie Colwell Directors Whose Names Appear Opposite
Director
SECURITY VARILIFE SEPARATE ACCOUNT
John C. Dicus (The Registrant)
Director
By: SECURITY BENEFIT LIFE INSURANCE COMPANY
Steven J. Douglass (The Depositor)
Director
By: HOWARD R. FRICKE
William W. Hanna ---------------------------------------
Director Howard R. Fricke, Chairman of the Board
and Chief Executive Officer
John E. Hayes, Jr.
Director By: DONALD J. SCHEPKER
---------------------------------------
Laird G. Noller Donald J. Schepker, Senior Vice
Director President, Chief Financial Officer
and Treasurer
Frank C. Sabatini
Director (ATTEST): ROGER K. VIOLA
---------------------------------
Robert C. Wheeler Roger K. Viola, Senior Vice
Director President, General Counsel
and Secretary
Date: April 28, 1999
<PAGE>
EXHIBIT INDEX
(1) (1) None
(2) None
(3) (a) None
(b) None
(c) None
(4) None
(5) (a) None
(b) None
(c) None
(d) None
(e) None
(6) (a) None
(b) None
(7) None
(8) None
(9) None
(10) None
(2) Opinion of Counsel
(3) None
(4) None
(5) None
(6) Consent of Independent Auditors
(7) Non
(8) None
(9) None
(10) Powers of Attorney
<PAGE>
[SBG LOGO]
- --------------------------------------------------------------------------------
Security Benefit Life Insurance Company 700 SW Harrison St.
Security Benefit Group, Inc. Topeka, Kansas 66636-0001
Security Distributors, Inc. (785) 431-3000
Security Management Company, LLC
April 30, 1999
Security Benefit Life Insurance Company
700 SW Harrison Street
Topeka, KS 66636-0001
Dear Sir/Madam:
This letter is with reference to the Registration Statement of Security Varilife
Separate Account (Security Elite Benefit) of which Security Benefit Life
Insurance Company (hereinafter "SBL") is the Depositor. Said Registration
Statement is being filed with the Securities and Exchange Commission for the
purpose of registering the flexible premium variable life insurance contracts
issued by SBL and the interests in the Security Varilife Separate Account under
such variable life insurance contracts which will be sold pursuant to an
indefinite registration.
I have examined the Articles of Incorporation and Bylaws of SBL, minutes of
meetings of its Board of Directors and other records, and pertinent provisions
of the Kansas insurance laws, together with applicable certificates of public
officials and other documents which I have deemed relevant. Based on the
foregoing, it is my opinion that:
1. SBL is duly organized and validly existing as a stock life insurance company
under the laws of the State of Kansas.
2. Security Varilife Separate Account has been validly created as a Separate
Account in accordance with the pertinent provisions of the insurance laws of
Kansas.
3. SBL has the power, and has validly and legally exercised it, to create and
issue the flexible premium variable life insurance contracts which are
administered within and by means of Security Varilife Separate Account.
4. The flexible premium variable life insurance contracts to be sold pursuant
to the indefinite registration, when issued, will represent binding
obligations of SBL in accordance with their terms providing said contracts
were issued for the consideration set forth therein and evidenced by
appropriate policies and certificates.
I hereby consent to the inclusion in the Registration Statement of my foregoing
opinion.
Respectfully submitted,
AMY J. LEE
Amy J. Lee
Vice President and Associate Counsel
Security Benefit Life Insurance Company
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 5, 1999, with respect to the consolidated
financial statements of Security Benefit Life Insurance Company and Subsidiaries
and the financial statements of the Security Varilife Separate Account included
in Post-Effective Amendment No. 6 to the Registration Statement under the
Securities Act of 1933 (Registration No. 33-77322) on Form S-6 for the
Prospectus of the Security Elite Benefit Flexible Premium Variable Insurance
Policy.
Ernst & Young LLP
Kansas City, Missouri
April 30, 1999
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SEDGWICK)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Thomas R. Clevenger, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Life Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARILIFE SEPARATE ACCOUNT (SECURITY ELITE
BENEFIT) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of January, 1999.
THOMAS R. CLEVENGER
-------------------------------------
Thomas R. Clevenger
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
ANNETTE E. CRIPPS
-------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Sister Loretto Marie Colwell, being a Director of SECURITY BENEFIT LIFE
INSURANCE COMPANY, by these presents do make, constitute and appoint Howard R.
