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File No. 33-65654
File No. 811-7624
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Pre-Effective Amendment No. |_|
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Post-Effective Amendment No. 3 |X|
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 5 |X|
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(Check appropriate box or boxes)
PARKSTONE VARIABLE ANNUITY
(Exact Name of Registrant)
Security Benefit Life Insurance Company
(Name of Depositor)
700 Harrison Street, Topeka, Kansas 66636-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, Including Area Code:
(913) 295-3000
Copies to:
Amy J. Lee, Associate General Counsel Jeffrey S. Puretz, Esq.
Security Benefit Group Building Dechert, Price & Rhoads
700 Harrison Street, Topeka, KS 66636-0001 1500 K Street, N.W.
(Name and address of Agent for Service) Washington, DC 20005
It is proposed that this filing will become effective:
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on April 29, 1996, pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(i) of Rule 485
|_| on April 29, 2996, pursuant to paragraph (a)(i) of Rule 485
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on April 29, 1996, pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Regulation 270.24f-2 of the Investment Company Act of 1940, the
Registrant has elected to register an indefinite number of securities. The
Registrant filed the Notice required by 24f-2 on February 28, 1996.
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Cross Reference Sheet
Pursuant to Rule 495(a)
Showing Location in Part A (Prospectus) and Part B
(Statement of Additional Information) of Registration
Statement of Information Required by Form N-4
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PART A
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ITEM OF FORM N-4 PROSPECTUS CAPTION
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1. Cover Page.............................. Cover Page
2. Definitions............................. Definitions
3. Synopsis................................ Summary; Expense Table; Contractual
Expenses; Separate Account Annual
Expenses; Annual Mutual Fund Expenses
After Expense Limitation
4. Condensed Financial Information
(a) Accumulated Unit Values............. N/A
(b) Performance Data.................... Performance Information
(c) Additional Financial Information.... Financial Statements
5. General Description of Registrant,
Depositor, and Portfolio Companies
(a) Depositor........................... Security Benefit Life Insurance Company;
Information about Security Benefit, the
Separate Account, and The Trust
(b) Registrant.......................... Separate Account; Information about Security
Benefit, the Separate Account, and The Trust
(c) Portfolio Company................... Information about Security Benefit, the
Separate Account, and The Trust; The
Parkstone Advantage Fund; Prime Obligations
Fund; Bond Fund; Equity Fund; Small
Capitalization Fund; International Discovery
Fund; The Investment Adviser
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(d) Fund Prospectus..................... The Parkstone Advantage Fund
(e) Voting Rights....................... Voting of Mutual Fund Shares
(f) Administrators...................... Security Benefit Life Insurance Company
6. Deductions and Expenses
(a) General............................. Charges and Deductions; Other Charges;
Administrative Charge; Mortality and Expense
Risk Charge; Premium Tax Charge;
Maintenance Fee; Guarantee of Certain
Charges
(b) Sales Load %........................ Contingent Deferred Sales Charge
(c) Special Purchase Plan............... Variations in Charges
(d) Commissions......................... N/A
(e) Fund Expenses....................... Mutual Fund Expenses
(f) Organization Expenses............... N/A
7. General Description of Contracts
(a) Persons with Rights................. The Contract; Ownership; Joint Owners;
Contingent Owner; Contract Benefits; The
Fixed Account
(b) (i) Allocation of Purchase
Payments...................... Allocation of Purchase Payments
(ii) Transfers..................... Transfers of Contract Value; Telephone
Transfer Privileges; Dollar Cost Averaging
Option; Asset Reallocation Option
(iii) Exchanges..................... N/A
(c) Changes............................. Substitution of Investments; Changes to
Comply with Law and Amendments
(d) Inquiries........................... Contacting Security Benefit
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8. Annuity Period.......................... Annuity Period; General Annuity Options;
Option 1; Option 2; Option 3; Option 4;
Option 5; Selection of an Option
9. Death Benefit........................... Death Benefit
10. Purchases and Contract Value
(a) Purchases........................... The Contract; General; Application for a
Contract; Purchase Payments; Dollar Cost
Averaging Option
(b) Valuation........................... Contract Value; Determination of Contract
Value; Transfers of Contract Value; Interest
(c) Daily Calculation................... Determination of Contract Value
(d) Underwriter......................... Security Benefit Life Insurance Company
11. Redemptions
(a) - By Owners......................... Full and Partial Withdrawals; Systematic
Withdrawals; Loans; Payments from the
Separate Account; Payments from the Fixed
Account; Restrictions on Withdrawals from
Qualified Plans
- By Annuitant...................... Annuity Options
(b) Texas ORP........................... N/A
(c) Check Delay......................... N/A
(d) Lapse............................... Full and Partial Withdrawals
(e) Free Look........................... Free-Look Right
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12. Taxes................................... Federal Tax Matters; Introduction; Tax Status
of Security Benefit and the Separate Account;
General; Diversification Standards; Taxation
of Annuities in General -- Non-Qualified
Plans; Surrenders or Withdrawals Prior to the
Annuity Start Date; Surrenders or
Withdrawals on or after Annuity Start Date;
Penalty Tax on Certain Surrenders and
Withdrawals; Additional Considerations;
Distribution-at-Death Rules; Gift of Annuity
Contracts; Contracts Owned by Non-Natural
Persons; Multiple Contract Rule; Qualified
Plans
13. Legal Proceedings....................... N/A
14. Table of Contents for the Statement of
Additional Information.................. Statement of Additional Information
PART B
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ITEM OF FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION
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15. Cover Page.............................. Cover Page
16. Table of Contents....................... Table of Contents
17. General Information and History......... N/A
18. Services
(a) Fees and Expenses of Registrant..... N/A
(b) Management Contracts................ N/A
(c) Custodian........................... N/A
Independent Public Accountant....... Independent Auditors
(d) Assets of Registrant................ N/A
(e) Affiliated Persons.................. N/A
(f) Principal Underwriter............... N/A
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19. Purchase of Securities Being Offered.... Distribution of the Contract
20. Underwriters............................ Distribution of the Contract
21. Calculation of Performance Data......... Performance Information
22. Annuity Payments........................ N/A
23. Financial Statements.................... Financial Statements
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PARKSTONE VARIABLE ANNUITY
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY:
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
1-800-355-4555
MAILING ADDRESS:
PARKSTONE CUSTOMER SERVICE DEPARTMENT
157 S. KALAMAZOO MALL
P.O. BOX 4077
KALAMAZOO, MICHIGAN 49003-4077
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This Prospectus describes Parkstone Variable Annuity -- an individual
flexible purchase payment deferred variable annuity contract (the "Contract")
offered by Security Benefit Life Insurance Company ("Security Benefit"). The
Contract is available for individuals as a non-tax qualified retirement plan
("Non-Qualified Plan") or in connection with a retirement plan qualified under
Section 401, 403(b), 408, or 457 of the Internal Revenue Code ("Qualified
Plan"). Two types of the Contract are offered: one for individuals (the
"Individual Contracts") and one for trusts and customers of financial
institutions' trust departments (the "Trust Contracts"). The Contract is
designed to give Contractowners flexibility in planning for retirement and other
financial goals.
During the Accumulation Period, the Contract provides for the accumulation
of a Contractowner's value on either a variable basis, a fixed basis, or both.
The Contract also provides several options for annuity payments on either a
variable basis, a fixed basis, or both to begin on a future date. The minimum
initial purchase payment is $5,000 ($50 if made pursuant to an Automatic
Investment Program) to purchase an Individual Contract in connection with a
Non-Qualified Plan, $2,000 ($50 if made pursuant to an Automatic Investment
Program) to purchase an Individual Contract in connection with a Qualified Plan
and $50,000 to purchase a Trust Contract. Subsequent purchase payments are
flexible, though they must be for at least $2,000 ($50 if made pursuant to an
Automatic Investment Program) for an Individual Contract or $5,000 for a Trust
Contract. Purchase payments may be allocated at the Contractowner's discretion
to one or more of the Subaccounts that comprise a separate account of Security
Benefit called the Parkstone Variable Annuity Account (the "Separate Account"),
or to the Fixed Account of Security Benefit. The Subaccounts invest in one or
more of the corresponding portfolios ("Funds") of the Parkstone Advantage Fund
(the "Mutual Fund"), which currently consists of five Funds: (1) Prime
Obligations Fund, (2) Bond Fund, (3) Equity Fund, (4) Small Capitalization Fund,
and (5) International Discovery Fund. The Contract Value in the Fixed Account
will accrue interest at rates that are paid by Security Benefit as described in
"The Fixed Account" on page 21.
The Contract Value in the Subaccounts under a Contract will vary based on
investment performance of the Subaccounts to which the Contract Value is
allocated. No minimum amount of Contract Value is guaranteed.
A Contract may be returned according to the terms of its Free-Look Right
(See "Free-Look Right," page 17).
This Prospectus concisely sets forth information about the Contract and the
Separate Account that a prospective investor should know before investing.
Certain additional information is contained in a "Statement of Additional
Information," dated April 30, 1996, which has been filed with the Securities and
Exchange Commission (the "SEC"). The Statement of Additional Information is
incorporated by reference into this Prospectus and is available at no charge, by
writing Security Benefit at 700 SW Harrison Street, Topeka, Kansas 66636-0001 or
by calling 1-800-355-4555. The table of contents of the Statement of Additional
Information is set forth on page 32 of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE PARKSTONE
ADVANTAGE FUND. BOTH PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE.
THE CONTRACT INVOLVES RISK, INCLUDING LOSS OF PRINCIPAL, AND IS NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THE CONTRACT
IS NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
DATE: APRIL 30, 1996
1
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TABLE OF CONTENTS
Page
DEFINITIONS ............................................................. 5
SUMMARY..................................................................... 6
Purpose of the Contract.................................................. 6
The Separate Account and the Mutual Fund................................. 6
Fixed Account............................................................ 6
Purchase Payments........................................................ 6
Contract Benefits........................................................ 6
Free-Look Right.......................................................... 6
Charges and Deductions................................................... 6
Contingent Deferred Sales Charge....................................... 7
Mortality and Expense Risk Charge...................................... 7
Administrative Charge.................................................. 7
Maintenance Fee........................................................ 7
Premium Tax Charge..................................................... 7
Other Expenses......................................................... 7
Contacting Security Benefit.............................................. 7
EXPENSE TABLE............................................................... 8
Contractual Expenses..................................................... 8
Separate Account Annual Expenses......................................... 8
Annual Mutual Fund Expenses After Expense Limitation..................... 8
CONDENSED FINANCIAL INFORMATION............................................. 9
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND THE MUTUAL FUND 11
Security Benefit Life Insurance Company.................................. 11
Separate Account......................................................... 11
The Parkstone Advantage Fund............................................. 11
Prime Obligations Fund................................................. 12
Bond Fund.............................................................. 12
Equity Fund............................................................ 12
International Discovery Fund........................................... 12
Small Capitalization Fund.............................................. 12
The Investment Adviser................................................... 12
THE CONTRACT................................................................ 12
General.................................................................. 12
Application for a Contract............................................... 12
Purchase Payments........................................................ 13
Allocation of Purchase Payments.......................................... 13
Dollar Cost Averaging Option............................................. 13
Asset Reallocation Option................................................ 14
Transfers of Contract Value.............................................. 15
Contract Value........................................................... 15
Determination of Contract Value.......................................... 15
Full and Partial Withdrawals............................................. 15
Systematic Withdrawals................................................... 16
Free-Look Right.......................................................... 17
Death Benefit............................................................ 17
CHARGES AND DEDUCTIONS...................................................... 17
Contingent Deferred Sales Charge......................................... 17
Mortality and Expense Risk Charge........................................ 18
Administrative Charge.................................................... 19
Maintenance Fee.......................................................... 19
Premium Tax Charge....................................................... 19
Other Charges............................................................ 19
Variations in Charges.................................................... 19
Guarantee of Certain Charges............................................. 19
Mutual Fund Expenses..................................................... 19
2
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Page
ANNUITY PERIOD.............................................................. 19
General.................................................................. 19
Annuity Options.......................................................... 20
Option 1--Life Income.................................................. 20
Option 2--Life Income with Guaranteed Payments of 5, 10, 15 or 20 Years 20
Option 3--Life with Installment Refund Option.......................... 20
Option 4--Joint and Last Survivor...................................... 20
Option 5--Payments for a Specified Period.............................. 20
Option 6--Payments of a Specified Amount............................... 21
Selection of an Option................................................. 21
THE FIXED ACCOUNT........................................................... 21
Interest................................................................. 21
Death Benefit............................................................ 21
Contract Charges......................................................... 21
Transfers and Withdrawals................................................ 22
Payments from the Fixed Account.......................................... 22
MORE ABOUT THE CONTRACT..................................................... 22
Ownership................................................................ 22
Joint Owners........................................................... 22
Designation and Change of Beneficiary.................................... 22
Participating............................................................ 22
Payments from the Separate Account....................................... 22
Proof of Age and Survival................................................ 23
Misstatements............................................................ 23
Loans.................................................................... 23
Restrictions on Withdrawals from Qualified Plans......................... 23
FEDERAL TAX MATTERS......................................................... 24
Introduction............................................................. 24
Tax Status of Security Benefit and the Separate Account.................. 24
General................................................................ 24
Charge for Security Benefit Taxes...................................... 24
Diversification Standards.............................................. 24
Taxation of Annuities in General--Non-Qualified Plans.................... 25
Surrenders or Withdrawals Prior to the Annuity Start Date.............. 25
Surrenders or Withdrawals on or after Annuity Start Date............... 25
Penalty Tax on Certain Surrenders and Withdrawals...................... 25
Additional Considerations................................................ 26
Distribution-at-Death Rules............................................ 26
Gift of Annuity Contracts.............................................. 26
Contracts Owned by Non-Natural Persons................................. 26
Multiple Contract Rule................................................. 26
Qualified Plans.......................................................... 26
Section 401............................................................ 27
Section 403(b)......................................................... 27
Section 408............................................................ 28
Section 457............................................................ 28
Tax Penalties.......................................................... 28
Withholding............................................................ 28
OTHER INFORMATION........................................................... 29
Voting of Mutual Fund Shares............................................. 29
Substitution of Investments.............................................. 29
Changes to Comply with Law and Amendments................................ 30
Reports to Owners........................................................ 30
Telephone Transfer Privileges............................................ 30
Legal Proceedings........................................................ 30
Legal Matters............................................................ 30
3
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Page
PERFORMANCE INFORMATION..................................................... 30
ADDITIONAL INFORMATION...................................................... 31
Registration Statement................................................... 31
Financial Statements..................................................... 31
STATEMENT OF ADDITIONAL INFORMATION......................................... 31
THE CONTRACT IS NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION, THE MUTUAL FUND'S PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION OF THE MUTUAL FUND, OR ANY SUPPLEMENT THERETO.
4
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DEFINITIONS
Various terms commonly used in this Prospectus are defined as follows:
ACCUMULATION PERIOD -- The period commencing on the Contract Date and
ending on the Annuity Start Date or, if earlier, when the Contract is
terminated, either through a full withdrawal, payment of charges, or payment of
the death benefit proceeds.
ACCUMULATION UNIT -- A unit of measure used to calculate the value of a
Contractowner's interest in a Subaccount during the Accumulation Period.
ANNUITANT -- The person or persons on whose life annuity payments depend.
If Joint Annuitants are named in the Contract, "Annuitant" means both Annuitants
unless otherwise stated.
ANNUITY -- A series of periodic income payments made by Security Benefit to
an Annuitant, Joint Annuitant, or Beneficiary during the period specified in the
Annuity Option.
ANNUITY OPTIONS -- Options under the Contract that prescribe the provisions
under which a series of annuity payments are made.
ANNUITY PERIOD -- The period during which annuity payments are made.
ANNUITY START DATE -- The date when annuity payments are to begin.
AUTOMATIC INVESTMENT PROGRAM -- A program pursuant to which purchase
payments are automatically paid from the owner's checking account on the 7th,
14th, 21st or 28th day of each month, or a salary reduction arrangement.
CONTRACT DATE -- The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually the
date that the initial purchase payment is credited to the Contract.
CONTRACT DEBT -- The unpaid loan balance including accrued loan interest.
CONTRACTOWNER OR OWNER -- The person entitled to the ownership rights under
the Contract and in whose name the Contract is issued.
CONTRACT VALUE -- The total value of the amounts in a Contract allocated to
the Subaccounts of the Separate Account and the Fixed Account as well as any
amount set aside in the Fixed Account to secure loans as of any Valuation Date.
CONTRACT YEAR -- Each twelve-month period measured from the Contract Date.
DESIGNATED BENEFICIARY -- The person having the right to the death benefit,
if any, payable upon the death of the Owner during the Accumulation Period is
the first person on the following list who is alive on the date of the Owner's
death: the Beneficiary; the Contingent Beneficiary; the Joint Owner; the
Annuitant; or if none of the above are alive, the Owner's Estate.
FIXED ACCOUNT -- An account that is part of Security Benefit's General
Account in which all or a portion of the Contract Value may be held for
accumulation at fixed rates of interest (which may not be less than 3.5 percent)
declared by Security Benefit periodically at its discretion.
GENERAL ACCOUNT -- All assets of Security Benefit other than those
allocated to the Separate Account or to any other separate account of Security
Benefit.
FULL WITHDRAWAL VALUE -- The amount a Contractowner may receive upon full
withdrawal of the Contract, which is equal to Contract Value minus any unpaid
maintenance fee, any applicable contingent deferred sales charge, and any
Contract Debt.
HOME OFFICE -- The Annuity Administration Department at Security Benefit's
office at 700 Harrison Street, Topeka, Kansas 66636.
MUTUAL FUND -- The Parkstone Advantage Fund. The Mutual Fund is a
diversified, open-end management investment company commonly referred to as a
mutual fund.
PURCHASE PAYMENT -- The amounts paid to Security Benefit as consideration
for the Contract.
SEPARATE ACCOUNT -- The Parkstone Variable Annuity Account. A separate
account of Security Benefit that consists of accounts, referred to as
Subaccounts, each of which invests in a separate Fund of the Parkstone Advantage
Fund.
SUBACCOUNT -- A Subaccount of the Separate Account of Security Benefit to
which the Contract Value under the Contract may be allocated for variable
accumulation. Currently, five Subaccounts are available under the Contract.
VALUATION DATE -- Each date on which the Separate Account is valued, which
currently includes each day that the New York Stock Exchange is open for
trading. The New York Stock Exchange is closed on weekends and on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, July
Fourth, Labor Day, Thanksgiving Day, and Christmas Day.
VALUATION PERIOD -- A period used in measuring the investment experience of
each Subaccount of the Separate Account. The Valuation Period begins at the
close of one Valuation Date and ends at the close of the next succeeding
Valuation Date.
5
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SUMMARY
This summary is intended to provide a brief overview of the more
significant aspects of the Contract. Further detail is provided in this
Prospectus, the Statement of Additional Information, and the Contract. Unless
the context indicates otherwise, the discussion in this summary and the
remainder of the Prospectus relates to the portion of the Contract involving the
Separate Account. The Fixed Account is briefly described under "The Fixed
Account," on page 21 and in the Contract.
PURPOSE OF THE CONTRACT
The individual flexible purchase payment deferred variable annuity contract
("Contract") described in this Prospectus is designed to give Contractowners
flexibility in planning for retirement and other financial goals. The Contract
provides for the accumulation of values on a variable basis, a fixed basis, or
both, during the Accumulation Period and provides several options for annuity
payments on a variable basis, a fixed basis, or both. During the Accumulation
Period, an Owner can pursue various allocation options by allocating purchase
payments to the Subaccounts of the Separate Account or to the Fixed Account. See
"The Contract," page 12.
The Contract is eligible for purchase as a non-tax qualified retirement
plan for an individual ("Non-Qualified Plan"). The Contract is also eligible for
an individual in connection with a retirement plan qualified under Section 401,
403(b), 408, or 457 of the Internal Revenue Code of 1986, as amended. These
plans are sometimes referred to in this Prospectus as "Qualified Plans."
THE SEPARATE ACCOUNT AND THE MUTUAL FUND
Purchase payments designated to accumulate on a variable basis are
allocated to the Separate Account. See "Separate Account," page 11. The Separate
Account is currently divided into five accounts referred to as Subaccounts. Each
Subaccount invests exclusively in shares of a specific Fund of the Mutual Fund.
The Funds of the Mutual Fund, each of which has a different investment objective
or objectives, are as follows: Prime Obligations Fund, Bond Fund, Equity Fund,
Small Capitalization Fund, and International Discovery Fund. See "The Parkstone
Advantage Fund," page 11. Amounts held in a Subaccount will increase or decrease
in dollar value depending on the investment performance of the corresponding
Fund of the Mutual Fund in which such Subaccount invests. The Contractowner
bears the investment risk for amounts allocated to a Subaccount of the Separate
Account.
FIXED ACCOUNT
Purchase payments designated to accumulate on a fixed basis may be
allocated to the Fixed Account, which is part of Security Benefit's General
Account. Amounts allocated to the Fixed Account earn interest at rates
determined at the discretion of Security Benefit and that are guaranteed to be
at least an effective annual rate of 3.5 percent. See "The Fixed Account," on
page 21.
PURCHASE PAYMENTS
The minimum initial purchase payment is $5,000 ($50 if made pursuant to an
Automatic Investment Program) for an Individual Contract issued in connection
with a Non-Qualified Plan, $2,000 ($50 if made pursuant to an Automatic
Investment Program) for an Individual Contract issued in connection with a
Qualified Plan and $50,000 for a Trust Contract. Thereafter, the Contractowner
may choose the amount and frequency of purchase payments, except that the
minimum subsequent purchase payment is $2,000 ($50 if made pursuant to an
Automatic Investment Program) for an Individual Contract or $5,000 for a Trust
Contract.
CONTRACT BENEFITS
During the Accumulation Period, Contract Value may be transferred by the
Contractowner among the Subaccounts of the Separate Account and to and from the
Fixed Account, subject to certain restrictions as described in "Transfers of
Contract Value," on page 15.
At any time before the Annuity Start Date, a Contract may be surrendered
for its Full Withdrawal Value, and partial withdrawals, including systematic
withdrawals, may be taken from the Contract Value. Full and partial withdrawals,
including systematic withdrawals, from Individual Contracts may result in the
deduction of a contingent deferred sales charge. See "Full and Partial
Withdrawals," on page 15 and "Systematic Withdrawals," on page 16 for more
information, including the possible charges and tax consequences associated with
full and partial withdrawals.
The Contract provides for a death benefit upon the death of the Owner
during the Accumulation Period. See "Death Benefit," on page 21 for more
information. The Contract provides for several Annuity Options on either a
variable basis, a fixed basis, or both. Payments under the fixed Annuity Options
will be guaranteed by Security Benefit. See "Annuity Period," on page 19.
FREE-LOOK RIGHT
An Owner may return a Contract within the Free-Look Period, which is
generally a ten-day period beginning when the Owner receives the Contract. In
this event, Security Benefit will refund to the Owner purchase payments
allocated to the Fixed Account plus the Contract Value in the Subaccounts plus
any charges deducted from the Subaccounts. Security Benefit will refund purchase
payments allocated to the Subaccounts rather than the Contract Value in those
states where it is required to do so.
CHARGES AND DEDUCTIONS
Security Benefit does not make any deductions for sales load from purchase
payments before allocating them to the Contract Value. Certain charges will be
deducted in connection with the Contract.
6
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CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (which may also be referred to as a
withdrawal charge) may be assessed by Security Benefit on a full or partial
withdrawal, including a systematic withdrawal, from an Individual Contract
during the Accumulation Period to the extent the amount withdrawn is
attributable to purchase payments made. During the first Contract Year, the
withdrawal charge applies against any withdrawal, to the extent the amount
withdrawn is attributable to purchase payments made. After the first Contract
Year, the withdrawal charge will be waived on the first withdrawal in a Contract
Year to the extent that such withdrawal does not exceed 10 percent of the
Contract Value, less any Contract Debt, on the date of the withdrawal ("Free
Withdrawal Privilege"). If a second or subsequent withdrawal in the same
Contract Year is made, a withdrawal charge may be assessed on the entire amount
withdrawn. The withdrawal charge will be waived on systematic withdrawals to the
extent that systematic withdrawals during the Contract Year do not exceed 10
percent of the Contract Value, less any Contract Debt, on the date of the first
systematic withdrawal in any Contract Year. If a partial withdrawal and a
systematic withdrawal are taken in the same Contract Year, the Free Withdrawal
Privilege will apply to the partial withdrawal only if it occurs earlier than
the first systematic withdrawal in that Contract Year. The amount of the
withdrawal charge will depend upon the number of years that a purchase payment
has remained credited under the Contract, as follows:
AGE OF PURCHASE WITHDRAWAL
PAYMENT IN YEARS CHARGE
---------------- ------
1 5%
2 5%
3 5%
4 5%
5 4%
6 3%
7 2%
8 0%
In no event will the amount of any withdrawal charge, when added to any
such charge previously assessed against any amount withdrawn from the Contract,
exceed 5 percent of the purchase payments paid under a Contract. This charge is
not assessed upon a full or partial withdrawal from a Trust Contract. See
"Contingent Deferred Sales Charge," on page 17.
MORTALITY AND EXPENSE RISK CHARGE
Security Benefit deducts a daily charge from the assets of each Subaccount
for mortality and expense risks equal to an annual rate of 1.25 percent of each
Subaccount's average daily net assets that fund the Individual Contracts and
0.65 percent of each Subaccount's average daily net assets that fund the Trust
Contracts. See "Mortality and Expense Risk Charge," on page 18.
ADMINISTRATIVE CHARGE
Security Benefit deducts a daily administrative charge during the
Accumulation Period equal to an annual rate of 0.15 percent of each Subaccount's
average daily net assets that fund the Individual Contracts and 0.05 percent of
each Subaccount's average daily net assets that fund the Trust Contracts. See
"Administrative Charge," on page 19.
MAINTENANCE FEE
An annual fee of $30 is deducted on each Contract Anniversary to cover the
costs of maintaining records for the Individual Contracts. This charge is not
deducted after the Annuity Start Date if one of Annuity Options 1 through 4 is
selected, nor in connection with the Trust Contracts. This charge is prorated
upon annuitization under one of the Annuity Options 1 through 4 or a full
withdrawal. See "Maintenance Fee," on page 19.
PREMIUM TAX CHARGE
Security Benefit assesses a premium tax charge to reimburse itself for any
premium taxes that it incurs. This charge will usually be deducted on
annuitization or upon full withdrawal if a premium tax was incurred by Security
Benefit and is not refundable. Partial withdrawals, including systematic
withdrawals, may be subject to a premium tax charge if a premium tax is incurred
on the withdrawal by Security Benefit and is not refundable. Security Benefit
reserves the right to deduct such taxes when due or anytime thereafter. Premium
tax rates currently range from 0 percent to 3.5 percent. See "Premium Tax
Charge," on page 19.
OTHER EXPENSES
The operating expenses of the Separate Account are paid by Security
Benefit. Investment advisory fees and operating expenses of the Mutual Fund are
paid by the Mutual Fund. For a description of these charges and expenses, see
the Prospectus for the Mutual Fund.
CONTACTING SECURITY BENEFIT
All written requests, notices, and forms required by the Contract, and any
questions or inquiries should be directed to Parkstone Customer Service
Department, 157 S. Kalamazoo Mall, P.O. Box 4077, Kalamazoo, Michigan
49003-4077.
7
<PAGE>
EXPENSE TABLE
The purpose of this table is to assist investors in understanding the
various costs and expenses borne directly and indirectly by Owners of the
Contracts with Contract Value allocated to the Subaccounts. The table reflects
contractual charges, expenses of the Separate Account, and charges and expenses
of the Mutual Fund. The table does not reflect premium taxes that may be imposed
by various jurisdictions. See "Premium Tax Charge," on page 19. The information
contained in the table is not generally applicable to amounts allocated to the
Fixed Account (although certain contractual charges also apply to this Account).
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," on page 17. For a more complete description of the Mutual
Fund's costs and expenses, see the Parkstone Advantage Fund Prospectus, which
accompanies this Prospectus.
CONTRACTUAL EXPENSES
Sales load on purchase payments..........................................None
Contingent deferred sales charge (as a percentage of amounts withdrawn
attributable to purchase payments that have remained credited under the Contract
for the following number of years).
Age of Purchase Payment Charge
Year 1........................................................ 5%
Year 2........................................................ 5%
Year 3........................................................ 5%
Year 4........................................................ 5%
Year 5........................................................ 4%
Year 6........................................................ 3%
Year 7........................................................ 2%
Year 8 and over............................................... None
Transfer Fee (per transfer)(2)......................................... None
Maintenance Fee (per year)(3).......................................... $30
SEPARATE ACCOUNT ANNUAL EXPENSES
Annual Mortality and Expense Risk Charge (as a percentage of each Subaccount's
average daily net assets)
Individual Contracts.............................................. 1.25%
Trust Contracts................................................... 0.65%
Annual Administrative Charge (as a percentage of each Subaccount's average daily
net assets)
Individual Contracts.............................................. 0.15%
Trust Contracts................................................... 0.05%
Total Separate Account Annual Expenses
Individual Contracts.............................................. 1.40%
Trust Contracts................................................... 0.70%
ANNUAL MUTUAL FUND EXPENSES AFTER EXPENSE LIMITATION (AS A PERCENTAGE OF EACH
FUND'S AVERAGE DAILY NET ASSETS)
ADVISORY FEE OTHER EXPENSES TOTAL MUTUAL FUND EXPENSES
------------ -------------------- --------------------
Prime Obligations Fund 0.40% 1.24% 1.64%
Bond Fund 0.74% 0.83% 1.57%
Equity Fund 1.00% 0.62% 1.62%
Small Capitalization Fund 1.00% 0.64% 1.64%
International Discovery Fund 1.25% 1.13% 2.38%
(1) The withdrawal charge will be waived after the first Contract Year, on the
first withdrawal in a Contract Year to the extent that such withdrawal does
not exceed 10 percent of the Contract Value, less any Contract Debt, on the
date of the withdrawal. The withdrawal charge will also be waived on
systematic withdrawals that do not in any Contract Year exceed 10 percent
of the Contract Value, less any Contract Debt, on the date of the first
systematic withdrawal in such Contract Year. If a partial withdrawal and a
systematic withdrawal are taken in the same Contract Year, the Free
Withdrawal Privilege will apply to the partial withdrawal only if it occurs
earlier than the first systematic withdrawal in that Contract Year. The
withdrawal charge is not assessed by Security Benefit on withdrawals from a
Trust Contract. When added to the withdrawal charges assessed on prior
withdrawals, the total withdrawal charge will never exceed 5 percent of
total purchase payments.
(2) The first 12 transfers in a calendar year are without charge; for any
additional transfers in a calendar year, a charge of $25 is imposed.
(3) The maintenance fee is not deducted from the Trust Contracts.
8
<PAGE>
EXAMPLES
Different examples are presented below that show expenses that a
Contractowner would pay at the end of one, three, five or ten years if, at the
end of those time periods, the Contract is (1) surrendered, (2) annuitized, or
(3) not surrendered or annuitized. Each example shows expenses based upon
allocation to each of the Subaccounts, and different expense figures are
presented to reflect the different expenses imposed under the Individual and the
Trust Contracts.
The examples below should not be considered a representation of past or
future expenses. Actual expenses may be greater or lesser than those shown. The
5 percent return assumed in the examples is hypothetical and should not be
considered a representation of past or future actual returns, which may be
greater or lesser than the assumed amount.
INDIVIDUAL CONTRACTS
Example One -- The Owner would pay the expenses shown below on a $1,000
investment, assuming 5 percent annual return on assets, if an individual
Contract is SURRENDERED at the end of one, three, five or ten years:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Obligations Subaccount...................................... $82 $146 $206 $350
Bond Subaccount................................................... 81 144 203 344
Equity Subaccount................................................. 82 145 205 349
Small Capitalization Subaccount................................... 82 146 206 350
International Discovery Subaccount................................ 89 166 240 416
</TABLE>
Example Two--The Owner would pay the expenses shown below on a $1,000
investment, assuming 5 percent annual return on assets, if an individual
Contract is ANNUITIZED OR NOT SURRENDERED OR ANNUITIZED at the end of one,
three, five or ten years:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Obligations Subaccount...................................... $32 $ 98 $167 $350
Bond Subaccount................................................... 31 96 164 344
Equity Subaccount................................................. 32 98 166 349
Small Capitalization Subaccount................................... 32 98 167 350
International Discovery Subaccount................................ 39 120 202 416
</TABLE>
TRUST CONTRACTS
Example One--The Owner would pay the expenses shown below on a $1,000
investment, assuming 5 percent annual return on assets, if a Trust Contract is
SURRENDERED, ANNUITIZED OR NOT SURRENDERED OR ANNUITIZED at the end of one,
three, five or ten years:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Obligations Subaccount...................................... $24 $ 73 $125 $268
Bond Subaccount................................................... 23 71 122 261
Equity Subaccount................................................. 24 72 124 266
Small Capitalization Subaccount................................... 24 73 125 268
International Discovery Subaccount................................ 31 95 162 339
</TABLE>
CONDENSED FINANCIAL INFORMATION
The following condensed financial information presents accumulation unit values
for the period of September 24, 1993 through December 31, 1993, and for the
years ended December 31, 1994 and 1995, as well as ending accumulation units
outstanding for Qualified and Non-Qualified Contracts under each of the
Parkstone Subaccounts.
<TABLE>
<CAPTION>
PRIME SMALL INTERNATIONAL
QUALIFIED INDIVIDUAL OBLIGATIONS BOND EQUITY CAPITALIZATION DISCOVERY
CONTRACTS 1993 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- - --------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period.................... $10.00 $10.00 $10.00 $10.00 $10.00
End of period.......................... $10.06 $ 9.93 $10.14 $10.96 $10.31
Accumulation units:
Outstanding at the end
of period.............................. 1,803 59,497 82,266 29,606 42,792
</TABLE>
9
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
PRIME SMALL INTERNATIONAL
NON-QUALIFIED INDIVIDUAL OBLIGATIONS BOND EQUITY CAPITALIZATION DISCOVERY
CONTRACTS 1993 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- - --------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period.................... $10.00 $10.00 $10.00 $10.00 $10.00
End of period.......................... $10.06 $ 9.93 $10.14 $10.97 $10.32
Accumulation units:
Outstanding at the end
of period.............................. 249 63,777 100,971 39,841 69,637
QUALIFIED INDIVIDUAL
CONTRACTS 1994
- - --------------
Accumulation unit value:
Beginning of period.................... $10.06 $9.93 $10.14 $10.96 $10.31
End of period.......................... $10.15 $9.27 $ 9.48 $11.38 $ 9.48
Accumulation units:
Outstanding at the end
of period.............................. 10,179 142,399 349,421 197,216 212,431
NON-QUALIFIED INDIVIDUAL
CONTRACTS 1994
- - --------------
Accumulation unit value:
Beginning of period.................... $10.06 $9.93 $10.14 $10.97 $10.32
End of period.......................... $10.15 $9.27 $ 9.48 $11.39 $ 9.49
Accumulation units:
Outstanding at the end
of period.............................. 7,394 150,102 401,802 241,214 274,880
NON-QUALIFIED TRUST
CONTRACTS 1994
- - --------------
Accumulation unit value:
Beginning of period1................... -- $9.56 $9.53 $ 9.87 $10.26
End of period.......................... -- $9.40 $9.62 $11.55 $ 9.61
Accumulation units:
Outstanding at the end
of period.............................. -- 5,230 5,247 5,066 9,622
QUALIFIED INDIVIDUAL
CONTRACTS 1995
- - --------------
Accumulation unit value:
Beginning of period.................... $10.15 $ 9.27 $ 9.48 $11.38 $ 9.48
End of period.......................... $10.43 $10.69 $12.07 $15.23 $10.26
Accumulation units:
Outstanding at the end
of period.............................. 30,458 180,100 463,460 279,611 266,963
NON-QUALIFIED INDIVIDUAL
CONTRACTS 1995
- - --------------
Accumulation unit value:
Beginning of period.................... $10.15 $ 9.27 $ 9.48 $11.39 $ 9.49
End of period.......................... $10.44 $10.69 $12.06 $15.24 $10.27
Accumulation units:
Outstanding at the end
of period.............................. 33,310 189,674 528,394 350,469 333,873
</TABLE>
10
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
PRIME SMALL INTERNATIONAL
NON-QUALIFIED TRUST OBLIGATIONS BOND EQUITY CAPITALIZATION DISCOVERY
CONTRACTS 1995 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- - --------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value:
Beginning of period(1)................. $10.00 $ 9.40 $ 9.62 $11.55 $ 9.61
End of period.......................... $10.17 $10.92 $12.32 $15.57 $10.47
Accumulation units:
Outstanding at the end
of period.............................. 13,728 55,111 42,810 24,824 17,264
</TABLE>
(1) The International Discovery Subaccount under the Trust Contracts did not
begin operations until May 17, 1994; the Bond, Equity and Small
Capitalization Subaccounts under the Trust Contracts did not begin
operations until August 18, 1994; and the Prime Obligations Subaccount
under the Trust Contract did not begin operations until July 11, 1995.
INFORMATION ABOUT SECURITY BENEFIT,
THE SEPARATE ACCOUNT, AND THE MUTUAL FUND
SECURITY BENEFIT LIFE INSURANCE COMPANY
Security Benefit is a mutual 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.
Security Benefit offers a complete line of life insurance policies and
annuity contracts, as well as financial and retirement services. It is admitted
to do business in the District of Columbia, and in all states except New York.
As of the end of 1995, Security Benefit had over $15.0 billion of life insurance
in force and total assets of approximately $4.7 billion. Together with its
subsidiaries, Security Benefit has total funds under management of over $5.7
billion.
The Principal Underwriter for the Contracts is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Management Company, which is wholly-owned by Security Benefit Group, Inc., a
financial services holding company wholly owned by Security Benefit.
SEPARATE ACCOUNT
The Separate Account was established by Security Benefit on February 22,
1993, under procedures established under Kansas law. The income, gains, or
losses of the Separate Account are credited to or charged against the assets of
the Separate Account without regard to other income, gains, or losses of
Security Benefit. Assets in the Separate Account attributable to the reserves
and other liabilities under the Contracts are not chargeable with liabilities
arising from any other business that Security Benefit conducts. Security Benefit
owns the assets in the Separate Account and is required to maintain sufficient
assets in the Separate Account to meet all Separate Account obligations under
the Contracts. Security Benefit may transfer to its General Account assets that
exceed anticipated obligations of the Separate Account. All obligations arising
under the Contracts are general corporate obligations of Security Benefit.
Security Benefit may invest its own assets in the Separate Account for other
purposes, but not to support contracts other than variable annuity contracts,
and may accumulate in the Separate Account proceeds from Contract charges and
investment results applicable to those assets.
The Separate Account is currently divided into five Subaccounts. Each
Subaccount invests exclusively in shares of a specific Fund of the Mutual Fund.
Security Benefit may in the future establish additional Subaccounts of the
Separate Account, which may invest in other Funds of the Mutual Fund or in other
securities, mutual funds, or investment vehicles.
The Separate Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with the
SEC does not involve supervision by the SEC of the administration or investment
practices of the Separate Account or of Security Benefit.
THE PARKSTONE ADVANTAGE FUND
The Parkstone Advantage Fund (the "Mutual Fund") is a diversified, open-end
management investment company of the series type. The Mutual Fund is registered
with the SEC under the 1940 Act. Such registration does not involve supervision
by the SEC of the investments or investment policy of the Mutual Fund. The
Mutual Fund currently has five separate portfolios ("Funds"), each of which
pursues different investment objectives and policies. Shares of the Mutual Fund
are currently offered only for purchase by Subaccounts of Security Benefit to
serve as an investment medium for the Contracts.
A summary of the investment objective of each Fund of the Mutual Fund is
described below. There can be no assurance that any Fund will achieve its
objective. More detailed information is contained in the accompanying prospectus
of the Mutual Fund, including information on the risks associated with the
investments and investment techniques of each Fund.
11
<PAGE>
THE MUTUAL FUND'S PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
PRIME OBLIGATIONS FUND
The investment objective of the Prime Obligations Fund is to seek current
income with liquidity and stability of principal. The Prime Obligations Fund
attempts to achieve this objective by investing at least 95 percent of its total
assets, measured at the time of investment, in the highest quality money market
instruments.
BOND FUND
The investment objective of the Bond Fund is to seek current income as well
as preservation of capital. The Bond Fund seeks this objective by investing in a
portfolio of high and medium quality fixed income securities.
EQUITY FUND
The investment objective of the Equity Fund is to seek growth of capital.
The Equity Fund seeks to achieve this objective by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stocks. Under normal market conditions, the Equity Fund will invest at least 80
percent of the value of its total assets in common stocks and securities
convertible into common stocks of companies believed by its investment adviser
to be characterized by sound management and the ability to finance expected
long-term growth.
INTERNATIONAL DISCOVERY FUND
The investment objective of the International Discovery Fund is long-term
growth of capital. The International Discovery Fund seeks to achieve this
objective primarily through investment in an internationally diversified
portfolio of equity securities.
SMALL CAPITALIZATION FUND
The investment objective of the Small Capitalization Fund is to seek growth
of capital by investing primarily in a diversified portfolio of common stocks
and securities convertible into common stocks of small- to medium-sized
companies. The Small Capitalization Fund anticipates investing in dynamic,
small- to medium-sized companies that exhibit outstanding potential for superior
growth.
THE INVESTMENT ADVISER
First of America Investment Corporation ("First of America"), located at
303 North Rose Street, Suite 500, Kalamazoo, Michigan 49007, serves as
Investment Adviser to each Fund of the Mutual Fund. First of America is
registered with the SEC as an investment adviser. First of America formulates
and implements continuing programs for the purchase and sale of securities in
compliance with the investment objective, policies, and restrictions of each
Fund, except the International Discovery Fund, and is responsible for the
day-to-day decisions to buy and sell securities for these Funds. For the
International Discovery Fund, the Investment Adviser has entered into a
subinvestment advisory agreement with Gulfstream Global Investors, Ltd., 300
Crescent Court, Suite 1605, Dallas, Texas 75201 ("Gulfstream") to serve as
Sub-Adviser subject to the direction and control of the Mutual Fund's Board of
Trustees. First of America is holding a forty-nine (49) percent interest in
Gulfstream with options which would under certain circumstances permit it to
acquire up to a seventy-two (72) percent interest.
THE CONTRACT
GENERAL
The Contract offered by this Prospectus is an individual flexible purchase
payment deferred variable annuity that is issued by Security Benefit. To the
extent that all or a portion of purchase payments are allocated to the
Subaccounts, the Contract is significantly different from a fixed annuity
contract in that it is the Owner under a Contract who assumes the risk of
investment gain or loss rather than Security Benefit. Upon the maturity of a
Contract, the Contract provides several Annuity Options on a variable basis, a
fixed basis or both, under which Security Benefit will pay periodic annuity
payments beginning on the Annuity Start Date. The amount that will be available
for annuity payments will depend on the investment performance of the
Subaccounts to which purchase payments have been allocated.
The Contract is available for purchase as a non-tax qualified retirement
plan ("Non-Qualified Plan") by an individual. The Contract is also eligible for
use in connection with certain tax qualified retirement plans that meet the
requirements of Section 401, 403(b), 408, or 457 of the Internal Revenue Code
("Qualified Plan"). Certain federal tax advantages are currently available to
retirement plans that qualify as (1) self-employed individuals' retirement plans
under Section 401, such as HR-10 and Keogh plans, (2) pension or profit-sharing
plans established by an employer for the benefit of its employees under Section
401, (3) individual retirement accounts or annuities, including those
established by an employer as a simplified employee pension plan, under Section
408, (4) annuity purchase plans of public school systems and certain tax-exempt
organizations under Section 403(b) or (5) deferred compensation plans for
employees established by a unit of a state or local government or by a
tax-exempt organization under Section 457. Joint Owners are permitted only on a
Contract issued pursuant to a Non-Qualified Plan.
APPLICATION FOR A CONTRACT
Any person wishing to purchase a Contract may submit an application and an
initial purchase payment to Security Benefit, as well as any other form or
information that Security Benefit may require. Security Benefit reserves the
right to reject an application or purchase payment for any reason, subject to
Security Benefit's underwriting standards
12
<PAGE>
and guidelines and any applicable state or federal law relating to
nondiscrimination.
The maximum age of an Owner for which a Contract will be issued is 80. If
there are Joint Owners, the maximum issue age will be determined by reference to
the older Owner.
PURCHASE PAYMENTS
The minimum initial purchase payment for the purchase of an Individual
Contract is $5,000 ($50 if made pursuant to an Automatic Investment Program) in
connection with a Non-Qualified Plan or $2,000 ($50 if made pursuant to an
Automatic Investment Program) in connection with a Qualified Plan and for the
purchase of a Trust Contract is $50,000. Thereafter, the Contractowner may
choose the amount and frequency of purchase payments, except that the minimum
subsequent purchase payment for an Individual Contract is $2,000 ($50 if made
pursuant to an Automatic Investment Program) for both Non-Qualified and
Qualified Plans or $5,000 for a Trust Contract. Security Benefit may reduce the
minimum purchase payment requirements under certain circumstances, such as for
group or sponsored arrangements. Any purchase payment exceeding $1 million will
not be accepted without prior approval of Security Benefit.
An initial purchase payment will be applied not later than the end of the
second Valuation Date after the Valuation Date it is received by Security
Benefit at its Home Office if the purchase payment is preceded or accompanied by
an application that contains sufficient information necessary to establish an
account and properly credit such purchase payment. The application form will be
provided by Security Benefit. If Security Benefit does not receive a complete
application, Security Benefit will notify the applicant that Security Benefit
does not have the necessary information to issue a Contract. If the necessary
information is not provided to Security Benefit within five Valuation Dates
after the Valuation Date on which Security Benefit first receives the initial
purchase payment or if Security Benefit determines it cannot otherwise issue the
Contract, Security Benefit will return the initial purchase payment to the
applicant unless the applicant consents to Security Benefit retaining the
purchase payment until the application is made complete.
Subsequent purchase payments will be credited as of the end of the
Valuation Period in which they are received by Security Benefit at its Home
Office. Purchase payments after the initial purchase payment may be made at any
time prior to the Annuity Start Date, so long as the Owner is living. Subsequent
purchase payments under a Qualified Plan may be limited by the terms of the plan
and provisions of the Internal Revenue Code. Subsequent purchase payments may be
paid monthly under an Automatic Investment Program.