Fricke, James R. Schmank and Roger K. Viola, and each of them, my true and
lawful attorneys, each with full power and authority for me and in my name and
behalf to sign Registration Statements, any amendments thereto and any
applications for exemptive relief filed pursuant to the Investment Company Act
of 1940 or the Securities Act of 1933, as amended, and any instrument or
document filed as part thereof, or in connection therewith or in any way related
thereto, in connection with Variable Life Contracts offered, issued or sold by
SECURITY BENEFIT LIFE INSURANCE COMPANY and any SECURITY VARILIFE SEPARATE
ACCOUNT (SECURITY ELITE BENEFIT) with like effect as though said Registration
Statements and other documents had been signed and filed personally by me in the
capacity aforesaid. Each of the aforesaid attorneys acting alone shall have all
the powers of all of said attorneys. I hereby ratify and confirm all that the
said attorneys, or any of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of January, 1999.
SISTER LORETTO MARIE COLWELL
-------------------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 16th day of January, 1999.
JULIA A. SMRHA
-------------------------------------
Notary Public
My Commission Expires:
7/8/2000
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John C. Dicus, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Life Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARILIFE SEPARATE ACCOUNT (SECURITY ELITE
BENEFIT) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of January, 1999.
JOHN C. DICUS
-------------------------------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
ANNETTE E. CRIPPS
-------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Steven J. Douglass, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Life Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARILIFE SEPARATE ACCOUNT (SECURITY ELITE
BENEFIT) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of January, 1999.
STEVEN J. DOUGLASS
-------------------------------------
Steven J. Douglass
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
NANCY A. LEWIS
-------------------------------------
Notary Public
My Commission Expires:
10/16/99
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Howard R. Fricke, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint James R. Schmank and
Roger K. Viola, and each of them, my true and lawful attorneys, each with full
power and authority for me and in my name and behalf to sign Registration
Statements, any amendments thereto and any applications for exemptive relief
filed pursuant to the Investment Company Act of 1940 or the Securities Act of
1933, as amended, and any instrument or document filed as part thereof, or in
connection therewith or in any way related thereto, in connection with Variable
Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE INSURANCE
COMPANY and any SECURITY VARILIFE SEPARATE ACCOUNT (SECURITY ELITE BENEFIT) with
like effect as though said Registration Statements and other documents had been
signed and filed personally by me in the capacity aforesaid. Each of the
aforesaid attorneys acting alone shall have all the powers of all of said
attorneys. I hereby ratify and confirm all that the said attorneys, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of January, 1999.
HOWARD R. FRICKE
-------------------------------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
ANNETTE E. CRIPPS
-------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, W. W. Hanna, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Life Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARILIFE SEPARATE ACCOUNT (SECURITY ELITE
BENEFIT) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of January, 1999.
W. W. HANNA
-------------------------------------
W. W. Hanna
SUBSCRIBED AND SWORN to before me this 19th day of January, 1999.
CAROLYN R. SOUDERS
-------------------------------------
Notary Public
My Commission Expires:
7/21/99
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF FLORIDA )
) ss.
COUNTY OF PINELLAS)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John E. Hayes, Jr., being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Life Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARILIFE SEPARATE ACCOUNT (SECURITY ELITE
BENEFIT) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of January, 1999.
JOHN E. HAYES, JR.
-------------------------------------
John E. Hayes, Jr.
SUBSCRIBED AND SWORN to before me this 27th day of January, 1999.
PAMELA MURRAY
-------------------------------------
Notary Public
My Commission Expires:
3/2/2000
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF DOUGLAS)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Laird G. Noller, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Life Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARILIFE SEPARATE ACCOUNT (SECURITY ELITE
BENEFIT) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of January, 1999.
LAIRD G. NOLLER
-------------------------------------
Laird G. Noller
SUBSCRIBED AND SWORN to before me this 25th day of January, 1999.
ANNETTE E. CRIPPS
-------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- ----------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Frank C. Sabatini, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Life Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARILIFE SEPARATE ACCOUNT (SECURITY ELITE
BENEFIT) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of January, 1999.
FRANK C. SABATINI
-------------------------------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 21st day of January, 1999.
PATRICIA A. CLARK
-------------------------------------
Notary Public
My Commission Expires:
3/5/2002
- -----------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Robert C. Wheeler, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Life Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any SECURITY VARILIFE SEPARATE ACCOUNT (SECURITY ELITE
BENEFIT) with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of January, 1999.
ROBERT C. WHEELER
-------------------------------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 20th day of January, 1999.
NANCY G. DEBACKER
-------------------------------------
Notary Public
My Commission Expires:
12/15/99
- -----------------------