ALLOCATION OF PURCHASE PAYMENTS
In an application for a Contract, the Contractowner selects the Subaccounts
or the Fixed Account to which purchase payments will be allocated. Purchase
payments will be allocated according to the Contractowner's instructions
contained in the application or more recent instructions received, if any,
except that no purchase payment allocation is permitted that would result in
less than $25 per payment being allocated to any one Subaccount or the Fixed
Account. Available allocation alternatives include the five Subaccounts and the
Fixed Account.
A Contractowner may change the purchase payment allocation instructions by
submitting a proper written request to Security Benefit's Home Office. A proper
change in allocation instructions will be effective upon receipt by Security
Benefit at its Home Office and will continue in effect until subsequently
changed. Changes in purchase payment allocation instructions may be made by
telephone provided the Telephone Transfer Section of the application or an
Authorization for Telephone Transfers form is properly completed, signed, and
filed at Security Benefit's Home Office. Changes in the allocation of future
purchase payments have no effect on existing Contract Value. Such Contract
Value, however, may be transferred among the Subaccounts of the Separate Account
or the Fixed Account in the manner described in "Transfers of Contract Value,"
on page 15.
DOLLAR COST AVERAGING OPTION
Security Benefit currently offers an option under which Contractowners may
dollar cost average their allocations in the Subaccounts under the Contract by
authorizing Security Benefit to make periodic allocations of Contract Value from
any one Subaccount to one or more of the other Subaccounts. Dollar cost
averaging is a systematic method of investing in which securities are purchased
at regular intervals in fixed dollar amounts so that the cost of the securities
gets averaged over time and possibly over various market cycles. The option will
result in the allocation of Contract Value to one or more Subaccounts, and these
amounts will be credited at the Accumulation Unit value as of the end of the
Valuation Dates on which the transfers are effected. Since the value of
Accumulation Units will vary, the amounts allocated to a Subaccount will result
in the crediting of a greater number of units when the Accumulation Unit value
is low and a lesser number of units when the Accumulation Unit value is high.
Similarly, the amounts transferred from a Subaccount will result in a debiting
of a greater number of units when the Accumulation Unit value is low and a
lesser number of units when the Accumulation Unit value is high. Dollar cost
averaging does not guarantee profits, nor does it assure that a Contractowner
will not have losses.
A Dollar Cost Averaging Request form is available upon request. On the
form, the Contractowner must designate whether a specific dollar amount,
percentage of Contract
13
<PAGE>
Value or earnings only are to be transferred, the Subaccount or Subaccounts to
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, the Contract Value in the
Subaccount from which the Dollar Cost Averaging transfers will be made must be
at least $10,000. The Dollar Cost Averaging Request form will not be considered
complete until the Contractowner's Contract Value in the Subaccount from which
the transfers will be made is at least $10,000. After Security Benefit has
received a Dollar Cost Averaging Request in proper form at its Home Office,
Security Benefit will transfer Contract Value in amounts designated by the
Contractowner from the Subaccount from which transfers are to be made to the
Subaccount or Subaccounts chosen by the Contractowner. The minimum amount that
may be transferred to any one Subaccount is $25. Each transfer will be effected
on the monthly or quarterly anniversary, whichever corresponds to the period
selected by the Contractowner, of the date of receipt at Security Benefit's Home
Office of a Dollar Cost Averaging Request in proper form, until the total amount
elected has been transferred, or until Contract Value in the Subaccount from
which transfers are made has been depleted. Amounts periodically transferred
under this option are not currently subject to any transfer charges that are
imposed by Security Benefit on transfers, and such transfers are not currently
included in the 12 transfers per year that are allowed free of charge as
discussed below.
A Contractowner may instruct Security Benefit at any time to terminate the
option by written request to Security Benefit's Home Office. In that event, the
Contract Value in the Subaccount from which transfers were being made that has
not been transferred will remain in that Subaccount unless the Contractowner
instructs otherwise. If a Contractowner wishes to continue transferring on a
dollar cost averaging basis after the expiration of the applicable period, the
total amount elected has been transferred, or the Subaccount has been depleted,
or after the Dollar Cost Averaging Option has been canceled, a new Dollar Cost
Averaging Request must be completed and sent to Security Benefit's Home Office.
The Subaccount from which transfers are to be made must meet the $10,000 minimum
amount of Contract Value. Security Benefit may discontinue, modify, or suspend
the Dollar Cost Averaging Option at any time.
Contract Value may also be dollar cost averaged to or from the Fixed
Account, provided that for transfers from the Fixed Account, the Fixed Account
meets the minimum Contract Value of $10,000 and such transfers do not violate
the restrictions on transfers as described in "The Fixed Account," on page 21
and "Loans" on page 23.
ASSET REALLOCATION OPTION
Security Benefit currently offers an option under which Contractowners
authorize Security Benefit to automatically transfer their Contract Value each
quarter to maintain a particular percentage allocation among the Subaccounts as
selected by the Contractowner. The Contract Value allocated to each Subaccount
will grow or decline in value at different rates during the quarter, and Asset
Reallocation automatically reallocates the Contract Value in the Subaccounts
each quarter to the allocation selected by the Contractowner. Asset Reallocation
is intended to transfer Contract Value from those Subaccounts that have
increased in value to those Subaccounts that have declined in value. Over time,
this method of investing may help a Contractowner buy low and sell high. This
investment method does not guarantee profits, nor does it assure that a
Contractowner will not have losses.
To elect the Asset Reallocation Option, the Contract Value in the Contract
must be at least $10,000 and an Asset Reallocation Request in proper form must
be received by Security Benefit at its Home Office. An Asset Reallocation
Request form is available upon request. On the form, the Contractowner must
indicate the applicable Subaccounts and the percentage of Contract Value to be
reallocated on a quarterly basis to each Subaccount ("Asset Reallocation
Program"). If the Asset Reallocation Option is elected, all Contract Value
invested in the Subaccounts must be included in the Asset Reallocation Program.
This option will result in the transfer of Contract Value to one or more of
the Subaccounts on the date of Security Benefit's receipt of the Asset
Reallocation Request in proper form and each quarterly anniversary of that date
thereafter. The amounts transferred will be credited at the Accumulation Unit
value 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 are imposed by Security Benefit on transfers, and such
transfers are not currently included in the 12 transfers per year that are
allowed free of charge as discussed below.
A Contractowner may instruct Security Benefit at any time to terminate this
option by written request to Security Benefit's Home Office. In that event, the
Contract Value in the Subaccounts that has not been transferred will remain in
those Subaccounts regardless of the percentage allocation unless the
Contractowner instructs otherwise. If a Contractowner wishes to continue Asset
Reallocation after it has been canceled, a new Asset Reallocation Request form
must be completed and sent to Security Benefit's Home Office and the Contract
Value at the time the request is made must be at least $10,000. Security Benefit
may discontinue, modify, or suspend, and reserves the right to charge a fee for
the Asset Reallocation Option at any time.
Contract Value invested in the Fixed Account may be included in the Asset
Reallocation Program, provided that transfers from the Fixed Account do not
violate the
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restrictions on transfers as described in "The Fixed Account" on page 21 and
"Loans" on page 23.
TRANSFERS OF CONTRACT VALUE
During the Accumulation Period, Contract Value may be transferred among the
Subaccounts by the Contractowner upon proper written request to Security
Benefit's Home Office. Transfers (other than transfers in connection with the
Dollar Cost Averaging or Asset Reallocation Options) may be made 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 first 12 transfers in any calendar year are
without charge; for any additional transfers in a calendar year, a charge of $25
is imposed. The charge will be deducted from the Contract Value in the
Subaccounts and the Fixed Account in the following order: Prime Obligations
Subaccount, Bond Subaccount, Equity Subaccount, International Discovery
Subaccount and Small Capitalization Subaccount and then from the Fixed Account.
The Contract Value of each Account will be depleted before the next is charged.
The minimum transfer amount is $500 ($50 under the Dollar Cost Averaging and
Asset Reallocation Options), or the amount remaining in a given Subaccount.
Contract Value may also be transferred from the Subaccounts to the Fixed
Account; however, transfers from the Fixed Account to the Subaccounts are
restricted as described in "The Fixed Account" on page 21 and "Loans" on page
23.
Security Benefit reserves the right at a future date to limit the number,
size and frequency of transfers, and to discontinue telephone transfers.
CONTRACT VALUE
The Contract Value is the sum of the amounts under the Contract held in
each Subaccount of the Separate Account and in the Fixed Account. On each
Valuation Date, the portion of the Contract Value allocated to any particular
Subaccount will be adjusted to reflect the investment experience of that
Subaccount. See "Determination of Contract Value," below. No minimum amount of
Contract Value is guaranteed. A Contractowner bears the entire investment risk
relating to the investment performance of Contract Value allocated to the
Subaccounts.
DETERMINATION OF CONTRACT VALUE
The Contract Value will vary to a degree that depends upon several factors,
including investment performance of the Subaccounts to which Contract Value has
been allocated, payment of purchase payments, the amount of any outstanding
Contract Debt, partial withdrawals, and the charges assessed in connection with
the Contract. The amounts allocated to the Subaccounts will be invested in
shares of the corresponding Funds of the Mutual Fund. The investment performance
of the Subaccounts will reflect increases or decreases in the net asset value
per share of the corresponding Funds and any dividends or distributions declared
by a Fund. Any dividends or distributions from any Fund of the Mutual Fund will
be automatically reinvested in shares of the same Fund, unless Security Benefit,
on behalf of the Separate Account, elects otherwise.
Assets in the Subaccounts are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's
interest in a Subaccount. When a Contractowner allocates purchase payments to a
Subaccount, the Contract is credited with Accumulation Units. The number of
Accumulation Units to be credited is determined by dividing the dollar amount
allocated to the particular Subaccount by the Accumulation Unit value for the
particular Subaccount at the end of the Valuation Period in which the purchase
payment is credited. In addition, other transactions including loans, full or
partial withdrawals, transfers, and assessment of certain charges against the
Contract affect the number of Accumulation Units credited to a Contract. The
number of units credited or debited in connection with any such transaction is
determined by dividing the dollar amount of such transaction by the unit value
of the affected Subaccount. The Accumulation Unit value of each Subaccount is
determined on each Valuation Date. The number of Accumulation Units credited to
a Contract shall not be changed by any subsequent change in the value of an
Accumulation Unit, but the dollar value of an Accumulation Unit may vary from
Valuation Date to Valuation Date depending upon the investment experience of the
Subaccount and charges against the Subaccount.
The Accumulation Unit value of each Subaccount's unit initially was $10.
The unit value of a Subaccount on any Valuation Date is calculated by dividing
the value of each Subaccount's net assets by the number of Accumulation Units
credited to the Subaccount on that date. Determination of the value of the net
assets of a Subaccount takes into account the following: (1) the investment
performance of the Subaccount, which is based upon the investment performance of
the corresponding Fund of the Mutual Fund, (2) any dividends or distributions
paid by the corresponding Fund, (3) the charges, if any, that may be assessed by
Security Benefit for taxes attributable to the operation of the Subaccount, (4)
the mortality and expense risk charge under the Contract, and (5) the
administrative charge under the Contract.
FULL AND PARTIAL WITHDRAWALS
A Contractowner may obtain proceeds from a Contract by surrendering the
Contract for its Full Withdrawal Value or by making a partial withdrawal. A full
or partial withdrawal, including a systematic withdrawal, may be taken from the
Contract Value at any time while the Owner is living and before the Annuity
Start Date, subject to the limitations under the applicable plan for Qualified
Plans and applicable law. A full or partial withdrawal request will be effective
as of the end of the Valuation Period that a proper written request is received
by Security Benefit at its Home Office. A
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proper written request must include the written consent of any effective
assignee or irrevocable Beneficiary, if applicable.
The proceeds received upon a full withdrawal will be the Contract's Full
Withdrawal Value. The Full Withdrawal Value is equal to the Contract Value as of
the end of the Valuation Period during which a proper withdrawal request is
received by Security Benefit at its Home Office, minus any maintenance fee, any
applicable contingent deferred sales charge, and any outstanding Contract Debt.
A partial withdrawal may be requested for a specified percentage or dollar
amount of Contract Value. Each partial withdrawal must be for at least $500
except systematic withdrawals discussed below. A request for a partial
withdrawal will result in a payment by Security Benefit in accordance with the
amount specified in the partial withdrawal request. Upon payment, the Contract
Value will be reduced by an amount equal to the payment and any applicable
contingent deferred sales charge, and any applicable premium tax. If a partial
withdrawal is requested that would leave the Full Withdrawal Value in the
Contract less than $2,000, then Security Benefit reserves the right to treat the
partial withdrawal as a request for a full withdrawal.
The amount of a partial withdrawal will be allocated from the Contract
Value in the Subaccounts and the Fixed Account, according to the Contractowner's
instructions to Security Benefit. If a Contractowner does not specify the
allocation, the withdrawal will be allocated from the Contract Value in the
Subaccounts and the Fixed Account in the following order: Prime Obligations
Subaccount, Bond Subaccount, Equity Subaccount, International Discovery
Subaccount and Small Capitalization Subaccount and then from the Fixed Account.
The value of each Account will be depleted before the next account is charged. A
full or partial withdrawal from an Individual Contract, including a systematic
withdrawal, may result in the deduction of a contingent deferred sales charge.
See "Contingent Deferred Sales Charge," on page 17.
A full or partial withdrawal, including a systematic withdrawal, may be
subject to a premium tax charge to reimburse Security Benefit for any tax on
premiums on a Contract that may be imposed by various states and municipalities.
See "Premium Tax Charge," on page 19.
A full or partial withdrawal, including a systematic withdrawal, may result
in receipt of taxable income to the Owner and, in some instances, in a penalty
tax. In the case of Contracts issued in connection with retirement plans that
meet the requirements of Section 401(a), 403(b), 408 or 457 of the Internal
Revenue Code, reference should be made to the terms of the particular Qualified
Plan for any limitations or restrictions on withdrawals. For more information,
see "Restrictions on Withdrawals from Qualified Plans" on page 23. The tax
consequences of a withdrawal under the Contract should be carefully considered,
including the 10 percent penalty tax that may be imposed on withdrawals
(including systematic withdrawals) made prior to the Owner attaining age 59 1/2.
See "Federal Tax Matters" on page 24.
SYSTEMATIC WITHDRAWALS
Security Benefit currently offers a feature under which systematic
withdrawals may be elected. Under this feature, a Contractowner may elect to
receive systematic withdrawals before the Annuity Start Date by sending a
properly completed Systematic Withdrawal Request form to Security Benefit at its
Home Office. If a Contractowner so elects in the application, systematic
withdrawals may be started immediately. If not so elected, systematic
withdrawals will be available after the third annual Contract anniversary. A
Contractowner may designate the systematic withdrawal amount as a percentage of
Contract Value allocated to the Subaccounts and/or Fixed Account, as a specified
dollar amount, as all earnings in the Contract, or as based upon the life
expectancy of the Owner or the Owner and a Beneficiary, and the desired
frequency of the systematic withdrawals, which may be monthly, quarterly,
semiannually or annually. Systematic withdrawals may be stopped or modified upon
proper written request by the Contractowner received by Security Benefit at its
Home Office at least 30 days in advance. A proper request must include the
written consent of any effective assignee or irrevocable Beneficiary, if
applicable.
Each systematic withdrawal must be at least $50. Upon payment, the
Contractowner's Contract Value will be reduced by an amount equal to the payment
proceeds plus any applicable contingent deferred sales charge and any applicable
premium tax. Systematic withdrawals may be made without the imposition of a
contingent deferred sales charge to the extent that the total amount of such
withdrawals during any Contract Year does not exceed 10 percent of the Contract
Value, less any Contract Debt, on the date of the first such withdrawal in that
Contract Year. Systematic withdrawals in excess of this amount will be subject
to the contingent deferred sales charge. Systematic withdrawals without the
imposition of a contingent deferred sales charge are not available in any
Contract Year in which the Free Withdrawal Privilege, discussed below, is
exercised. Any systematic withdrawal that equals or exceeds the Full Withdrawal
Value will be treated as a full withdrawal. In no event will payment of a
systematic withdrawal exceed the Full Withdrawal Value less any applicable
premium tax. The Contract will automatically terminate if a systematic
withdrawal causes the Contract's Full Withdrawal Value to equal zero.
Each systematic withdrawal will be effected as of the end of the Valuation
Period during which the withdrawal is scheduled. The deduction caused by the
systematic withdrawal will be allocated from the Contractowner's Contract Value
in the Subaccounts and the Fixed Account, as directed by the Contractowner.
Security Benefit may, at any time, change the minimum amount for any
systematic withdrawals, impose or increase minimum remaining balances, limit the
number and frequency of requests for modifying systematic withdrawals and impose
a charge on systematic withdrawals.
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FREE-LOOK RIGHT
An Owner may return a Contract within the Free-Look Period, which is
generally a ten-day period beginning when the Owner receives the Contract. The
returned Contract will then be deemed void and Security Benefit will refund any
purchase payments allocated to the Fixed Account plus the Contract Value in the
Subaccounts plus any charges deducted from the Subaccounts and premium taxes, if
any. Security Benefit will refund purchase payments allocated to the Subaccounts
rather than Contract Value in those states that require it to do so.
DEATH BENEFIT
If the Owner dies during the Accumulation Period, Security Benefit will pay
the death benefit proceeds to the Designated Beneficiary upon receipt, within
six months of the date of the Owner's death, of due proof of death and
instructions regarding payment to the Designated Beneficiary. If there are Joint
Owners, the death benefit proceeds will be payable upon receipt of due proof of
death of either Owner during the Accumulation Period and instructions regarding
payment. If the Owner is not a natural person, the death benefit proceeds will
be payable upon receipt of due proof of death of the Annuitant during the
Accumulation Period and instructions regarding payment. If the death of the
Owner occurs on or after the Annuity Start Date, no death benefit proceeds will
be payable under the Contract, except that any guaranteed payments remaining
unpaid will continue to be paid to the Annuitant pursuant to the Annuity Option
in force at the date of death.
If the age of each Owner was 75 or younger on the date the Contract was
issued, the death benefit will be the greater of (a) the aggregate purchase
payments, less any reductions caused by previous withdrawals and any premium
tax, (b) the Contract Value on the date due proof of death is received by
Security Benefit at its Home Office, less any premium tax, or (c) the stepped-up
death benefit. The stepped-up death benefit is: (a) the largest death benefit on
any Contract anniversary that is both an exact multiple of seven and occurs
prior to the oldest Owner attaining age 76, plus (b) any purchase payments made
since the applicable seventh year anniversary, and (c) less any reductions
caused by previous withdrawals since the applicable seventh year anniversary and
less premium taxes.
If the age of any Owner was 76 or greater on the date the Contract was
issued, or if due proof of death and instructions regarding payment are not
received by Security Benefit at its Home Office within six months of the date of
the Owner's death, the death benefit will be the full withdrawal value.
The death benefit proceeds will be paid to the Designated Beneficiary in a
single sum or under one of the Annuity Options, as directed by the Owner or as
elected by the Designated Beneficiary. If the Designated Beneficiary is to
receive annuity payments under an Annuity Option, there may be limits under
applicable law on the amount and duration of payments that the Beneficiary may
receive, and requirements respecting timing of payments. A tax adviser should be
consulted in considering Annuity Options.
For Contracts issued in connection with Non-Qualified Plans, if the
surviving spouse of the deceased Owner is the sole Designated Beneficiary, such
spouse may continue this Contract in force until the earliest of the spouse's
death or the Annuity Start Date. For any Designated Beneficiary other than a
surviving spouse, only those options may be chosen that provide for complete
distribution of such Owner's interest in the Contract within five years of the
death of the Owner, or if the Designated Beneficiary is a natural person, that
person can elect to begin receiving annuity payments within one year of the
Owner's death over a period not extending beyond his or her life or life
expectancy. If the Owner of the Contract is not a natural person, these
distribution rules are applicable upon the death of or a change in the primary
Annuitant.
For Contracts issued in connection with Qualified Plans, the terms of the
particular Qualified Plan and the Internal Revenue Code should be reviewed with
respect to limitations or restrictions on distributions following the death of
the Owner or Annuitant. Because the rules applicable to Qualified Plans are
extremely complex, a competent tax adviser should be consulted.
If the Annuitant dies prior to the Annuity Start Date, and the Owner is a
natural person and is not the Annuitant, no death benefit proceeds will be
payable under the Contract. The Owner may name a new Annuitant within 30 days of
the Annuitant's death or if a new Annuitant is not named, Security Benefit will
designate the Owner as Annuitant. On the death of the Annuitant after the
Annuity Start Date, any guaranteed payments remaining unpaid will continue to be
paid to the Designated Beneficiary pursuant to the Annuity Option in force at
the date of death. See "Federal Tax Matters," on page 24 for a discussion of the
tax consequences in the event of death.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE
Security Benefit does not make any deduction for sales charges from
purchase payments paid for an Individual Contract before allocating them to a
Contractowner's Contract Value. However, except as set forth below, a contingent
deferred sales charge (which may also be referred to as a withdrawal charge),
may be assessed by Security Benefit on a full or partial withdrawal from an
Individual Contract, to the extent the amount withdrawn is attributable to
purchase payments made, depending upon the amount of time such withdrawal
amounts have been held under the Individual Contract. During the first Contract
Year, the withdrawal charge applies against the total amount withdrawn
attributable to total purchase payments made. Each Contract Year thereafter, a
withdrawal charge will not be assessed upon the first withdrawal in the Contract
Year of up to 10 percent of the Contract Value, less any Contract
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Debt, as of the date of the withdrawal (the "Free Withdrawal Privilege"). If a
full or partial withdrawal in excess of this 10 percent allowable amount is
made, a withdrawal charge may be assessed on the amount withdrawn in excess of
the 10 percent allowable amount. If a second or subsequent withdrawal, including
a systematic withdrawal, is made in the same Contract Year, a withdrawal charge
may be assessed on the entire amount withdrawn.
For purposes of the charge, a withdrawal will be attributed first to
purchase payments in the order they were received by Security Benefit and then
will be attributed to earnings, even if the Contractowner elects to redeem
amounts allocated to an Account (including the Fixed Account) other than an
Account to which purchase payments were allocated. The amount of the charge will
depend upon the number of years that the purchase payments to which the
withdrawal is attributed have remained credited under the Contract, as follows:
AGE OF PURCHASE WITHDRAWAL
PAYMENT IN YEARS CHARGE
---------------- ------
1.................................. 5%
2.................................. 5%
3.................................. 5%
4.................................. 5%
5.................................. 4%
6.................................. 3%
7.................................. 2%
8.................................. 0%
For purposes of determining the age of the purchase payment, the purchase
payment is considered age 1 in the year beginning on the date the purchase
payment is received by Security Benefit and increases in age each year
thereafter. In no event will the amount of any withdrawal charge, when added to
any such charge previously assessed against any amount withdrawn from the
Contract, exceed 5 percent of the purchase payments paid under a Contract. In
addition, no charge will be imposed (1) upon payment of death benefit proceeds
under the Contract (except Contracts for which the issue age of any Owner is
older than age 75 or for which due proof of death and instructions regarding
payment are not received within six months of the date of death), (2) upon total
and permanent disability prior to age 65, or (3) upon annuitization. In
addition, systematic withdrawals from the Contracts may be made without the
imposition of the withdrawal charge, to the extent that the total amount of such
systematic withdrawals during any Contract Year does not exceed 10 percent of
the Contract Value, less any Contract Debt, on the date of the first such
withdrawal in that Contract Year. If a partial withdrawal and a systematic
withdrawal are taken in the same Contract Year, the Free Withdrawal Privilege
will apply to the partial withdrawal only if it occurs earlier than the first
systematic withdrawal in that Contract Year. The withdrawal charge will be
assessed against the Subaccounts and Fixed Account in the same proportion as the
withdrawal proceeds are allocated.
The contingent deferred sales charge will be used to recover certain
expenses relating to sales of the Contracts, including commissions and other
promotional costs. The amount derived by Security Benefit from the contingent
deferred sales charge is not expected to be sufficient to cover the promotional
expenses in connection with the Contracts. To the extent that all promotional
expenses are not recovered from the charge, such expenses may be recovered from
other charges, including amounts derived indirectly from the charge for
mortality and expense risks.
Security Benefit does not make any deduction for sales charges from
purchase payments paid for a Trust Contract before allocating them under such a
Contract, and no contingent deferred sales charge is assessed by Security
Benefit on a full or partial withdrawal from a Trust Contract.
MORTALITY AND EXPENSE RISK CHARGE
Security Benefit deducts a daily charge from the assets of each Subaccount
for mortality and expense risks assumed by Security Benefit under the Contracts.
The charge under the Individual Contracts is equal to an annual rate of 1.25
percent of each Subaccount's average daily net assets that fund the Individual
Contracts. This amount is intended to compensate Security Benefit for certain
mortality and expense risks Security Benefit assumes in offering and
administering the Individual Contracts and in operating the Subaccounts. The
1.25 percent charge consists of approximately .65 percent for expense risk and
.60 percent for mortality risk.
The mortality and expense risk charge under the Trust Contracts is equal to
an annual rate of .65 percent of each Subaccount's average daily net assets that
fund the Trust Contracts. This amount is intended to compensate Security Benefit
for certain mortality and expense risks Security Benefit assumes in offering and
administering the Trust Contracts and in operating the Separate Account. The .65
percent charge consists of approximately .05 percent for expense risk and .60
percent for mortality risk.
The expense risk is the risk that Security Benefit's actual expenses in
issuing and administering the Contracts and operating the Subaccounts will be
more than the charges assessed for such expenses. The mortality risk borne by
Security Benefit is the risk that Annuitants, as a group, will live longer than
Security Benefit's actuarial tables predict. In this event, Security Benefit
guarantees that annuity payments will not be affected by a change in mortality
experience that results in the payment of greater annuity income than assumed
under the Annuity Options in the Contract. Security Benefit also assumes a
mortality risk in connection with the death benefit under the Contract.
Security Benefit may ultimately realize a profit from this charge to the
extent it is not needed to cover mortality and administrative expenses, but
Security Benefit may realize a loss to the extent the charge is not sufficient.
Security Benefit may use any profit derived from this charge for any
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lawful purpose, including any promotional expenses not covered by the contingent
deferred sales charge.
ADMINISTRATIVE CHARGE
Security Benefit deducts a daily administrative charge equal to an annual
rate of .15 percent of each Subaccount's average daily net assets that fund the
Individual Contracts. For the Trust Contracts, the charge is equal to an annual
rate of .05 percent of each Subaccount's average daily net assets that fund the
Trust Contracts. The purpose of this charge is to reimburse Security Benefit for
the expenses associated with administration of the Contracts and operation of
the Subaccounts. Security Benefit does not expect to profit from this charge.
MAINTENANCE FEE
An annual fee of $30 is deducted on each Contract anniversary to cover the
costs of maintaining records for the Individual Contracts. The fee will be
deducted from the Contract Value in the Subaccounts and the Fixed Account in the
following order: Prime Obligations Subaccount, Bond Subaccount, Equity
Subaccount, International Discovery Subaccount and Small Capitalization
Subaccount and then from the Fixed Account. The Contract Value of each Account
will be depleted before the next is charged. This charge is not deducted after
the Annuity Start Date if one of the first four Annuity Options is elected, nor
in connection with the Trust Contracts. Upon annuitization under one of Annuity
Options 1 through 4 or a full withdrawal, the charge will be prorated for the
portion of the Contract Year prior to the Annuity Start Date or during which the
Contract was in force. Security Benefit does not expect to profit from this
charge.
PREMIUM TAX CHARGE
Various states and municipalities impose a tax on premiums on annuity
contracts received by insurance companies. Whether or not a premium tax is
imposed will depend upon, among other things, the Owner's state of residence,
the Annuitant's state of residence, and the insurance tax laws and Security
Benefit's status in a particular state. Security Benefit assesses a premium tax
charge to reimburse itself for premium taxes that it incurs in connection with a
Contract. This charge will be deducted upon annuitization, upon full or partial
withdrawal, or upon payment of the death benefit, if premium taxes are incurred
at that time and are not refundable. Security Benefit reserves the right to
deduct premium taxes when due or any time thereafter. Premium tax rates
currently range from 0 percent to 3.5 percent, but are subject to change by a
governmental entity.
OTHER CHARGES
Security Benefit may charge the Separate Account or the Subaccounts for the
federal, state, or local taxes incurred by Security Benefit that are
attributable to the Separate Account or the Subaccounts, or to the operations of
Security Benefit with respect to the Contracts, or that are attributable to
payment of premiums or acquisition costs under the Contracts. No such charge is
currently assessed. See "Tax Status of Security Benefit and the Separate
Account" and "Charge for Security Benefit Taxes."
VARIATIONS IN CHARGES
Security Benefit may reduce or waive the amount of the contingent deferred
sales charge, administrative charge, and Contract maintenance fee for a Contract
where the expenses associated with the sale of the Contract or the
administrative and maintenance costs associated with the Contract are reduced
for reasons such as the amount of the initial purchase payment, the amounts of
projected purchase payments, or that the Contract is sold in connection with a
group or sponsored arrangement. Security Benefit may also reduce or waive the
contingent deferred sales charge, administrative charge, and maintenance fee on
Contracts sold to the directors or employees (and certain members of their
families) of Security Benefit, First of America, or any of their respective
affiliates or to trustees of the Mutual Fund. Security Benefit will only reduce
or waive such charges and fees where expenses associated with the sale of the
Contract or the costs associated with administering and maintaining the Contract
are reduced.
GUARANTEE OF CERTAIN CHARGES
Security Benefit guarantees that the charge for mortality and expense risks
will not exceed an annual rate of 1.25 percent under the Individual Contracts
and .65 percent under the Trust Contracts, the annual maintenance fee deducted
from the Individual Contracts shall not exceed $30, and the administrative
charge shall not exceed an annual rate of .15 percent under the Individual
Contracts or .05 percent under the Trust Contracts.
MUTUAL FUND EXPENSES
Each Subaccount of the Separate Account purchases shares at the net asset
value of the corresponding Fund of the Mutual Fund. Each Fund's net asset value
reflects the investment advisory fee and other expenses that are deducted from
the assets of the Fund. The advisory fees and other expenses are more fully
described in the Mutual Fund's prospectus.
ANNUITY PERIOD
GENERAL
The Contractowner selects the Annuity Start Date at the time of
application. The Annuity Start Date may not be prior to the third annual
Contract anniversary and may not be deferred beyond the later of the Annuitant's
85th birthday or the tenth annual Contract anniversary, although the terms of a
Qualified Plan may require annuitization at an earlier age. If the Contractowner
does not select an Annuity Start Date, the Annuity Start Date will be the
Annuitant's 65th birthday. See "Selection of an Option," on page 21. If there
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are Joint Annuitants, the birthdate of the older Annuitant will be used to
determine the latest Annuity Start Date.
On the Annuity Start Date, the proceeds under the Contract will be applied
to provide an annuity under one of the options described below. Each option is
available in two forms--either as a variable annuity for use with the
Subaccounts or as a fixed annuity for use with the Fixed Account. A combination
variable and fixed annuity is also available. Variable annuity payments will
fluctuate with the investment performance of the applicable Subaccounts while
fixed annuity payments will not. Unless the Owner directs otherwise, proceeds
derived from Contract Value allocated to the Subaccounts will be applied to
purchase a variable annuity and proceeds derived from Contract Value allocated
to the Fixed Account will be applied to purchase a fixed annuity. The proceeds
under the Contract will be equal to the Contractowner's Contract Value in the
Subaccounts and the Fixed Account as of the Annuity Start Date, reduced by any
applicable premium taxes, any prorated portion of maintenance fee due, and any
outstanding Contract Debt. If at the time an Annuity Option is elected, any
withdrawals from the Contract would be subject to a withdrawal charge, then the
Annuity Option elected must be for a period of seven years or longer.
The Contracts provide for six optional annuity forms. Other Annuity Options
may be available upon request at the discretion of Security Benefit. Annuity
payments are based upon annuity rates that vary with the Annuity Option
selected. In the case of Options 1, 2, 3, and 4, the rates will vary based on
the age and sex of the Annuitant, except that unisex rates are available where
required by law. In the case of Options 5 and 6 as described below, age and sex
are not considerations. The annuity rates are based upon an assumed interest
rate of 3.5 percent, compounded annually. If no Annuity Option has been
selected, annuity payments will be made to the Annuitant under an automatic
option which shall be an annuity payable during the lifetime of the Annuitant
with payments guaranteed to be made for 120 months under Option 2.
Annuity payments can be made on a monthly, quarterly, semiannual, or annual
basis, although no payments will be made for less than $50. If the frequency of
payments selected would result in payments of less than $50, Security Benefit
reserves the right to change the frequency.
An Owner may designate or change an Annuity Start Date, Annuity Option, and
Annuitant, provided proper written notice is received by Security Benefit at its
Home Office at least 30 days prior to the Annuity Start Date set forth in the
Contract. The date selected as the new Annuity Start Date must be at least 30
days after the date written notice requesting a change of Annuity Start Date is
received at Security Benefit's Home Office.
Once annuity payments have commenced, an Annuitant or Owner cannot change
the Annuity Option and cannot surrender his or her annuity and receive a
lump-sum settlement in lieu thereof. The Contract contains annuity tables for
Annuity Options 1 through 4 described below. The tables show the dollar amount
of periodic annuity payments for each $1,000 applied to an Annuity Option.
ANNUITY OPTIONS
OPTION 1 - LIFE INCOME
Periodic annuity payments will be made during the lifetime of the
Annuitant. It is possible under this Option for any Annuitant to receive only
one annuity payment if the Annuitant's death occurred prior to the due date of
the second annuity payment, two if death occurred prior to the third annuity
payment due date, etc. THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER
THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE ANNUITANT, REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
OPTION 2 - LIFE INCOME WITH GUARANTEED PAYMENTS OF 5, 10, 15 OR 20 YEARS
Periodic annuity payments will be made during the lifetime of the Annuitant
with the promise that if, at the death of the Annuitant, payments have been made
for less than a stated period, which may be five, ten, fifteen or twenty years,
as elected, annuity payments will be continued during the remainder of such
period to the Designated Beneficiary.
OPTION 3 - LIFE WITH INSTALLMENT REFUND OPTION
Periodic annuity payments will be made during the lifetime of the Annuitant
with the promise that, if at the death of the Annuitant, the number of payments
that has been made is less than the number determined by dividing the amount
applied under this Option by the amount of the first payment, annuity payments
will be continued to the Designated Beneficiary until that number of payments
has been made.
OPTION 4 - JOINT AND LAST SURVIVOR
Periodic annuity payments will be made during the lifetime of either
Annuitant. It is possible under this Option for only one annuity payment to be
made if both Annuitants died prior to the second annuity payment due date, two
if both died prior to the third annuity payment due date, etc. AS IN THE CASE OF
OPTION 1, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION.
PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT, REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
OPTION 5 - PAYMENTS FOR A SPECIFIED PERIOD
Periodic annuity payments will be made for a fixed period, which may be
from five to twenty years, as elected, with the guarantee that, if, at the death
of all Annuitants, payments have been made for less than the selected fixed
period, the remaining unpaid payments will be paid to the Designated
Beneficiary.
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OPTION 6 - PAYMENTS OF A SPECIFIED AMOUNT
Periodic payments of the amount elected will be made until the amount
applied and interest thereon are exhausted, with the guarantee that, if, at the
death of all Annuitants, all guaranteed payments have not yet been made, the
remaining unpaid payments will be paid to the Designated Beneficiary.
SELECTION OF AN OPTION
Contractowners should carefully review the Annuity Options with their
financial or tax advisers, and, for Contracts used in connection with a
Qualified Plan, reference should be made to the terms of the particular plan and
the requirements of the Internal Revenue Code for pertinent limitations
respecting annuity payments and other matters. For instance, Qualified Plans
generally require that annuity payments begin no later than April 1 of the
calendar year following the year in which the Annuitant reaches age 70 1/2. In
addition, under Qualified Plans, the period elected for receipt of annuity
payments under Annuity Options generally may be no longer than the joint life
expectancy of the Annuitant and Beneficiary in the year that the Annuitant
reaches age 70 1/2, and must be shorter than such joint life expectancy if the
Beneficiary is not the Annuitant's spouse and is more than ten years younger
than the Annuitant. For Non-Qualified Plans, SBL does not allow annuity payments
to be deferred beyond the later of the Annuitant's 85th birthday or the tenth
annual Contract anniversary.
THE FIXED ACCOUNT
Contractowners may allocate all or a portion of their purchase payments and
transfer Contract Value to the Fixed Account. Amounts allocated to the Fixed
Account become part of Security Benefit's General Account, which supports
Security Benefit's insurance and annuity obligations. The General Account is
subject to regulation and supervision by the Kansas Department of Insurance as
well as the insurance laws and regulations of other jurisdictions in which the
Contract is distributed. In reliance on certain exemptive and exclusionary
provisions, interests in the Fixed Account have not been registered as
securities under the Securities Act of 1933 (the "1933 Act") and the Fixed
Account has not been registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, neither the Fixed Account nor
any interests therein are generally subject to the provisions of the 1933 Act or
the 1940 Act. Security Benefit has been advised that the staff of the SEC has
not reviewed the disclosure in this Prospectus relating to the Fixed Account.
This disclosure, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in the Prospectus. This Prospectus is generally
intended to serve as a disclosure document only for aspects of a Contract
involving the Separate Account and contains only selected information regarding
the Fixed Account. For more information regarding the Fixed Account, see "The
Contract" on page 12.
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.
INTEREST
Amounts allocated to the Fixed Account earn interest at a fixed rate or
rates that are paid by Security Benefit. The Contract Value in the Fixed Account
earns interest at an interest rate that is guaranteed to be at least an annual
effective rate of 3.5 percent which will accrue daily ("Guaranteed Rate"). Such
interest will be paid regardless of the actual investment experience of the
Fixed Account. In addition, Security Benefit may in its discretion pay interest
at a rate ("Current Rate") that exceeds the Guaranteed Rate. Security Benefit
will determine the Current Rate, if any, from time to time, and reserves the
right to change such rate at any time.
Contract Value that was 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 a Contractowner's Contract 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 investment risk for
the Contract Value allocated to the Fixed Account and for paying interest at the
Guaranteed Rate on amounts allocated to the Fixed Account.
For purposes of determining the interest rates to be credited on Contract
Value in the Fixed Account, withdrawals, loans, or transfers from the Fixed
Account will be deemed to be taken from purchase payments or transfers in the
order in which they were credited to the Fixed Account, and interest
attributable to each such purchase payment or transfer shall be deemed taken
before the amount of each purchase payment or transfer.
DEATH BENEFIT
The death benefit under the Contract will be determined in the same fashion
for a Contract that has Contract Value in the Fixed Account as for a Contract
that has Contract Value allocated to the Subaccounts. See "Death Benefit," on
page 17.
CONTRACT CHARGES
The contingent deferred sales charge, the maintenance fee, and premium
taxes will be the same for Contractowners who allocate purchase payments or
transfer Contract Value to the Fixed Account as for those who allocate purchase
payments to the Subaccounts. The charges for mortality and
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expense risks and the administrative charge will not be assessed against the
Fixed Account, and any amounts that Security Benefit pays for income taxes
allocable to the Subaccounts will not be charged against the Fixed Account. In
addition, the investment advisory fees and operating expenses paid by the Mutual
Fund will not be paid directly or indirectly by Contractowners to the extent the
Contract Value is allocated to the Fixed Account; however, such Contractowners
will not participate in the investment experience of the Subaccounts.
TRANSFERS AND WITHDRAWALS
Amounts may be transferred from the Subaccounts to the Fixed Account and
from the Fixed Account to the Subaccounts, subject to the following limitations.
During the Accumulation Period, a Contractowner may transfer from the Fixed
Account to the Subaccounts in any Contract Year not more than the greatest of
(1) $5,000, (2) one third of the amount invested in the Fixed Account at the
time of the first transfer in the Contract Year, or (3) 120 percent of the
amount transferred from the Fixed Account during the previous Contract Year.
Security Benefit reserves the right for a period of time to allow transfers from
the Fixed Account in amounts that exceed the limits set forth above ("Waiver
Period"). In any Contract Year following such a Waiver Period, the total dollar
amount that may be transferred from the Fixed Account is the greatest of: (1)
above; (2) above; or (3) 120 percent of the lesser of: (i) the dollar amount
transferred from the Fixed Account in the previous Contract Year; or (ii) the
maximum dollar amount that would have been allowed in the previous Contract year
under the transfer provisions above absent the Waiver Period.
The first 12 transfers in any calendar year are without charge; for any
additional transfers, a charge of $25 is imposed. The minimum transfer amount is
$500 or the amount remaining in the Fixed Account. Security Benefit reserves the
right to impose limitations on the number, amount and frequency of transfers in
the future.
The Contractowner may also make full and partial withdrawals to the same
extent as a Contractowner who has allocated Contract Value to the Subaccounts.
See "Full and Partial Withdrawals," page 15. In addition, to the same extent as
Contractowners with Contract Value in the Subaccounts, the Owner of a Contract
used in connection with a Qualified Plan may obtain a loan if so permitted under
the terms of such Qualified Plan. See "Loans," page 23.
PAYMENTS FROM THE FIXED ACCOUNT
Full and partial withdrawals, loans, and transfers from the Fixed Account
may be delayed for up to six months after a written request in proper form is
received by Security Benefit at its Home Office. During the period of deferral,
interest at the applicable interest rate or rates will continue to be credited
to the amounts allocated to the Fixed Account. However, payment of any amounts
will not be deferred if they are to be used to pay premiums on any policies or
contracts issued by Security Benefit.
MORE ABOUT THE CONTRACT
OWNERSHIP
The Contractowner is the individual named as such in the application or in
any later change shown in Security Benefit's records. While living, the
Contractowner alone has the right to receive all benefits and exercise all
rights that the Contract grants or Security Benefit allows.
JOINT OWNERS. The Joint Owners will be joint tenants with rights of
survivorship and upon the death of an Owner, the surviving Owner shall be the
sole Owner; however, the Designated Beneficiary shall have the right to the
death benefit payable upon the death of the Owner duing the Accumulation Period.
Any Contract transaction requires the signature of all persons named jointly.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary is the individual named as such in the application or any
later change shown in Security Benefit's records. The Contractowner may change
the Beneficiary at any time while the Contract is in force by written request on
forms provided by Security Benefit and received by Security Benefit at its Home
Office. The change will not be binding on Security Benefit until it is received
and recorded at its Home Office. The change will be effective as of the date
this form is signed subject to any payments made or other actions taken by
Security Benefit before the change is received and recorded. A Contingent
Beneficiary may be designated. The Owner may designate a permanent Beneficiary
whose rights under the Contract cannot be changed without his or her consent.
Reference should be made to the terms of a particular Qualified Plan and
any applicable law for any restrictions or limitations on the designation of a
Beneficiary.
PARTICIPATING
The Contract is participating and will share in the surplus earnings of
Security Benefit. However, the current dividend scale is zero and Security
Benefit does not anticipate that dividends will be paid.
PAYMENTS FROM THE SEPARATE ACCOUNT
Security Benefit will pay any full or partial withdrawal benefit or death
benefit proceeds from Contract Value allocated to the Subaccounts, and will
effect a transfer between Subaccounts or from a Subaccount to the Fixed Account
within seven days from the Valuation Date a proper request is received at
Security Benefit's Home Office. However, Security Benefit can postpone the
calculation or payment of such a payment or transfer of amounts from the
Subaccounts to the extent permitted under applicable law, which is currently
permissible only for any period: (a) during which the New York Stock Exchange is
closed other than customary weekend and holiday closings,
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(b) during which trading on the New York Stock Exchange is restricted as
determined by the SEC, (c) during which an emergency, as determined by the SEC,
exists as a result of which (i) disposal of securities held by the Separate
Account is not reasonably practicable, or (ii) it is not reasonably practicable
to determine the value of the assets of the Separate Account, or (d) for such
other periods as the SEC may by order permit for the protection of investors.
PROOF OF AGE AND SURVIVAL
Security Benefit may require proof of age or survival of any person on
whose life annuity payments depend.
MISSTATEMENTS
If the age or sex of an Annuitant or age of an Owner has been misstated,
the correct amount paid or payable by Security Benefit under the Contract shall
be such as the Contract Value would have provided for the correct age or sex
(unless unisex rates apply).
LOANS
An Owner of a Contract issued in connection with a retirement plan that is
qualified under Section 401 or 403(b) of the Internal Revenue Code may borrow
money from Security Benefit using his or her Contract Value as the only security
for the loan by submitting a proper written request to Security Benefit. A loan
may be taken while the Owner is living and prior to the Annuity Start Date. The
minimum loan that may be taken is $1,000. For Contracts with Contract Value of
$20,000 or less, the maximum loan that can be taken is the amount that produces
a loan balance immediately after the loan that is the lesser of $10,000 or 75
percent of the Contract Value. For Contracts with Contract Value over $20,000,
the maximum loan that can be taken is the amount that produces a loan balance
immediately after the loan that is the lesser of (1) $50,000 reduced by the
excess of (a) the highest outstanding loan balance within the preceding 12 month
period ending on the date the loan is made over (b) the outstanding loan balance
on the date the loan is made or (2) 50 percent of the Contract Value. Reference
should be made to the terms of the particular Qualified Plan for any additional
loan restrictions.
When an eligible Contractowner takes a loan, Contract Value is transferred
from the Subaccounts to the Fixed Account in the amount necessary for the
Contract Value allocated to the Fixed Account to equal the loan amount. Such
Contract Value is security for the loan. In addition, Contract Value in an
amount equal to the loan amount is transferred from the Subaccounts and/or the
Fixed Account into an account called the "Loan Account." Amounts allocated to
the Loan Account earn 3.5 percent, the minimum rate of interest guaranteed under
the Fixed Account.
Interest will be charged for the loan and will accrue on the loan balance
from the effective date of any loan. The loan interest rate will be 5.5 percent.
Because the Contract Value maintained in the Loan Account will always be equal
in amount to the outstanding loan balance, the net cost of a loan is 2 percent.
Loans must be repaid within five years and before the Annuity Start Date,
unless Security Benefit determines that the loan is to be used to acquire a
principal residence for the Owner, in which case the loan must be repaid within
30 years and before the Annuity Start Date. Loan repayments must be made at
least quarterly. Loans that are not repaid within the required time periods will
be subject to taxation as distributions from the Contract. Loans may be prepaid
at any time. Upon receipt of a loan payment, Security Benefit will transfer
Contract Value from the Loan Account to the Fixed Account and/or the Subaccounts
according to the Owner's current instructions with respect to purchase payments
in an amount equal to the amount by which the payment reduces the amount of the
loan outstanding. If a loan payment is not received when due, a partial
withdrawal equal to the repayment amount due and any applicable withdrawal
charge will be made from the Contract and paid to Security Benefit. The portion
of the partial withdrawal equal to the unpaid principal due will be deducted
from the Contract Value serving as security for the loan and the portion equal
to interest due will be deducted from other Contract Value.
The partial withdrawal may be subject to taxation as a distribution.
Contractowners should consult with their tax advisers before requesting a loan.
While the amount to secure the loan is held in the Fixed Account and the
amount of the outstanding loan balance is held in the Loan Account, the Owner
forgoes the investment experience of the Subaccounts and the Current Rate of
interest on the Loan Account. Outstanding Contract Debt will reduce the amount
of proceeds paid upon full withdrawal or upon payment of the death benefit.
A Contractowner should consult with his or her tax adviser on the effect of
a loan.
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS
Generally, a Qualified Plan may not provide for the distribution or
withdrawal of amounts accumulated under such Qualified Plan until after a fixed
number of years, the attainment of a stated age or upon the occurrence of a
specific event such as hardship, disability, retirement, death or termination of
employment. Therefore, the Owner of a Contract purchased in connection with a
Qualified Plan may not be entitled to make a full or partial withdrawal, as
described in this Prospectus, unless one of the above-described conditions has
been satisfied. For this reason reference should be made to the terms of the
particular Qualified Plan, the Internal Revenue Code and other applicable law
for any limitation or restriction on distributions and withdrawals, including
the 10 percent penalty tax that may be imposed in the event of a distribution
from a Qualified Plan before the participant reaches age 59 1/2. See the
discussion under "Tax Penalties" on page 28.
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The distribution or withdrawal of amounts under a Contract purchased in
connection with a Qualified Plan may result in the receipt of taxable income to
the Owner or Annuitant and in some instances may also result in a penalty tax.
Therefore, the tax consequences of a distribution or withdrawal under a Contract
should be carefully considered and a competent tax adviser should be consulted.
See "Federal Tax Matters" below.
FEDERAL TAX MATTERS
INTRODUCTION
The Contract described in this Prospectus is designed for use by
individuals in retirement plans which may or may not be Qualified Plans under
the provisions of the Internal Revenue Code ("Code"). The ultimate effect of
federal income taxes on the amounts held under a Contract, on annuity payments,
and on the economic benefits to the Owner, the Annuitant, and the Beneficiary or
other payee will depend upon the type of retirement plan, if any, for which the
Contract is purchased, the tax and employment status of the individuals involved
and a number of other factors. The discussion contained herein and in the
Statement of Additional Information is general in nature. It is based upon
Security Benefit's understanding of the present federal income tax laws as
currently interpreted by the Internal Revenue Service ("IRS"), and is not
intended as tax advice. No representation is made regarding the likelihood of
continuation of the present federal income tax laws or of the current
interpretations by the IRS or the courts. Future legislation may affect annuity
contracts adversely. Moreover, no attempt has been made to consider any
applicable state or other laws. Because of the inherent complexity of such laws
and the fact that tax results will vary according to the particular
circumstances of the individual involved and, if applicable, the Qualified Plan,
any person contemplating the purchase of a Contract, contemplating selection of
an Annuity Option under a Contract, or receiving annuity payments under a
Contract should consult a qualified tax adviser. SECURITY BENEFIT DOES NOT MAKE
ANY GUARANTEE REGARDING THE TAX STATUS OF, OR TAX CONSEQUENCES ARISING FROM, ANY
CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACTS.
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT
GENERAL
Security Benefit is taxed as a life insurance company under Part I,
Subchapter L of the Code. Because the Separate Account is not taxed as a
separate entity and its operations form a part of Security Benefit, Security
Benefit will be responsible for any federal income taxes that become payable
with respect to the income of the Separate Account. However, each Subaccount
will bear its allocable share of such liabilities. Under current law, no item of
dividend income, interest income, or realized capital gain of the Subaccounts
will be taxed to Security Benefit to the extent it is applied to increase
reserves under the Contracts.
Under the principles set forth in I.R.S. Revenue Ruling 81-225 and Section
817(h) of the Code and regulations thereunder, Security Benefit believes that
Security Benefit will be treated as the owner of the assets in the Separate
Account for federal income tax purposes.
The Separate Account will invest its assets in a mutual fund that is
intended to qualify as a regulated investment company under Part I, Subchapter M
of the Code. If the requirements of the Code are met, the Mutual Fund will not
be taxed on amounts distributed on a timely basis to the Separate Account.
CHARGE FOR SECURITY BENEFIT TAXES
A charge may be made for any federal taxes incurred by Security Benefit
that are attributable to the Separate Account, the Subaccounts or to the
operations of Security Benefit with respect to the Contract or attributable to
payments, premiums, or acquisition costs under the Contracts. Security Benefit
will review the question of a charge to the Separate Account, the Subaccounts or
the Contracts for Security Benefit's federal taxes periodically. Charges may
become necessary if, among other reasons, the tax treatment of Security Benefit
or of income and expenses under the Contracts is ultimately determined to be
other than what Security Benefit currently believes it to be, if there are
changes made in the federal income tax treatment of variable annuities at the
insurance company level, or if there is a change in Security Benefit's tax
status.
Under current laws, Security Benefit may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, Security Benefit reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS
Each Fund of the Mutual Fund will be required to adhere to regulations
adopted by the Treasury Department pursuant to Section 817(h) of the Code
prescribing asset diversification requirements for investment companies whose
shares are sold to insurance company separate accounts funding variable
contracts. Pursuant to these regulations, on the last day of each calendar
quarter, no more than 55 percent of the total assets of a Fund may be
represented by any one investment, no more than 70 percent may be represented by
any two investments, no more than 80 percent may be represented by any three
investments, and no more than 90 percent may be represented by any four
investments. For purposes of Section 817(h), securities of a single issuer
generally are treated as one investment but obligations of the U.S. Treasury and
each U.S. Governmental agency or instrumentality generally are treated as
securities of separate issuers.
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In connection with the issuance of the regulations governing
diversification under Section 817(h) of the Code, the Treasury Department
announced that it would issue future regulations or rulings addressing the
circumstances in which a variable Contractowner's control of the investment of a
separate account may cause the contractowner, rather than the insurance company,
to be treated as the owner of the assets held by the separate account. If the
variable contractowner is considered the owner of the securities underlying the
separate account, income and gains produced by those securities would be
included currently in the Contractowner's gross income.
It is not clear, at present, what these regulations or rulings would
provide. It is possible that when the regulations or rulings are issued, the
Contract may need to be modified in order to remain in compliance. Security
Benefit intends to make reasonable efforts to comply with any such regulations
or rulings to assure that the Contract continues to be treated as an annuity
contract for federal income tax purposes and reserves the right to make such
changes as it deems appropriate for that purpose.
TAXATION OF ANNUITIES IN GENERAL - NON-QUALIFIED PLANS
Section 72 of the Code governs taxation of annuities. In general, a
contractowner is not taxed on increases in value under an annuity contract until
some form of distribution is made under the contract. However, the increase in
value may be subject to tax currently under certain circumstances. See
"Contracts Owned by Non-Natural Persons" on page 26 and "Diversification
Standards" on page 24.
1. Surrenders or Withdrawals Prior to the Annuity Start Date
Code Section 72 provides that amounts received upon a total or partial
withdrawal from a contract prior to the Annuity Start Date generally will be
treated as gross income to the extent that the cash value of the contract
(determined without regard to any surrender charge in the case of a partial
withdrawal) exceeds the "investment in the contract." The "investment in the
contract" is that portion, if any, of purchase payments paid under a contract
less any distributions received previously under the contract that are excluded
from the recipient's gross income. The taxable portion is taxed at ordinary
income tax rates. For purposes of this rule, a pledge or assignment of a
contract is treated as a payment received on account of a partial withdrawal of
a contract. Similarly, loans under a contract generally are treated as
distributions under the contract.
2. Surrenders or Withdrawals on or after the Annuity Start Date
Upon receipt of a lump-sum payment or an annuity payment under an annuity
contract, the receipt is taxed if the cash value of the contract exceeds the
investment in the contract. Ordinarily, the taxable portion of such payments
will be taxed at ordinary income tax rates.
For annuity payments, the taxable portion of each payment is determined by
using a formula known as the "exclusion ratio," which establishes the ratio that
the investment in the contract bears to the total expected amount of annuity
payments for the term of the contract. That ratio is then applied to each
payment to determine the non-taxable portion of the payment. That remaining
portion of each payment is taxed at ordinary income rates. Once the excludable
portion of annuity payments to date equals the investment in the contract, the
balance of the annuity payments will be fully taxable.
Withholding of federal income taxes on all distributions may be required
unless a recipient who is eligible elects not to have any amounts withheld and
properly notifies Security Benefit of that election.
3. Penalty Tax on Certain Surrenders and Withdrawals
With respect to amounts withdrawn or distributed before the taxpayer
reaches age 59 1/2, a penalty tax is imposed equal to 10 percent of the portion
of such amount which is includable in gross income. However, the penalty tax is
not applicable to withdrawals: (i) made on or after the death of the owner (or
where the owner is not an individual, the death of the "primary annuitant," who
is defined as the individual the events in whose life are of primary importance
in affecting the timing and amount of the payout under the contract); (ii)
attributable to the taxpayer's becoming totally disabled within the meaning of
Code Section 72(m)(7); (iii) which are part of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancies) of
the taxpayer and his or her beneficiary; (iv) from certain qualified plans; (v)
under a so-called qualified funding asset (as defined in Code Section 130(d));
(vi) under an immediate annuity contract; or (vii) which are purchased by an
employer on termination of certain types of qualified plans and which are held
by the employer until the employee separates from service.
If the penalty tax does not apply to a surrender or withdrawal as a result
of the application of item (iii) above, and the series of payments are
subsequently modified (other than by reason of death or disability), the tax for
the first year in which the modification occurs will be increased by an amount
(determined by the regulations) equal to the tax that would have been imposed
but for item (iii) above, plus interest for the deferral period, if the
modification takes place (a) before the close of the period which is five years
from the date of the first payment and after the taxpayer attains age 59 1/2, or
(b) before the taxpayer reaches age 59 1/2.
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ADDITIONAL CONSIDERATIONS
1. Distribution-at-Death Rules
In order to be treated as an annuity contract, a contract issued on or
after January 19, 1985, must provide the following two distribution rules: (a)
if the owner dies on or after the Annuity Start Date, and before the entire
interest in the contract has been distributed, the remainder of the owner's
interest will be distributed at least as quickly as the method in effect on the
owner's death; and (b) if the owner dies before the Annuity Start Date, the
entire interest in the contract must generally be distributed within five years
after the date of death, or, if payable to a designated beneficiary, must be
annuitized over the life of that designated beneficiary or over a period not
extending beyond the life expectancy of that beneficiary, commencing within one
year after the date of death of the owner. If the designated beneficiary is the
spouse of the owner, the contract (together with the deferral of tax on the
accrued and future income thereunder) may be continued in the name of the spouse
as owner.
Generally, for purposes of determining when distributions must begin under
the foregoing rules, where the owner is not an individual, the primary annuitant
is considered the owner. In that case, a change in the primary annuitant will be
treated as the death of the owner. Finally, in the case of joint owners, the
distribution-at-death rules will be applied by treating the death of the first
owner as the one to be taken into account in determining generally when
distributions must commence, unless the sole Beneficiary is the deceased owner's
spouse.
2. Gift of Annuity Contracts
Generally, gifts of non-tax qualified contracts prior to the Annuity Start
Date will trigger tax on the gain on the contract, with the donee getting a
stepped-up basis for the amount included in the donor's income. The 10 percent
penalty tax and gift tax also may be applicable. This provision does not apply
to transfers between spouses or incident to a divorce.
3. Contracts Owned by Non-Natural Persons
For contributions to annuity contracts after February 28, 1986, if the
contract is held by a non-natural person (for example, a corporation) the income
on that contract (generally the increase in net surrender value less the
purchase payments) is includable in taxable income each year. The rule does not
apply where the contract is acquired by the estate of a decedent, where the
contract is held by certain types of retirement plans, where the contract is a
qualified funding asset for structured settlements, where the contract is
purchased on behalf of an employee upon termination of a qualified plan, and in
the case of a so-called immediate annuity. An annuity contract held by a trust
or other entity as agent for a natural person is considered held by a natural
person.
4. Multiple Contract Rule
For contracts entered into on or after October 21, 1988, for purposes of
determining the amount of any distribution under Code Section 72(e) (amounts not
received as annuities) that is includable in gross income, all annuity contracts
issued by the same insurer to the same contractowner during any calendar year
are to be aggregated and treated as one contract. Thus, any amount received
under any such contract prior to the contract's Annuity Start Date, such as a
partial surrender, dividend, or loan, will be taxable (and possibly subject to
the 10 percent penalty tax) to the extent of the combined income in all such
contracts.
In addition, the Treasury Department has broad regulatory authority in
applying this provision to prevent avoidance of the purposes of this rule. It is
possible that, under this authority, the Treasury Department may apply this rule
to amounts that are paid as annuities (on and after the Annuity Start Date)
under annuity contracts issued by the same company to the same owner during any
calendar year. In this case, annuity payments could be fully taxable (and
possibly subject to the 10 percent penalty tax) to the extent of the combined
income in all such contracts and regardless of whether any amount would
otherwise have been excluded from income because of the "exclusion ratio" under
the contract.
QUALIFIED PLANS
The Contract may be used with Qualified Plans that meet the requirements of
Section 401, 403(b), 408 or 457 of the Code. The tax rules applicable to
participants in such Qualified Plans vary according to the type of plan and the
terms and conditions of the plan itself. No attempt is made herein to provide
more than general information about the use of the Contract with the various
types of Qualified Plans. Contractowners, Annuitants, and Beneficiaries, are
cautioned that the rights of any person to any benefits under such Qualified
Plans may be subject to the terms and conditions of the plans themselves or
limited by applicable law, regardless of the terms and conditions of the
Contract issued in connection therewith. For example, Security Benefit may
accept beneficiary designations and payment instructions under the terms of the
Contract without regard to any spousal consents that may be required under the
Employee Retirement Income Security Act of 1974 (ERISA). Consequently, a
Contractowner's Beneficiary designation or elected payment option may not be
enforceable.
The amounts that may be contributed to Qualified Plans are subject to
limitations that vary depending on the type of Plan. In addition, early
distributions from most Qualified Plans may be subject to penalty taxes, or in
the case of distributions of amounts contributed under salary reduction
agreements, could cause the Plan to be disqualified.
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Furthermore, distributions from most Qualified Plans are subject to certain
minimum distribution rules. Failure to comply with these rules could result in
disqualification of the Plan or subject the Owner or Annuitant to penalty taxes.
As a result, the minimum distribution rules may limit the availability of
certain Annuity Options to certain Annuitants and their beneficiaries.
The following are brief descriptions of the various types of Qualified
Plans and the use of the Contract therewith:
1. Section 401
Code Section 401 permits employers to establish various types of retirement
plans (e.g., pension, profit sharing and 401(k) plans) for their employees. For
this purpose, self-employed individuals (proprietors or partners operating a
trade or business) are treated as employees and therefore eligible to
participate in such plans. Retirement plans established in accordance with
Section 401 may permit the purchase of Contracts to provide benefits thereunder.
In order for a retirement plan to be "qualified" under Code Section 401, it
must: (i) meet certain minimum standards with respect to participation, coverage
and vesting; (ii) not discriminate in favor of "highly compensated" employees;
(iii) provide contributions or benefits that do not exceed certain limitations;
(iv) prohibit the use of plan assets for purposes other than the exclusive
benefit of the employees and their beneficiaries covered by the plan; (v)
provide for distributions that comply with certain minimum distribution
requirements; (vi) provide for certain spousal survivor benefits; and (vii)
comply with numerous other qualification requirements.
A retirement plan qualified under Code Section 401 may be funded by
employer contributions, employee contributions or a combination of both. Plan
participants are not subject to tax on employer contributions until such amounts
are actually distributed from the plan. Depending upon the terms of the
particular plan, employee contributions may be made on a pre-tax or after-tax
basis. In addition, plan participants are not taxed on plan earnings derived
from either employer or employee contributions until such earnings are
distributed.
Each employee's interest in a retirement plan qualified under Code Section
401 must generally be distributed or begin to be distributed not later than
April 1 of the calendar year following the calendar year in which the employee
reaches age 70 1/2 ("required beginning date"). Periodic distributions must not
extend beyond the life of the employee or the lives of the employee and a
designated beneficiary (or over a period extending beyond the life expectancy of
the employee or the joint life expectancy of the employee and a designated
beneficiary).
If an employee dies before reaching his or her required beginning date, the
employee's entire interest in the plan must generally be distributed within five
years of the employee's death. However, the five-year rule will be deemed
satisfied, if distributions begin before the close of the calendar year
following the employee's death to a designated beneficiary and are made over the
life of the beneficiary (or over a period not extending beyond the life
expectancy of the beneficiary). If the designated beneficiary is the employee's
surviving spouse, distributions may be delayed until the employee would have
reached age 70 1/2.
If an employee dies after reaching his or her required beginning date, the
employee's interest in the plan must generally be distributed at least as
rapidly as under the method of distribution in effect at the time of the
employee's death.
Annuity payments distributed from a retirement plan qualified under Code
Section 401 are taxable under Section 72 of the Code. Section 72 provides that
the portion of each payment attributable to contributions that were taxable to
the employee in the year made, if any, is excluded from gross income as a return
of the employee's investment. The portion so excluded is determined by dividing
the employee's investment in the plan by the expected return under the plan. The
portion of each payment in excess of the exclusion amount is taxable as ordinary
income. Once the employee's investment has been recovered, the full annuity
payment will be taxable. If the employee should die prior to recovering his
entire investment, the unrecovered investment will be allowed as a deduction on
his final return. If the employee made no contributions that were taxable when
made, the full amount of each annuity payment is taxable to him as ordinary
income.
A "lump-sum" distribution from a retirement plan qualified under Code
Section 401 is eligible for favorable tax treatment. A "lump-sum" distribution
means the distribution within one taxable year of the balance to the credit of
the employee which becomes payable: (i) on account of the employee's death, (ii)
after the employee attains age 59 1/2, (iii) on account of the employee's
termination or employment (in the case of a common law employee only) or (iv)
after the employee has become disabled (in the case of a self-employed person
only).
As a general rule, a lump-sum distribution is fully taxable as ordinary
income except for an amount equal to the employee's investment, if any, which is
recovered tax-free. However, special five-year averaging may be available,
provided the employee has reached age 59 1/2 and has not previously elected to
use income averaging. Special ten-year averaging and capital-gains treatment may
be available to an employee who reached age 50 before 1986.
2. Section 403(b)
Code Section 403(b) permits public school employees and employees of
certain types of charitable, educational and scientific organizations specified
in Section 501(c)(3) of the Code to purchase annuity contracts, and, subject to
certain limitations, to exclude the amount of purchase payments from gross
income for tax purposes. The Contract
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may be purchased in connection with a Section 403(b) annuity program.
Section 403(b) annuities must generally be provided under a plan which
meets certain minimum participation, coverage, and nondiscrimination
requirements. Section 403(b) annuities are generally subject to minimum
distribution requirements similar to those applicable to retirement plans
qualified under Section 401 of the Code. See "Section 401" on page 27.
Amounts used to purchase Section 403(b) annuities generally are excludable
from the taxable income of the employee. As a result, all distributions from
such annuities are normally taxable in full as ordinary income to the employee.
3. Section 408
Section 408 of the Code permits eligible individuals to establish
individual retirement programs through the purchase of Individual Retirement
Annuities ("IRAs"). The Contract may be purchased as an IRA.
IRAs are subject to limitations on the amount that may be contributed, the
persons who may be eligible and on the time when distributions must commence.
Depending upon the circumstances of the individual, contributions to an IRA may
be made on a deductible or non-deductible basis. IRAs may not be transferred,
sold, assigned, discounted or pledged as collateral for a loan or other
obligation. The annual premium for an IRA may not be fixed and may not exceed
$2,000. Any refund of premium must be applied to the payment of future premiums
or the purchase of additional benefits.
Sale of the Contracts for use with IRAs may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the
Contracts for such purposes will be provided with such supplementary information
as may be required by the Internal Revenue Service or other appropriate agency,
and will have the right to revoke the Contract under certain circumstances.
IRAs are subject to minimum distribution requirements similar to those
applicable to retirement plans qualified under Section 401 of the Code. See
"Section 401" on page 27. Distributions from IRAs are generally taxed under Code
Section 72. Under these rules, a portion of each distribution may be excludable
from income. The amount excludable from the individual's income is the amount of
the distribution which bears the same ratio as the individual's nondeductible
contributions bears to the expected return under the IRA.
4. Section 457
Section 457 of the Code permits employees of state and local governments
and units and agencies of state and local governments as well as tax-exempt
organizations described in Section 501(c)(3) of the Code to defer a portion of
their compensation without paying current taxes. The employees must be
participants in an eligible deferred compensation plan. A Section 457 plan may
permit the purchase of Contracts to provide benefits thereunder.
Although a participant under a Section 457 plan may be permitted to direct
or choose methods of investment, all amounts deferred under the plan, and any
income thereon, remain solely the property of the employer and subject to the
claims of its general creditors, until paid to the participant.
Section 457 plans are generally subject to minimum distribution
requirements similar to those applicable to retirement plans qualified under
Section 401 of the Code. See "Section 401" on page 27. Since under a Section 457
plan, contributions are generally excludable from the taxable income of the
employee, the full amount received will usually be taxable as ordinary income
when annuity payments commence or other distributions are made.
5. Tax Penalties
Premature Distribution Tax. Distributions from a Qualified Plan before the
participant reaches age 59 1/2 are generally subject to an additional tax equal
to 10 percent of the taxable portion of the distribution. The 10 percent penalty
tax does not apply to distributions: (i) made on or after the death of the
employee; (ii) attributable to the employee's disability; (iii) which are part
of a series of substantially equal periodic payments made (at least annually)
for the life (or life expectancy) of the employee or the joint lives (or joint
life expectancies) of the employee and a designated beneficiary and which begin
after the employee terminates employment; (iv) made to an employee after
termination of employment after reaching age 55; or (v) made to pay for certain
medical expenses.
The exceptions to the 10 percent penalty tax described in items (iv) and
(v) above are not applicable to IRAs. In addition, the 10 percent penalty tax is
generally not applicable to distributions from a Section 457 plan.
Minimum Distribution Tax. If the amount distributed from a Qualified Plan
is less than the minimum required distribution for the year, the participant is
subject to a 50 percent tax on the amount that was not properly distributed.
Excess Distribution Tax. If the aggregate distributions from all Qualified
Plans (other than Section 457 plans) with respect to an individual in a calendar
year exceed the greater of (i) $150,000, or (ii) $112,500, as indexed for
inflation ($155,000 for 1996), a penalty tax of 15 percent is generally imposed
(in addition to any ordinary income tax) on the excess portion of the
distribution.
6. Withholding
Periodic distributions (e.g., annuities and installment payments) from a
Qualified Plan that will last for a period of ten or more years are generally
subject to voluntary income tax withholding. The amount withheld on such
periodic distributions is determined at the rate applicable to wages.
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The recipient of a periodic distribution may generally elect not to have
withholding apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than ten years) from a Qualified Plan (other than IRAs) are
generally subject to mandatory 20 percent income tax withholding. However, no
withholding is imposed if the distribution is transferred directly to another
eligible Qualified Plan. Nonperiodic distributions from an IRA are subject to
income tax withholding at a flat 10 percent rate. The recipient of such a
distribution may elect not to have withholding apply.
The above description of the federal income tax consequences of the
different types of Qualified Plans which may be funded by the Contract offered
by this Prospectus is only a brief summary and is not intended as tax advice.
The rules governing the provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have adverse tax
consequences. A prospective Contractowner considering adoption of a Qualified
Plan and purchase of a Contract in connection therewith should first consult a
qualified and competent tax adviser, with regard to the suitability of the
Contract as an investment vehicle for the Qualified Plan.
OTHER INFORMATION
VOTING OF MUTUAL FUND SHARES
Security Benefit is the legal owner of the shares of the Mutual Fund held
by the Subaccounts of the Separate Account. In accordance with its view of
present applicable law, Security Benefit will exercise voting rights
attributable to the shares of each Fund of the Mutual Fund held in the
Subaccounts at any regular and special meetings of the shareholders of the
Mutual Fund on matters requiring shareholder voting under the 1940 Act. Security
Benefit will exercise these voting rights based on instructions received from
persons having the voting interest in corresponding Subaccounts of the Separate
Account. However, if the 1940 Act or any regulations thereunder should be
amended, or if the present interpretation thereof should change, and as a result
Security Benefit determines that it is permitted to vote the shares of the
Mutual Fund in its own right, it may elect to do so.
The person having the voting interest under a Contract is the Owner. Unless
otherwise required by applicable law, the number of shares of a particular Fund
as to which voting instructions may be given to Security Benefit is determined
by dividing a Contractowner's Contract Value in a Subaccount on a particular
date by the net asset value per share of that Fund as of the same date.
Fractional votes will be counted. The number of votes as to which voting
instructions may be given will be determined as of the date coincident with the
date established by the Mutual Fund for determining shareholders eligible to
vote at the meeting of the Mutual Fund. If required by the SEC, Security Benefit
reserves the right to determine in a different fashion the voting rights
attributable to the shares of the Mutual Fund. Voting instructions may be cast
in person or by proxy.
Trust Contracts may be purchased through the trust department of First of
America Bank - Michigan, N.A. (the "Bank") and the Bank, as trustee, will be the
legal owner of, and have the voting rights with respect to, such Contracts.
First of America Investment Corporation, the Mutual Fund's investment adviser,
is a wholly-owned subsidiary of the Bank. In the event of a vote of the Mutual
Fund shareholders on an issue involving the investment adviser, as for all other
issues, the Bank is required to vote in accordance with its fiduciary duty as
trustee.
Voting rights attributable to the Contractowner's Contract Value in a
Subaccount for which no timely voting instructions are received will be voted by
Security Benefit in the same proportion as the voting instructions that are
received in a timely manner for all Contracts participating in that Subaccount.
Security Benefit will also exercise the voting rights from assets in each
Subaccount that are not otherwise attributable to Contractowners, if any, in the
same proportion as the voting instructions that are received in a timely manner
for all Contracts participating in that Subaccount and generally will exercise
voting rights attributable to shares of the Funds of the Mutual Fund held in its
General Account, if any, in the same proportion as votes cast with respect to
shares of the Funds of the Mutual Fund held by the Separate Account and other
separate accounts of Security Benefit, in the aggregate.
SUBSTITUTION OF INVESTMENTS
Security Benefit reserves the right, subject to compliance with the law as
then in effect, to make additions to, deletions from, substitutions for, or
combinations of the securities that are held by the Separate Account or any
Subaccount or that the Separate Account or any Subaccount may purchase. If
shares of any or all of the Funds of the Mutual Fund should no longer be
available for investment, or if, in the judgment of Security Benefit management,
further investment in shares of any or all of the Funds of the Mutual Fund
should become inappropriate in view of the purposes of the Contract, Security
Benefit may substitute shares of another Fund of the Mutual Fund or of a
different fund for shares already purchased, or to be purchased in the future
under the Contract. Security Benefit may also purchase, through the Subaccount,
other securities for other classes or contracts, or permit a conversion between
classes of contracts on the basis of requests made by Owners.
In connection with a substitution of any shares attributable to an Owner's
interest in a Subaccount or the Separate Account, Security Benefit will, to the
extent required under applicable law, provide notice, seek Owner approval, seek
prior approval of the SEC, and comply with the filing or other procedures
established by applicable state insurance regulators.
Security Benefit also reserves the right to establish additional
Subaccounts of the Separate Account that would invest in a new Fund of the
Mutual Fund or in shares of
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another investment company, a series thereof, or other suitable investment
vehicle. New Subaccounts may be established in the sole discretion of Security
Benefit, and any new Subaccount will be made available to existing Owners on a
basis to be determined by Security Benefit. Security Benefit may also eliminate
or combine one or more Subaccounts if, in its sole discretion, marketing, tax,
or investment conditions so warrant.
Subject to compliance with applicable law, Security Benefit may transfer
assets to the General Account. Security Benefit also reserves the right, subject
to any required regulatory approvals, to transfer assets of any Subaccount of
the Separate Account to another separate account or Subaccount.
In the event of any such substitution or change, Security Benefit may, by
appropriate endorsement, make such changes in these and other contracts as may
be necessary or appropriate to reflect such substitution or change. If deemed by
Security Benefit to be in the best interests of persons having voting rights
under the Contracts, the Separate Account may be operated as a management
investment company under the 1940 Act or any other form permitted by law; it may
be deregistered under that Act in the event such registration is no longer
required; or it may be combined with other separate accounts of Security Benefit
or an affiliate thereof. Subject to compliance with applicable law, Security
Benefit also may combine one or more Subaccounts and may establish a committee,
board, or other group to manage one or more aspects of the operation of the
Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
Security Benefit reserves the right, without the consent of Owners, to
suspend sales of the Contract as presently offered and to make any change to the
provisions of the Contracts to comply with, or give Owners the benefit of, any
federal or state statute, rule, or regulation, including but not limited to
requirements for annuity contracts and retirement plans under the Internal
Revenue Code and regulations thereunder or any state statute or regulation.
Security Benefit also reserves the right to limit the amount and frequency of
subsequent purchase payments.
REPORTS TO OWNERS
A statement will be sent annually to each Contractowner setting forth a
summary of the transactions that occurred during the year, and indicating the
Contract Value as of the end of each year. In addition, the statement will
indicate the allocation of Contract Value among the Fixed Account and the
Subaccounts and any other information required by law. Confirmations will also
be sent out upon purchase payments, transfers, loans, loan repayments, and full
and partial withdrawals.
Each Contractowner will also receive an annual and semiannual report
containing financial statements for the Fund, which will include a list of the
portfolio securities of the Fund, as required by the 1940 Act, and/or such other
reports as may be required by federal securities laws.
TELEPHONE TRANSFER PRIVILEGES
A Contractowner may request a transfer of Contract Value 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 account number
and the Owner's tax identification number and such instructions must be received
on a recorded line. Security Benefit reserves the right to deny any telephone
transfer request. If all telephone lines are busy (which might occur, for
example, during periods of substantial market fluctuations), Contractowners
might not be able to request transfers by telephone and would have to submit
written requests.
By authorizing telephone transfers, a Contractowner authorizes Security
Benefit to accept and act upon telephonic instructions for transfers involving
the Contractowner's Contract, and agrees that neither Security Benefit, nor any
of its affiliates will be liable for any loss, damages, cost, or expense
(including attorneys' fees) arising out of any requests effected, provided that
Security Benefit complied with its procedures. As a result of this policy on
telephone requests, the Contractowner 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 Contracts
described in this Prospectus, Security Benefit's authority to issue the
Contracts under Kansas law, and the validity of the forms of the Contracts under
Kansas law have been passed upon by Amy J. Lee, Esq., Associate General Counsel,
Security Benefit.
PERFORMANCE INFORMATION
Performance information for the Subaccounts of the Separate Account,
including the yield and effective yield of the Subaccount investing in the Prime
Obligations Fund ("Prime Obligations Subaccount"), the yield of the remaining
Subaccounts, and the total return of all Subaccounts may appear in
advertisements, reports, and promotional literature to current or prospective
Owners.
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Current yield for the Prime Obligations Subaccount will be based on income
received by a hypothetical investment over a given 7-day period (less expenses
accrued during the period), and then "annualized" (i.e., assuming that the 7-day
yield would be received for 52 weeks, stated in terms of an annual percentage
return on the investment). "Effective yield" for the Prime Obligations
Subaccount is calculated in a manner similar to that used to calculate yield,
but reflects the compounding effect of earnings.
For the remaining Subaccounts, quotations of yield will be based on all
investment income per Accumulation Unit earned during a given 30-day period,
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of an Accumulation Unit
on the last day of the period. Quotations of average annual total return for any
Subaccount will be expressed in terms of the average annual compounded rate of
return on a hypothetical investment in a Contract over a period of one, five,
and ten years (or, if less, up to the life of the Subaccount), and will reflect
the deduction of the applicable contingent deferred sales charge, the
administrative charge, the maintenance fee, and the mortality and expense risk
charge. Quotations of total return may simultaneously be shown that do not take
into account certain contractual charges such as the contingent deferred sales
charge, the administrative charge, and the maintenance fee and may
simultaneously be shown for other periods.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donaghue Money Market
Institutional Averages, the Lehman Brothers Government Corporate Index, the
Morgan Stanley Capital International's EAFE Index or other indices measuring
performance of a pertinent group of securities so that investors may compare a
Subaccount's results with those of a group of securities widely regarded by
investors as representative of the securities markets in general or
representative of a particular type of security; (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
Performance information for any Subaccount reflects only the performance of
a hypothetical Contract under which Contract Value is allocated to a Subaccount
during a particular time period on which the calculations are based. Performance
information should be considered in light of the investment objectives and
policies, characteristics, and quality of the Fund in which the Subaccount
invests, and the market conditions during the given time period, and should not
be considered as a representation of what may be achieved in the future. For a
description of the methods used to determine yield and total return for the
Subaccounts, see the Statement of Additional Information.
Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on overall
performance or other criteria, (ii) the effect of tax-deferred compounding on a
Subaccount's investment returns, or returns in general, which may be illustrated
by graphs, charts, or otherwise, and which may include a comparison, at various
points in time, of the return from an investment in a Contract (or returns in
general) on a tax-deferred basis (assuming one or more tax rates) with the
return on a taxable basis, and (iii) Security Benefit's rating or a rating of
Security Benefit's claim-paying ability as determined by firms that analyze and
rate insurance companies and by nationally recognized statistical rating
organizations.
ADDITIONAL INFORMATION
REGISTRATION STATEMENT
A Registration Statement under the 1933 Act has been filed with the SEC
relating to the offering described in this Prospectus. This Prospectus does not
include all the information included in the Registration Statement, certain
portions of which, including the Statement of Additional Information, have been
omitted pursuant to the rules and regulations of the SEC. The omitted
information may be obtained at the SEC's principal office in Washington, DC,
upon payment of the SEC's prescribed fees.
FINANCIAL STATEMENTS
Financial statements of Security Benefit at December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995, are contained
in the Statement of Additional Information along with the financial statements
of the Parkstone Variable Annuity Account for the two years in the period ended
December 31, 1995 and for the period September 24, 1993 through December 31,
1993.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to Security Benefit. The Table of Contents of
the statement of Additional Information is set forth below:
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TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY........................... 1
DISTRIBUTION OF THE CONTRACT.............................. 1
LIMITS ON PREMIUMS UNDER TAX QUALIFIED
RETIREMENT PLANS..................................... 1
INDEPENDENT AUDITORS...................................... 2
PERFORMANCE INFORMATION................................... 3
FINANCIAL STATEMENTS...................................... 4
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PARKSTONE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: APRIL 30, 1996
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE
ANNUITY CONTRACT
ISSUED BY
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
1-800-888-2461
MAILING ADDRESS:
ANNUITY ADMINISTRATION
700 SW HARRISON STREET
P.O. BOX 3536
TOPEKA, KANSAS 66601-3536
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the current Prospectus for Parkstone Variable
Annuity dated April 30, 1996. A copy of the Prospectus may be obtained by
calling Security Benefit at 1-800-355-4555 or by writing to the address set
forth above.
<PAGE>
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION AND HISTORY............................................ 1
DISTRIBUTION OF THE CONTRACT............................................... 1
LIMITS ON PREMIUMS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS............... 1
INDEPENDENT AUDITORS....................................................... 2
PERFORMANCE INFORMATION.................................................... 3
FINANCIAL STATEMENTS....................................................... 4
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GENERAL INFORMATION AND HISTORY
For a description of the Individual Flexible Purchase Payment Deferred
Variable Annuity Contract (the "Contract"), Security Benefit Life Insurance
Company ("Security Benefit"), and the Parkstone Variable Annuity Separate
Account (the "Separate Account"), see the Prospectus. This Statement of
Additional Information contains information that supplements the information in
the Prospectus. Defined terms used in this Statement of Additional Information
have the same meaning as terms defined in the section entitled "Definitions" in
the Prospectus.
SAFEKEEPING OF ASSETS
Security Benefit is responsible for the safekeeping of the assets of the
Subaccounts. These assets, which consist of shares of the Funds of the Trust in
non-certificated form, are held separate and apart from the assets of Security
Benefit's General Account and its other separate accounts.
DISTRIBUTION OF THE CONTRACT
Security Distributors, Inc. ("SDI") is Principal Underwriter of the
Contract. SDI is registered as a broker/dealer with the SEC and is a member of
the National Association of Securities Dealers, Inc. ("NASD"). SDI serves as
Principal Underwriter under a Distribution Agreement with Security Benefit.
SDI has an agreement with First of America Brokerage Service, Inc. ("FOA
Brokerage") under which FOA Brokerage is authorized to make the Contract
available to its customers and to accept applications for the Contract on behalf
of Security Benefit. FOA Brokerage is registered as a broker/dealer with the SEC
and is a member of the NASD. Its registered representatives are required to be
authorized under applicable state regulations to make the Contract available to
its customers. SDI may also enter into agreements with other broker/dealers or
financial institutions under which the Contract will be made available to their
customers. The compensation payable by SDI under these agreements may vary, but
is not expected to exceed in the aggregate 4.5% of purchase payments and .25% on
an annualized basis of Contract Value less Contract Debt. In addition, SDI may
also pay bonuses and make override payments.
LIMITS ON PREMIUMS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS
SECTION 401
The applicable annual limits on purchase payments for a Contract used in
connection with a retirement plan that is qualified under Section 401 of the
Internal Revenue Code depend upon the type of plan. Total purchase payments on
behalf of a participant to all defined contribution plans maintained by an
employer are limited under Section 415(c) of the Internal Revenue Code to the
lesser of (a) $30,000, or (b) 25% of the participant's annual compensation.
Salary reduction contributions to a cash-or-deferred arrangement under a profit
sharing plan are subject to additional annual limits. Contributions to a defined
benefit pension plan are actuarially determined based upon the amount of
benefits the participants will receive under the plan formula. The maximum
annual benefit any individual may receive under an employer's defined benefit
plan is limited under Section 415(b) of the Internal Revenue Code. The limits
determined under Section 415(b) and (c) of the Internal Revenue Code are further
reduced for an individual who participates in a defined contribution plan and a
defined benefit plan maintained by the same employer.
SECTION 403(B)
Contributions to 403(b) annuities are excludable from an employee's gross
income if they do not exceed the smallest of the limits calculated under
Sections 402(g), 403(b)(2), and 415 of the Code. The applicable limit will
depend upon whether the annuities are purchased with employer or employee
contributions.
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Section 402(g) generally limits an employee's salary reduction
contributions to a 403(b) annuity to $9,500 a year. The $9,500 limit will be
reduced by salary reduction contributions to other types of retirement plans. An
employee with at least 15 years of service for a "qualified employer" (i.e., an
educational organization, hospital, home health service agency, health and
welfare service agency, church or convention or association of churches)
generally may exceed the $9,500 limit by $3,000 per year, subject to an
aggregate limit of $15,000 for all years.
Section 403(b)(2) provides an overall limit on employer and employee salary
reduction contributions that may be made to a 403(b) annuity. Section 403(b)(2)
generally provides that the maximum amount of contributions an employee may
exclude from his or her gross income in any taxable year is equal to the excess,
if any, of:
(i) the amount determined by multiplying 20% of the employee's
includable compensation by the number of his or her years of
service with the employer, over
(ii) the total amount contributed to retirement plans sponsored by
the employer, that were excludable from his gross income in
prior years.
Section 415(c) also provides an overall limit on the amount of employer and
employee salary reduction contributions to a Section 403(b) annuity that will be
excludable from an employee's gross income in a given year. The Section 415(c)
limit is the lesser of (i) $30,000, or (ii) 25% of the employee's annual
compensation.
SECTION 408
Premiums paid under a Contract used in connection with an individual
retirement annuity (IRA) that is described in Section 408 of the Internal
Revenue Code are subject to the limits on contributions to IRA's under Section
219(b) of the Internal Revenue Code. Under Section 219(b) of the Code,
contributions to an IRA are limited to the lesser of $2,000 per year or the
Owner's annual compensation. An additional $250 may be contributed if the Owner
has a spouse with little or no compensation for the year, provided distinct
accounts are maintained for the Owner and his or her spouse, and no more than
$2,000 is contributed to either account in any one year. The extent to which an
Owner may deduct contributions to an IRA depends on the gross income of the
Owner and his or her spouse for the year and whether either participate in
another employer-sponsored retirement plan.
Premiums under a Contract used in connection with a simplified employee
pension plan described in Section 408 of the Internal Revenue Code are subject
to limits under Section 402(h) of the Internal Revenue Code. Section 402(h)
currently limits employer contributions and salary reduction contributions (if
permitted) under a simplified employee pension plan to the lesser of (a) 15% of
the compensation of the participant in the Plan, or (b) $30,000. Salary
reduction contributions, if any, are subject to additional annual limits.
SECTION 457
Contributions on behalf of an employee to a Section 457 plan generally are
limited to the lesser of (i) $7,500 or (ii) 33 1/3% of the employee's includable
compensation. If the employee participates in more than one Section 457 plan,
the $7,500 limit applies to contributions to all such programs. The $7,500 limit
is reduced by the amount of any salary reduction contribution the employee makes
to a 403(b) annuity, an IRA or a retirement plan qualified under Section 401.
The Section 457 limit is increased during the last three years ending before the
employee reaches his normal retirement age.
INDEPENDENT AUDITORS
The financial statements for (i) Security Benefit at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995, and
(ii) the Separate Account for each of the two years in the period ended December
31, 1995, included in this Statement of Additional Information have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing herein and in the registration
2
<PAGE>
statement and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
PERFORMANCE INFORMATION
Performance information for the Subaccounts of the Separate Account,
including the yield and effective yield of the Subaccount investing in the
Trust's Prime Obligations Fund ("Prime Obligations Subaccount"), the yield of
the remaining Subaccounts, and the total return of all Subaccounts, may appear
in advertisements, reports, and promotional literature provided to current or
prospective Owners.
Current yield for the Prime Obligations Subaccount will be based on the
change in the value of a hypothetical investment (exclusive of capital changes)
over a particular 7-day period, less a pro-rata share of the Subaccount's
expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figures carried to at least the nearest hundredth of
one percent. Calculation of "effective yield" begins with the same "base period
return" used in the calculation of yield, which is then annualized to reflect
weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1) 365/7] -1
For the 7-day period ended December 30, 1995, the yield of the Prime
Obligations Subaccount was 3.45% and the effective yield was 3.51%.
Quotations of yield for the remaining Subaccounts will be based on all
investment income per Accumulation Unit earned during a particular 30-day
period, less expenses accrued during the period ("net investment income"), and
will be computed by dividing net investment income by the value of the
Accumulation Unit on the last day of the period, according to the following
formula:
YIELD = 2[(A-B + 1)6 - 1]
---
cd
where a = net investment income earned during the period by the Series
attributable to shares owned by the Subaccount,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of Accumulation Units outstanding
during the period that were entitled to receive dividends, and
d = the maximum offering price per Accumulation Unit on the last
day of the period.
Quotations of average annual total return for any Subaccount will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Contract over a period of one, five and ten years
(or, if less, up to the life of the Subaccount), calculated pursuant to the
following formula: P(1 + T)n = ERV (where P = a hypothetical initial payment of
$1,000, T = the average annual total return, n = the number of years, and ERV =
the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). All average annual total return figures reflect the
deduction of the applicable contingent deferred sales charge, the administrative
charge, the maintenance fee, and the mortality and expense risk charge.
Quotations of average annual total return may simultaneously be shown for the
same or other periods that do not take into account certain contractual charges
such as the contingent deferred sales charge, the administrative charge, and the
maintenance fee and may simultaneously be shown for other periods.
For the one-year period ended December 31, 1995, and the period of
September 24, 1993 (date of inception), to December 31, 1995, respectively the
average annual total return was 6.70% and .58% for the Bond
3
<PAGE>
Subaccount, 18.10% and 3.45% for the Equity Subaccount, -.03% and -3.86% for the
International Discovery Subaccount, and 24.29% and 15.17% for the Small
Capitalization Subaccount.
Quotations of cumulative total return for any Subaccount will be based on a
hypothetical investment in a Contract over a certain period and will be computed
by subtracting the initial value of the investment from the ending value and
dividing the remainder by the initial value of the investment. Such quotations
of total return will reflect the deduction of all applicable charges to the
Contract and the Separate Account (on an annual basis) except the Maintenance
Fee and the applicable contingent deferred sales charge.
For the year ended December 31, 1995, and the period September 24, 1993
(date of inception), to December 31, 1995, the cumulative total return for the
Small Capitalization Subaccount was 24.29% and 37.76%, respectively.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, the Lehman Brothers Government Corporate Index, the
Morgan Stanley Capital International's EAFE Index or other indices that measure
performance of a pertinent group of securities so that investors may compare a
Subaccount's results with those of a group of securities widely regarded by
investors as representative of the securities markets in general or
representative of a particular type of security; (ii) other groups of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by The Variable Annuity Research and Data
Service ("VARDS"), an independent service which monitors and ranks the
performance of variable annuity issues by investment objectives on an
industry-wide basis or tracked by other services, companies, publications or
persons who rank such investment companies on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Contract. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for any Subaccount reflects only the performance of
a hypothetical Contract under which an Owner's Contract Value is allocated to a
Subaccount during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Fund of the Trust in
which the Subaccount invests, and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future.
Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on overall
performance or other criteria, and (ii) the effect of a tax-deferred compounding
on a Subaccount's investment returns, or returns in general, which may be
illustrated by graphs, charts, or otherwise, and which may include a comparison,
at various points in time, of the return from an investment in a Contract (or
returns in general) on a tax-deferred basis (assuming one or more tax rates)
with the return on a taxable basis.
FINANCIAL STATEMENTS
The financial statements of Security Benefit at December 31, 1995 and 1994, and
for each of the three years in the period ended December 31, 1995, along with
the financial statement of the Parkstone Variable Annuity Account for each of
the two years in the period ended December 31, 1995 and for the period September
24, 1993 through December 31, 1993, are set forth herein, starting on the
following page.
The financial statements of Security Benefit, which are included in this
Statement of Additional Information, should be considered only as bearing on the
ability of Security Benefit to meet its obligations under the Contracts. They
should not be considered as bearing on the investment performance of the assets
held in the Separate Account.
4
<PAGE>
Parkstone Variable Annuity
Financial Statements
Years ended December 31, 1995 and 1994
CONTENTS
Report of Independent Auditors.......................................... 6
Audited Financial Statements
Balance Sheet........................................................... 7
Statement of Operations and Changes in Net Assets (1995)................ 9
Statement of Operations and Changes in Net Assets (1994)................ 10
Notes to Financial Statements........................................... 11
5
<PAGE>
Report of Independent Auditors
The Contract Owners of Parkstone Variable
Annuity and The Board of Directors of
Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of Parkstone Variable Annuity
(the Company) as of December 31, 1995, and the related statements of operations
and changes in net assets for each of the two years in the period then ended.
These financial statements are the responsibility of the 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. Our procedures included
confirmation of investments owned as of December 31, 1995, by correspondence
with the custodian. 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 Parkstone Variable Annuity at
December 31, 1995, and the results of its operations and changes in its net
assets for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 2, 1996
6
<PAGE>
Parkstone Variable Annuity
Balance Sheet
December 31, 1995
(DOLLARS IN THOUSANDS)
ASSETS
Investments:
Parkstone Advantage Fund:
Prime Obligations Fund - 804,893 shares at net
asset value of $1.00 per share (cost, $805) $ 805
Bond Fund - 433,836 shares at net asset value of
$10.50 per share (cost, $4,286) 4,554
Equity Fund - 1,004,184 shares at net asset value
of $12.44 per share (cost, $10,287) 12,492
International Discovery Fund - 599,414 shares at
net asset value of $10.59 per share (cost, $6,154) 6,348
Small Capitalization Fund - 635,507 shares at net
asset value of $15.71 per share (cost, $7,524) 9,984
-------------
Total assets $34,183
=============
7
<PAGE>
NET ASSETS
Net assets are represented by (NOTE 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
---------------------------------------
NON-TRUST CONTRACTS
Prime Obligations Subaccount:
Accumulation units 63,768 $10.43 $ 665
Bond Subaccount:
Accumulation units 369,775 10.69 3,953
Equity Subaccount:
Accumulation units 991,853 12.06 11,965
International Discovery Subaccount:
Accumulation units 600,836 10.26 6,167
Small Capitalization Subaccount:
Accumulation units 630,080 15.23 9,597
TRUST CONTRACTS
Prime Obligations Subaccount:
Accumulation units 13,728 10.17 140
Bond Subaccount:
Accumulation units 55,111 10.92 602
Equity Subaccount:
Accumulation units 42,810 12.32 527
International Discovery Subaccount:
Accumulation units 17,264 10.47 181
Small Capitalization Subaccount:
Accumulation units 24,824 15.57 386
-----------
Total net assets $34,183
===========
SEE ACCOMPANYING NOTES.
8
<PAGE>
Parkstone Variable Annuity
Statement of Operations and Changes in Net Assets
Year ended December 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-TRUST CONTRACTS
------------------------------------------------------------------
PRIME INTERNATIONAL SMALL
OBLIGATIONS BOND EQUITY DISCOVERY CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend distributions $ 14 $ 141 $ - $ - $ -
Expenses (NOTE 2):
Mortality and expense risk fee (4) (41) (119) (66) (88)
Administrative fee (1) (15) (33) (11) (11)
------------------------------------------------------------------
Net investment income (loss) 9 85 (152) (77) (99)
Realized gain (loss) on investments - (1) 104 (26) 190
Unrealized appreciation on investments - 357 2,255 514 1,911
------------------------------------------------------------------
Net realized and unrealized gain on investments - 356 2,359 488 2,101
------------------------------------------------------------------
Net increase in net assets resulting from
operations 9 441 2,207 411 2,002
Net assets at beginning of year 178 2,716 7,121 4,622 4,991
Variable annuity deposits (NOTES 2 AND 3) 746 1,288 3,577 1,799 3,260
Terminations and withdrawals (NOTES 2 AND 3) (268) (492) (940) (665) (656)
------------------------------------------------------------------
Net assets at end of year $665 $3,953 $11,965 $6,167 $9,597
==================================================================
</TABLE>
<TABLE>
<CAPTION>
TRUST CONTRACTS
------------------------------------------------------------------
PRIME INTERNATIONAL SMALL
OBLIGATIONS BOND EQUITY DISCOVERY CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend distributions $ 2 $ 14 $ - $ - $ -
Expenses (NOTE 2):
Mortality and expense risk fee - (2) (2) (1) (1)
Administrative fee - - - - -
------------------------------------------------------------------
Net investment income (loss) 2 12 (2) (1) (1)
Realized gain (loss) on investments - - - - -
Unrealized appreciation on investments - 18 47 11 58
------------------------------------------------------------------
Net realized and unrealized gain on investments - 18 47 11 58
------------------------------------------------------------------
Net increase in net assets resulting from
operations 2 30 45 10 57
Net assets at beginning of year - 49 50 92 59
Variable annuity deposits (NOTES 2 AND 3) 138 523 432 79 270
Terminations and withdrawals (NOTES 2 AND 3) - - - - -
------------------------------------------------------------------
Net assets at end of year $140 $602 $527 $181 $386
==================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
Parkstone Variable Annuity
Statement of Operations and Changes in Net Assets
Year ended December 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-TRUST CONTRACTS
------------------------------------------------------------------
PRIME INTERNATIONAL SMALL
OBLIGATIONS BOND EQUITY DISCOVERY CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend distributions $ 3 $ 21 $ - $ - $ -
Expenses (NOTE 2):
Mortality and expense risk fee (2) (30) (66) (43) (37)
Administrative fee - (7) (12) (7) (5)
------------------------------------------------------------------
Net investment income (loss) 1 (16) (78) (50) (42)
Realized gain (loss) on investments - (50) (48) 18 (3)
Unrealized appreciation (depreciation)
on investments - (104) (124) (364) 453
------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments - (154) (172) (346) 450
------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 1 (170) (250) (396) 408
Net assets at beginning of year 21 1,224 1,858 1,160 762
Variable annuity deposits (NOTES 2 AND 3) 687 2,364 6,093 4,171 4,088
Terminations and withdrawals (NOTES 2 AND 3) (481) (702) (580) (313) (193)
Annuity payments (NOTES 2 AND 3) (50) - - - (74)
------------------------------------------------------------------
Net assets at end of year $178 $2,716 $7,121 $4,622 $4,991
==================================================================
</TABLE>
<TABLE>
<CAPTION>
TRUST CONTRACTS
------------------------------------------------------------------
PRIME INTERNATIONAL SMALL
OBLIGATIONS BOND EQUITY DISCOVERY CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend distributions $- $ - $ - $ - $ -
Expenses (NOTE 2):
Mortality and expense risk fee - - - - -
Administrative fee - - - - -
------------------------------------------------------------------
Net investment income (loss) - - - - -
Realized gain (loss) on investments - - - - -
Unrealized appreciation (depreciation)
on investments - (1) - (8) 9
------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments - (1) - (8) 9
------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations - (1) - (8) 9
Net assets at beginning of year - - - - -
Variable annuity deposits (NOTES 2 AND 3) - 50 50 100 50
Terminations and withdrawals (NOTES 2 AND 3) - - - - -
Annuity payments (NOTES 2 AND 3) - - - - -
------------------------------------------------------------------
Net assets at end of year $- $49 $50 $ 92 $59
==================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
Parkstone Variable Annuity
Notes to Financial Statements
December 31, 1995 and 1994
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Parkstone Variable Annuity (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
deposits received by the Account have been invested in the Parkstone Advantage
Fund, a mutual fund not otherwise available to the public. As directed by the
owners, amounts deposited are invested in shares of Prime Obligations Fund -
emphasis on current income with liquidity and stability of principal, Bond Fund
- - - emphasis on current income as well as preservation of capital, Equity Fund -
emphasis on capital appreciation, International Discovery Fund - emphasis on
long-term capital growth through investment in foreign and domestic common
stocks and Small Capitalization Fund - emphasis on capital appreciation through
investment in small- to medium-sized companies.
Two types of investment contracts are offered - one for individuals (the
Non-Trust Contracts) and one for trusts and customers of financial institutions'
trust departments (the Trust Contracts).
Under the terms of the investment advisory contracts, portfolio investments of
the mutual fund are made by First of America Investment Corporation, a
wholly-owned subsidiary of First of America Bank - Michigan, N.A., which is a
wholly-owned subsidiary of First of America Bank Corporation.
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 gains and losses. Security transactions are
accounted for on the trade date.
11
<PAGE>
Parkstone Variable Annuity
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The cost of investments purchased and proceeds from investments sold were as
follows:
NON-TRUST CONTRACTS TRUST CONTRACTS
---------------------------------------------------
YEAR ENDED COST OF PROCEEDS COST OF PROCEEDS
DECEMBER 31, 1995 PURCHASES FROM SALES PURCHASES FROM SALES
- - --------------------------------------------------------------------------------
(IN THOUSANDS)
Prime Obligations Fund $ 764 $ 277 $140 $-
Bond Fund 1,495 614 537 2
Equity Fund 3,824 1,339 432 2
International Discovery Fund 1,999 943 79 1
Small Capitalization Fund 3,542 1,036 270 1
NON-TRUST CONTRACTS TRUST CONTRACTS
---------------------------------------------------
YEAR ENDED COST OF PROCEEDS COST OF PROCEEDS
DECEMBER 31, 1994 PURCHASES FROM SALES PURCHASES FROM SALES
- - --------------------------------------------------------------------------------
(IN THOUSANDS)
Prime Obligations Fund $ 861 $ 704 $ - $-
Bond Fund 2,847 1,203 50 -
Equity Fund 6,490 1,055 50 -
International Discovery Fund 4,461 652 100 -
Small Capitalization Fund 4,402 623 50 -
ANNUITY RESERVES
As of December 31, 1995, annuity reserves have not been established because
there are no contracts which have matured and are in the payout stage. Such
reserves would be computed on the basis of published mortality tables using
assumed interest rates that will provide reserves as prescribed by law. In cases
where the payout option selected is life contingent, SBL periodically
recalculates the required annuity reserves, and any resulting adjustment is
either charged or credited to SBL and not to the Account.
12
<PAGE>
Parkstone Variable Annuity
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINVESTMENT OF DIVIDENDS
Dividend and capital gains distributions paid by the mutual fund to the Account
are reinvested in additional shares of each respective Fund. Dividend income and
capital gains distributions are recorded as income on the ex-dividend date.
FEDERAL INCOME TAXES
Under current law, no federal income taxes are payable with respect to the
Account.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. VARIABLE ANNUITY CONTRACT CHARGES
SBL deducts a maintenance fee of $30 per year for each Individual Contract. An
administrative fee is deducted equal to an annual rate of 0.15% and 0.05% of
each subaccount's average daily net assets which funds the Non-Trust and Trust
Contracts, respectively. Mortality and expense risks assumed by SBL are
compensated for by a fee equivalent to an annual rate of 1.25% and 0.65% of the
asset value of each Non-Trust and Trust Contract, respectively, of which 0.6% is
for assuming mortality risks and the remainder is for assuming expense risks.
When applicable, an amount for state premium taxes is deducted as provided by
pertinent state law, either from the purchase payments or from the amount
applied to effect an annuity at the time annuity payments commence.
A contingent deferred sales charge is assessed against certain withdrawals
during the first seven years of the contract, declining from 5% in each of the
first four years to 2% in the seventh year. Such surrender charges and other
contract charges totaled $27,915 and $13,467 during 1995 and 1994, respectively.
13
<PAGE>
Parkstone Variable Annuity
Notes to Financial Statements (continued)
3. SUMMARY OF UNIT TRANSACTIONS
NON-TRUST CONTRACTS TRUST CONTRACTS
-------------------------------------------
1995 1994 1995 1994
-------------------------------------------
(IN THOUSANDS)
Prime Obligations Subaccount:
Variable annuity deposits 72 68 14 -
Terminations, withdrawals and
annuity payments 26 53 - -
Bond Subaccount:
Variable annuity deposits 127 244 50 5
Terminations, withdrawals and
annuity payments 50 75 - -
Equity Subaccount:
Variable annuity deposits 332 630 38 5
Terminations, withdrawals and
annuity payments 91 62 - -
International Discovery Subaccount:
Variable annuity deposits 183 406 8 10
Terminations, withdrawals and
annuity payments 69 31 - -
Small Capitalization Subaccount:
Variable annuity deposits 243 395 20 5
Terminations, withdrawals and
annuity payments 51 26 - -
14
<PAGE>
Security Benefit Life Insurance Company
Financial Statements
Years ended December 31, 1995, 1994 and 1993
CONTENTS
Report of Independent Auditors............................................... 16
Audited Financial Statements
Balance Sheets............................................................... 17
Statements of Operations..................................................... 19
Statements of Surplus........................................................ 20
Statements of Cash Flows..................................................... 21
Notes to Financial Statements................................................ 23
15
<PAGE>
Report of Independent Auditors
The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying balance sheets of Security Benefit Life
Insurance Company (the Company) as of December 31, 1995 and 1994, and the
related statements of operations, surplus and cash flows for each of the three
years in the period ended December 31, 1995. 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 financial position of Security Benefit Life Insurance
Company at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles and with reporting
practices prescribed or permitted by the Kansas Insurance Department.
Ernst & Young LLP
Kansas City, Missouri
February 2, 1996
16
<PAGE>
Security Benefit Life Insurance Company
Balance Sheets
DECEMBER 31
1995 1994
------------------------
(IN THOUSANDS)
ASSETS
Investments (NOTES 2 AND 5):
Fixed maturities, at amortized cost (fair value:
1995 - $2,340,910; 1994 - $1,987,040) $2,294,802 $2,160,550
Equity securities:
Preferred stock, at cost (fair value: 1995 - $4,490;
1994 - $6,423) 4,044 5,979
Common stock, at fair value (cost: 1995 - $8,309;
1994 - $2,509) 8,346 3,071
------------------------
12,390 9,050
Affiliated entities 29,590 21,028
Mortgage loans 70,777 90,509
Real estate, less accumulated depreciation
(1995 - $10,864; 1994 - $10,821):
Home office properties 10,027 9,953
Investment properties 11,591 14,576
------------------------
21,618 24,529
Policy loans 100,452 92,130
Short-term investments 992 50,406
Other invested assets 40,309 27,402
------------------------
Total investments 2,570,930 2,475,604
Cash and certificates of deposit 12,059 10,820
Premiums deferred and uncollected 856 9,101
Investment income due and accrued 30,577 25,857
Other assets 16,894 14,088
Separate account assets (NOTE 3) 2,065,306 1,517,627
------------------------
$4,696,622 $4,053,097
========================
17
<PAGE>
DECEMBER 31
1995 1994
------------------------
(IN THOUSANDS)
LIABILITIES AND SURPLUS
Policy reserves (NOTE 6):
Life $ 337,289 $ 355,338
Annuity 2,006,799 1,963,066
Accident and health 1,067 1,204
Policy proceeds left at interest 17,849 19,600
------------------------
2,363,004 2,339,208
Policy and contract claims 9,602 8,058
Other policyholders' funds:
Dividend accumulations 19,525 19,697
Dividends payable in subsequent year 2,604 2,787
Premium deposit funds and other 1,331 2,446
------------------------
23,460 24,930
Other liabilities, including income taxes of
$9,851 in 1995 and $3,111 in 1994 19,275 17,762
Net transfers due from separate accounts (NOTE 3) (38,615) (40,034)
Asset valuation reserve 33,478 27,834
Interest maintenance reserve 13,443 6,986
Separate account liabilities (NOTE 3) 2,065,306 1,517,627
------------------------
Total liabilities 4,488,953 3,902,371
Commitments and contingencies (NOTES 6 AND 9)
Surplus:
Contingency surplus 900 900
Unassigned surplus 206,769 149,826
------------------------
Total surplus 207,669 150,726
------------------------
$4,696,622 $4,053,097
========================
SEE ACCOMPANYING NOTES.
18
<PAGE>
Security Benefit Life Insurance Company
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Annuity considerations and deposits $484,907 $530,530 $467,396
Individual life premiums (NOTE 6) (15,177) 49,837 59,373
Group life and health premiums 18,936 18,435 15,632
Reinsurance premiums 694 944 988
Amortization of interest maintenance reserve 1,394 1,077 804
Net investment income (NOTE 2) 185,605 173,391 172,879
Other income 32,722 27,972 26,431
-----------------------------------
Total revenues 709,081 802,186 743,503
Benefits and expenses:
Death benefits 32,164 29,368 34,990
Annuity benefits 36,902 36,587 41,743
Accident and health and disability benefits 2,053 2,177 2,912
Surrender benefits 352,206 275,283 229,554
Increase in reserves and funds for all policies 164,517 333,749 319,457
Other benefits 13,811 12,126 13,407
Commissions 34,979 39,059 41,116
Other insurance operating expenses 32,699 31,994 29,226
-----------------------------------
Total benefits and expenses 669,331 760,343 712,405
-----------------------------------
Gain from operations before dividends to
policyholders, federal income taxes and net
realized losses 39,750 41,843 31,098
Dividends to policyholders 2,391 2,689 2,725
-----------------------------------
Gain from operations before federal income
taxes and net realized losses 37,359 39,154 28,373
Federal income taxes (NOTE 7) 7,520 10,678 4,569
-----------------------------------
Gain from operations before net realized
losses 29,839 28,476 23,804
Net realized losses (NOTE 2) (1,083) (1,122) (3,280)
-----------------------------------
Net income $ 28,756 $ 27,354 $ 20,524
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
Security Benefit Life Insurance Company
Statements of Surplus
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $150,726 $128,785 $106,000
Add (deduct):
Net income 28,756 27,354 20,524
Increase in asset valuation (5,644) (2,958) (4,854)
Unrealized gain on investments 2,571 546 6,027
Reinsurance transaction, net of tax (NOTE 6) 33,270 --- ---
Other (2,010) (3,001) 1,088
-----------------------------------
56,943 21,941 22,785
-----------------------------------
Balance at end of year $207,669 $150,726 $128,785
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
20
<PAGE>
Security Benefit Life Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 28,756 $ 27,354 $ 20,524
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in investment income due and
accrued (4,720) (577) (4,147)
Increase in policy reserves 23,796 163,700 138,931
Accretion of discount on investments (3,400) (3,580) (5,135)
Amortization of premium on investments 9,725 15,623 16,440
Reinsurance transaction, net of tax 33,270 --- ---
Other 8,399 1,529 (16,820)
-----------------------------------
Net cash provided by operating activities 95,826 204,049 149,793
INVESTING ACTIVITIES
Investments sold or matured:
Fixed maturities 566,887 460,070 1,251,398
Equity securities 10,242 3,830 2,103
Mortgage loans 22,953 20,432 16,969
Real estate 3,173 2,782 1,293
Short-term investments 229,871 834,082 2,416,685
Other invested assets 22,053 3,602 2,458
-----------------------------------
855,179 1,324,798 3,690,906
Acquisition of investments:
Fixed maturities 706,581 606,368 1,403,541
Equity securities 19,500 4,627 741
Mortgage loans 2,939 33,516 12,021
Real estate 1,511 554 448
Short-term investments 180,259 854,833 2,426,336
Other invested assets 30,654 17,036 875
-----------------------------------
941,444 1,516,934 3,843,962
Net increase in policy loans (8,322) (5,579) (2,212)
-----------------------------------
Net cash used in investing activities (94,587) (197,715) (155,268)
-----------------------------------
Increase (decrease) in cash and certificates
of deposit 1,239 6,334 (5,475)
Cash and certificates of deposit at beginning
of year 10,820 4,486 9,961
-----------------------------------
Cash and certificates of deposit at end of
year $ 12,059 $ 10,820 $ 4,486
===================================
</TABLE>
21
<PAGE>
Security Benefit Life Insurance Company
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for federal income taxes $ 9,055 $ 8,851 $ 6,284
===================================
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Conversion of mortgage loans to
real estate owned $ --- $ 2,350 $ 673
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Security Benefit Life Insurance Company (the Company) is a Kansas-domiciled
mutual life insurance company licensed to sell insurance products in 49 states.
The Company offers a diversified portfolio of individual and group annuities,
ordinary life, and mutual fund products through multiple distribution channels.
In recent years, the Company's new business activities have increasingly been
concentrated in the individual flexible premium variable annuity markets.
BASIS OF PRESENTATION
The financial statements have been prepared on the basis of accounting practices
prescribed or permitted by the National Association of Insurance Commissioners
(NAIC) and the Kansas Insurance Department. "Prescribed" statutory accounting
practices include state laws, regulations and general administrative rules, as
well as a variety of publications of the NAIC. "Permitted" statutory accounting
practices encompass all accounting practices that are not prescribed; such
practices may differ from state to state, may differ from company to company
within a state, and may change in the future. The NAIC is currently in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of prescribed statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1997,
will likely change, to some extent, prescribed statutory accounting practices,
and may result in changes to the accounting practices that the Company uses to
prepare its statutory financial statements. Statutory accounting practices
presently are regarded as generally accepted accounting principles for mutual
life insurance companies.
In April 1993, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." Under this
Interpretation, financial statements of mutual life insurance companies prepared
on the basis of statutory accounting principles no longer will be considered to
be prepared in conformity with generally accepted accounting principles. In
January 1995, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 120, "Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating Contracts," and
the American Institute of Certified Public Accountants issued its Statement of
Position No. 95-1, "Accounting for Certain Insurance
23
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Activities of Mutual Life Insurance Enterprises," which define generally
accepted accounting principles for mutual life insurance enterprises.
Interpretation No. 40, SFAS No. 120 and Statement of Position No. 95-1 are
concurrently effective for fiscal years beginning after December 15, 1995.
The Company has not yet determined whether it will continue to file statutory
financial statements with the Securities and Exchange Commission as currently
permitted by Regulation S-X, Rule 7-02(b) or file financial statements prepared
in accordance with all applicable authoritative accounting pronouncements that
define generally accepted accounting principles for all enterprises. The Company
has assessed the impact of FASB Interpretation No. 40, SFAS No. 120 and
Statement of Position No. 95-1, and estimates the adoption will result in an
increase to surplus of approximately $100 million.
INVESTMENTS
Investments are valued as prescribed by the NAIC.
Fixed maturities are reported at cost, adjusted for amortization of discount or
premium using the effective interest method. For mortgage-backed fixed
maturities, anticipated prepayments are considered using market consensus
prepayment speeds when determining the amortization of discount or premium.
Adjustments to discount or premium resulting when actual prepayments differ
substantially from estimates are determined using the retrospective method.
Preferred stocks in good standing are carried at cost. Bonds and preferred
stocks not in good standing are carried at market value. Common stocks are
valued at market except investments in stocks of unconsolidated subsidiaries,
which are carried at cost adjusted to reflect subsequent operating results. Home
office property (including the portion reported as investment real estate) is
reported at 1989 appraised value less accumulated depreciation as permitted by
the Kansas Insurance Department. Investment real estate or property acquired in
satisfaction of debt is reported at the lower of depreciated cost, less
encumbrances, or estimated market value. Other investments are reported on the
equity basis. Policy loans are stated at the aggregate unpaid balance. Mortgage
loans on real estate are carried at the aggregate unpaid balance adjusted for
any unamortized discount or premium.
24
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Asset Valuation Reserve (AVR) is computed in accordance with the formula
prescribed by the NAIC and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, and other invested
assets. Changes to the AVR are charged or credited directly to unassigned
surplus.
Realized gains and losses are determined on a specific identification basis and
are reported in income net of related federal income tax. Under a formula
prescribed by the NAIC, the Company reports an Interest Maintenance Reserve
(IMR) that represents the net accumulated unamortized realized capital gains and
losses on sales of fixed income investments, principally bonds and mortgage
loans, attributable to changes in the general level of interest rates. Such
gains or losses are amortized into income on a straight-line basis over the
remaining period to maturity based on groupings of individual securities sold in
five-year bands.
The investment in Security Benefit Group, Inc. (SBG), a wholly-owned subsidiary,
is reported on an equity basis, as permitted by the Kansas Insurance Department.
Changes in SBG's equity are reflected as unrealized gains (losses) on
investments and are accounted for through surplus and investment reserves as
described above. Dividends received from SBG are recorded as investment income
when received.
RESERVES FOR LIFE AND ANNUITY POLICIES
The reserves for life and annuity policies are developed by actuarial methods,
and the life reserves are established and maintained on the basis of published
mortality tables. Life and annuity reserves are computed using assumed interest
rates and valuation methods that will provide, in the aggregate, reserves that
are greater than the minimum valuation required by law and greater than the
guaranteed policy cash values.
For life policies, the 1941, 1958 and 1980 CSO mortality tables have been used
principally, and interest assumptions range from 2% to 5 1/2%. For annuity
contracts, the PAT, 1971 IAM, 1983a, and 1980 CSO mortality tables have been
used principally, and interest assumptions range from 2 1/2% to 11 1/2%.
25
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF PREMIUM REVENUES AND ACQUISITION COSTS
For life and annuity contracts, premiums are recognized as revenues over the
premium paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
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 and certificates of deposits, short-term investments: The carrying
amounts reported in the balance sheet for these instruments approximate
their fair values.
Investment securities: The fair values for fixed maturity securities are
based on quoted market prices, where available. For fixed maturity
securities 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: The fair values for mortgage loans and
policy loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for similar loans to borrowers with
similar credit ratings. Loans with similar characteristics are aggregated
for purposes of the calculations.
Investment 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.
USE OF ESTIMATES
The preparation of the financial statements 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.
26
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1994 and 1993 financial statements have been reclassified
to conform to the 1995 presentation.
2. INVESTMENTS
Information as to the amortized cost, gross unrealized gains and losses and fair
values of the Company's portfolio of fixed maturities at December 31, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 1,192 $ 206 $ --- $ 1,398
Obligations of states and political
subdivisions 90,353 1,725 140 91,938
Corporate securities 1,044,051 36,090 13,189 1,066,952
Mortgage-backed securities 1,159,206 23,299 1,883 1,180,622
----------------------------------------------------
Totals $2,294,802 $61,320 $ 15,212 $2,340,910
====================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 10,490 $ 55 $ 622 $ 9,923
Obligations of states and political
subdivisions 21,147 --- 2,615 18,532
Corporate securities 773,714 1,809 64,494 711,029
Mortgage-backed securities 1,355,199 200 107,843 1,247,556
----------------------------------------------------
Totals $2,160,550 $ 2,064 $175,574 $1,987,040
====================================================
</TABLE>
27
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of debt securities at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
AMORTIZED FAIR
COST VALUE
--------------------------
(IN THOUSANDS)
Due in one year or less $ 12,575 $ 12,716
Due after one year through five years 239,718 244,165
Due after five years through 10 years 292,943 301,247
Due after 10 years 590,360 602,160
--------------------------
1,135,596 1,160,288
Mortgage-backed securities 1,159,206 1,180,622
==========================
$2,294,802 $2,340,910
==========================
The cost and the fair values of the Company's equity securities at December 31,
1995 and 1994 are as follows:
DECEMBER 31, 1995
----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN THOUSANDS)
Preferred stock $ 4,044 $ 446 $--- $ 4,490
Common stock 8,309 123 86 8,346
----------------------------------------------
$12,353 $ 569 $ 86 $12,836
==============================================
28
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
DECEMBER 31, 1994
----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN THOUSANDS)
Preferred stock $ 5,979 $ 568 $124 $ 6,423
Common stock 2,509 599 37 3,071
----------------------------------------------
$ 8,488 $1,167 $161 $ 9,494
==============================================
Proceeds from sales of fixed maturities and related realized gains and losses,
including valuation adjustments, are as follows:
1995 1994 1993
----------------------------------
(IN THOUSANDS)
Proceeds from sales $293,864 $119,773 $891,044
Gross realized gains 4,294 4,966 35,955
Gross realized losses 2,971 4,813 21,375
The composition of the Company's portfolio of fixed maturity securities by
quality rating at December 31, 1995 is as follows:
QUALITY RATING AMOUNT %
------------------- -------------- ------
(IN THOUSANDS)
AAA $1,248,468 54.4%
AA 119,533 5.2
A 314,283 13.7
BBB 431,147 18.8
Noninvestment grade 181,371 7.9
-------------- ------
$2,294,802 100.0%
============== ======
The Company has a diversified portfolio of commercial and residential mortgage
loans outstanding in 26 states. The loans are somewhat geographically
concentrated in the midwestern and southwestern United States with the largest
outstanding balances at December 31, 1995 being in the states of Kansas (36%)
and Texas (13%).
29
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Major categories of net investment income are summarized as follows:
1995 1994 1993
-------------------------------------
(IN THOUSANDS)
Interest on fixed maturities $165,742 $151,688 $150,930
Interest on mortgage loans 7,656 7,552 7,835
Real estate income 3,524 3,563 3,451
Interest on policy loans 5,934 5,446 5,174
Dividends from subsidiary (NOTE 5) 4,200 5,200 8,300
Other 4,749 5,857 2,705
-------------------------------------
Total investment income 191,805 179,306 178,395
Investment expenses 6,200 5,915 5,516
-------------------------------------
Net investment income $185,605 $173,391 $172,879
=====================================
The Company did not hold any investments that individually exceeded 10% of
surplus at December 31, 1995 except for securities guaranteed by the U.S.
government or an agency of the U.S. government.
Net realized losses consist of the following:
1995 1994 1993
-------------------------------------
(IN THOUSANDS)
Fixed maturities $ 1,323 $ 153 $14,580
Equity securities 607 (62) (5,179)
Other 566 (2,401) (1,934)
-------------------------------------
Total realized gains (losses) 2,496 (2,310) 7,467
Income tax expense (benefit) (4,272) (3,593) 1,937
-------------------------------------
6,768 1,283 5,530
Transferred to interest maintenance
reserve, net of tax 7,851 (2,405) (8,810)
-------------------------------------
$(1,083) $(1,122) $(3,280)
=====================================
30
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The Company's principal objective in holding derivatives for purposes other than
trading is asset-liability management. The operations of the Company are subject
to risk of interest rate fluctuations to the extent that there is a difference
between the amount of the Company's interest-earning assets and interest-bearing
liabilities that mature in specified periods. The principal objective of the
Company's asset-liability management activities is to provide maximum levels of
net interest income while maintaining acceptable levels of interest rate and
liquidity risk and facilitating the funding needs of the Company. To achieve
that objective, the Company uses financial futures instruments and interest rate
exchange agreements. Financial futures contracts are commitments to either
purchase or sell a financial instrument at a specific future date for a
specified price and may be settled in cash or through delivery of the financial
instrument. Interest rate exchange agreements generally involve the exchange of
fixed and floating rate interest payments, without an exchange of the underlying
principal.
If a financial futures contract that is used to manage interest rate risk is
terminated early or results in a single payment based on the change in value of
an underlying asset, any resulting gain or loss is deferred and amortized as an
adjustment to yield of the designated asset over its remaining life. Deferred
losses totaling $3.9 million and deferred gains totaling $1.8 million at
December 31, 1995 and 1994, respectively, resulting from terminated and expired
futures contracts are included in fixed maturities and will be amortized as an
adjustment to interest income. The notional amount of outstanding agreements to
sell securities was $79 million and $51 million at December 31, 1995 and 1994,
respectively.
For interest rate exchange agreements, the differential of interest to be paid
or received is accrued as interest rates change and recognized as an adjustment
to interest income. The related amount payable to or receivable from
counterparties is included in investment income due and accrued. These amounts
were insignificant to the Company. There were no closed or terminated agreements
during 1995 or 1994. The fair values of the interest rate exchange agreements
are not recognized in the financial statements. The notional amount of
outstanding agreements was $50 million at December 31, 1995. Also, as of
December 31, 1995, these agreements have maturities ranging from March 1997 to
June 2005. Under these agreements, the Company receives variable rates based on
the one- and three-month LIBOR and pays fixed rates ranging from 6.430% to
7.215%.
31
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
3. SEPARATE ACCOUNT TRANSACTIONS
The separate accounts are established in conformity with Kansas Insurance Laws
and are not chargeable with liabilities that arise from any other business of
the Company. Premiums designated for investment in the separate accounts are
included in income with corresponding liability increases included in benefits.
Separate account surplus created through the use of Commissioners' Annuity
Reserve Valuation Method is reported as an unsettled transfer from the separate
account to the general account. Assets and liabilities of the separate accounts,
representing net deposits and accumulated net investment earnings held primarily
for the benefit of contract holders, are shown as separate captions in the
balance sheet. Assets held in the separate accounts are carried at quoted market
values, or where quoted market values are not available, at fair market value as
determined by the fund investment managers. Security Management Company, a
wholly-owned subsidiary of SBG, serves as the investment manager for the SBL
fund separate account assets. T. Rowe Price separate account assets are managed
by T. Rowe Price Associates, Inc. (or an affiliated company) and the Parkstone
separate account assets are managed by First of America Investment Corporation.
The Company receives administrative and risk fees relating to amounts invested
in the separate accounts.
The statement of operations includes the following separate account
transactions, which have no effect on net income:
1995 1994 1993
----------------------------------
(IN THOUSANDS)
Annuity considerations and deposits $275,257 $256,061 $235,624
==================================
Benefits:
Benefits and other charges $127,205 $ 83,933 $ 52,283
Net transfers to separate accounts 148,052 172,128 183,341
----------------------------------
$275,257 $256,061 $235,624
==================================
32
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. 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 average
compensation during the last five 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.
The Company records pension cost in accordance with the provisions of SFAS No.
87, "Employers' Accounting for Pensions." Pension cost for the year is allocated
to each sponsoring company based on the ratio of salary costs for each company
to total salary cost. Pension cost allocated to the Company for 1995, 1994 and
1993 was $151,000, $218,000, and $139,000, respectively.
Separate information disaggregated by sponsoring employer company is not
available on the components of the net pension cost or on the funded status of
the plan. Pension cost for the total plan for 1995, 1994 and 1993 is summarized
as follows:
1995 1994 1993
------------------------------
(IN THOUSANDS)
Service cost $ 528 $ 679 $ 571
Interest cost 508 535 483
Actual return on plan assets (1,568) 310 (966)
Net amortization and deferral 900 (949) 277
==============================
Net pension cost $ 368 $ 575 $ 365
==============================
33
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of the total plan as of December 31, 1995 and 1994 was as
follows:
DECEMBER 31
1995 1994
---------------------
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefit obligation $(5,243) $(4,589)
Non-vested benefit obligation (165) (157)
---------------------
Accumulated benefit obligation (5,408) (4,746)
Excess of projected benefit obligation over
accumulated benefit obligation (2,865) (2,405)
---------------------
Projected benefit obligation (8,273) (7,151)
Plan assets at fair market value 8,342 6,514
---------------------
Plan assets greater than (less than) projected
benefit obligation 69 (637)
Unrecognized net loss 1,560 1,971
Unrecognized prior service cost 758 815
Unrecognized net asset established at the date
of initial application (2,025) (2,209)
=====================
Net prepaid (accrued) pension expense $ 362 $ (60)
=====================
Assumptions were as follows:
1995 1994 1993
----------------------
Weighted average discount rate 7.5% 8.5% 7.5%
Weighted average compensation rate for
participants age 45 and older 4.5 4.5 4.5
Weighted average expected long-term return
on plan assets 9.0 9.0 9.0
Compensation rates that vary by age for participants under age 45 were used in
determining the actuarial present value of the projected benefit obligation in
1995. Plan assets are invested in a diversified portfolio of affiliated mutual
funds that invest in equity and debt securities.
34
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
In addition to the Company's defined benefit pension plan, the Company and
certain of its affiliates provide 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 and its affiliates' portion of the costs is frozen after 1996 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 Company records net periodic cost for non-pension postretirement benefits in
accordance with the provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The net periodic cost is allocated
among the Company and its affiliates based on the number of eligible employees.
The net periodic cost allocated to the Company was $198,000, $171,000 and
$166,000 for 1995, 1994 and 1993, respectively.
Separate information disaggregated by sponsoring employer company is not
available on the components of the net retiree medical care and life insurance
costs or on the funded status of the plan. Retiree medical care and life
insurance costs for the total plan for 1995, 1994 and 1993 are summarized as
follows:
1995 1994 1993
----------------------
(IN THOUSANDS)
Service cost $151 $116 $118
Interest cost 305 275 233
----------------------
$456 $391 $351
======================
35
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of the total plan as of December 31, 1995 and 1994 was as
follows:
DECEMBER 31
1995 1994
---------------------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees $(2,514) $(2,418)
Active participants:
Retirement eligible (632) (620)
Others (1,035) (706)
---------------------
(4,181) (3,744)
Unrecognized net (gain) loss 67 (30)
---------------------
Accrued postretirement benefit cost $(4,114) $(3,774)
=====================
The annual assumed rate of increase in the per capita cost of covered benefits
is 11% for 1995 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, 1995 by
$233,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1995 by $60,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5%, 8.5% and 7.5% at December 31, 1995, 1994 and 1993,
respectively.
The Company has a profit-sharing and savings plan for which substantially all
employees are eligible after one year of employment with the Company.
Contributions for profit sharing are based on a formula established by the Board
of Directors with pro rata allocation among employees based on salaries. The
savings plan is a tax-deferred 401(k) retirement plan. Employees may contribute
up to 10% of their eligible compensation. The Company matches 50% of the first
6% of the employee contributions. Employee contributions are fully vested, and
Company contributions are vested over a five-year period. Company contributions
to the profit-sharing and savings plan charged to operations were $721,000,
$371,000 and $463,000 for 1995 1994 and 1993, respectively.
36
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
5. RELATED-PARTY TRANSACTIONS
SBG provides certain management and administrative services to the Company.
During 1995, 1994 and 1993, the Company incurred $18,654,000, $16,852,000 and
$14,729,000, respectively, for such services. The Company leases certain office
space to SBG for which annual rent income of $1,133,000 was recorded in 1995,
1994 and 1993. Additionally, in 1995, 1994 and 1993, the Company paid
commissions of $2,546,000, $2,700,000, $2,985,000, respectively, to Security
Distributors, Inc., a wholly-owned subsidiary of SBG.
Effective January 2, 1995, the Company acquired, pursuant to an assumption
reinsurance agreement from Pioneer National Life Insurance Company (PNL), then a
wholly-owned subsidiary of SBG, substantially all of PNL's life insurance
business. Concurrent with the assumption reinsurance agreement, the Company
entered into a 100% coinsurance agreement with PNL reinsuring the remaining
business. The Company did not recognize any gain or loss on the above
transactions. The Company received $2.9 million of assets as consideration for
the liabilities assumed by the Company in the assumption reinsurance and
coinsurance agreement. Assumed premiums and claims related to this business were
not significant to the Company during 1995. PNL was subsequently merged with
First Security Benefit Life Insurance and Annuity Company of New York (FSBL), a
newly formed wholly-owned subsidiary of SBG.
During 1995, the Company purchased an SBG note for the principal amount of $17
million. The note is due May 24, 2000 and provides for semiannual interest
payments at 7.35% per annum commencing on November 24, 1995. The note has been
registered with the NAIC and is included in fixed maturities in the accompanying
balance sheet. SBG used $12 million of the proceeds to purchase Company-issued
annuity contracts for the purpose of funding new investment options within the
Company's separate account. The account balance of these contracts totaled
$13,005,000 at December 31, 1995. The remaining $5 million of proceeds were used
to purchase shares in new mutual funds managed by Security Management Company, a
wholly-owned subsidiary of SBG. The net asset value of these shares totaled
$5,364,000 at December 31, 1995.
At December 31, 1995 and 1994, the Company's investment in SBG was $29,590,000
and $21,028,000, respectively. The Company recorded cash dividends of
$4,200,000, $5,200,000 and $8,300,000 from SBG during 1995, 1994 and 1993,
respectively.
37
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
5. RELATED-PARTY TRANSACTIONS (CONTINUED)
Condensed financial information related to SBG is as follows:
Balance Sheets:
1995 1994
---------------------
(IN THOUSANDS)
Cash and investments $45,221 $19,456
Property and equipment 8,138 8,736
Other assets 7,594 7,910
---------------------
$60,953 $36,102
=====================
Accounts payable and other liabilities $14,363 $15,074
Note payable to parent 17,000 ---
Stockholder's equity 29,590 21,028
---------------------
$60,953 $36,102
=====================
Statements of Operations:
1995 1994 1993
---------------------------------
(IN THOUSANDS)
Revenues:
Management fees $18,654 $16,852 $14,729
Mutual fund fees 24,266 22,058 21,352
Other 3,226 2,373 7,287
---------------------------------
46,146 41,283 43,368
General, administrative and other expenses 36,488 32,390 30,080
Income taxes 3,927 3,430 5,233
Cumulative effect of SFAS No. 106 --- --- 1,735
---------------------------------
Net income $ 5,731 $ 5,463 $ 6,320
=================================
38
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
6. REINSURANCE
The Company is involved in both the cession and assumption of reinsurance with
other companies. The Company's maximum retention on any one life is $500,000.
Risks are reinsured with other companies to permit recovery of a portion of
direct losses.
Principal reinsurance transactions are summarized as follows:
1995 1994 1993
--------------------------------------
(IN THOUSANDS)
Reinsurance assumed:
Premiums received $ 866 $ 1,276 $ 1,359
======================================
Commissions paid $ 144 $ 239 $ 96
======================================
Claims paid $ 1,597 $ 1,469 $ 7,290
======================================
Reinsurance ceded:
Premiums paid $ 73,916 $ 12,018 $ 4,194
======================================
Commissions received $ 230 $ 1,443 $ 148
======================================
Claim recoveries $ 3,089 $ 2,485 $ 2,231
======================================
Reinsurance in force (at December 31):
Assumed policies $ 25,438 $ 30,814 $ 39,730
======================================
Ceded policies $3,932,146 $1,150,828 $1,081,591
======================================
The liabilities for policy reserves and policy and contract claims include the
following amounts for reinsurance assumed: $354,000 and $2,790,000 at December
31, 1995 and $120,000 and $3,187,000 at December 31, 1994.
The ceding of insurance through reinsurance agreements does not discharge the
primary liability of the original underwriters to the insured. However,
statutory accounting practices treat risks that have been reinsured, to the
extent of reinsurance, as though they were not risks for which the original
insurer is liable. Therefore, in financial statement presentations, policy
reserves and policy and contract claim liabilities are presented net of that
portion of risk reinsured. Accordingly, policy reserves and policy and contract
claim liabilities have been shown net of reinsurance credits of $77,908,000 and
$968,000 at December 31, 1995 and $11,048,000 and $459,000 at December 31, 1994.
39
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
6. REINSURANCE (CONTINUED)
In 1995, the Company transferred, through a 100% coinsurance agreement, $66.9
million in policy reserves and claim liabilities. The agreement related to a
block of whole life and decreasing term life insurance business. The Company
recorded a pretax gain of $42.6 million which represented the initial ceding
commission. This gain, net of tax, was recorded as an increase to unassigned
surplus.
In prior years, the Company was involved in litigation arising out of its
participation from 1986 to 1990 in a reinsurance pool. The litigation related to
the pool manager and a reinsurance intermediary placing major medical business
in the pool without authorization. During 1993, the Company settled the major
medical portion of the pool's activity with no significantly adverse effect on
the Company. The nonmajor medical business placed in the pool has experienced
significant losses. At December 31, 1995, the Company believes adequate
provision has been made for such losses.
7. INCOME TAXES
The Company files a life/nonlife consolidated federal income tax return with
SBG. Income taxes are allocated to the Company on the basis of its filing a
separate tax return. The Company is taxed at usual corporate rates as defined by
the applicable income tax laws for mutual life insurance companies. These laws
provide for differences in the recognition of certain income and expenses, and
provide for deductions that may result in a provision for income taxes that does
not have the customary relationship of taxes to income. The provision for income
taxes differs from the amount computed at the statutory federal rate due
primarily to the dividends received deduction and tax credits.
During the year ended December 31, 1993, the Company began establishing deferred
income taxes on its tax-basis deferred policy acquisition costs. Prior to this
time, no deferred income taxes had been established on any difference between
the financial statement and income tax bases of assets and liabilities, and, at
December 31, 1995, this remains the only item to which deferred income tax
accounting has been applied. The Company's policy is to nonadmit any resulting
deferred tax asset; accordingly, this practice has no impact on surplus. The
cumulative effect of adopting this change as of January 1, 1993 amounted to
$3,464,000 and was reflected as a nonadmitted asset at that time. The effect of
the new method increased income tax expense by $115,000 for 1995 and decreased
income tax expense by $927,000 and $1,444,000 for 1994 and 1993, respectively.
40
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
8. CONDENSED FAIR VALUE INFORMATION
SFAS No. 107, "Disclosures about Fair Values 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, which 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 over 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.
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------------------- -----------------------
(IN THOUSANDS)
Fixed maturities (NOTE 2) $2,294,802 $2,340,910 $2,160,550 $1,987,040
Equity securities (NOTE 2) 12,390 12,836 9,050 9,494
Mortgage loans 70,777 76,610 90,509 88,894
Policy loans 100,452 104,077 92,130 91,492
Short-term investments 992 992 50,406 50,406
Cash and certificates of deposit 12,059 12,059 10,820 10,820
Investment income due and accrued 30,577 30,577 25,857 25,857
Futures contracts --- (737) --- 240
Interest rate exchange agreements --- (2,291) --- ---
Supplementary contracts
without life contingencies 34,363 35,387 41,239 39,771
Individual and group annuities 1,922,901 1,774,642 1,828,753 1,690,693
----------------------- -----------------------
$4,479,313 $4,385,062 $4,309,314 $3,994,707
======================= =======================
41
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
9. COMMITMENTS AND CONTINGENCIES
The Company has a $75.5 million line of credit facility from the Federal Home
Loan Bank of Topeka. Any borrowings in connection with this facility bear
interest at .1% over the Federal Funds rate. At December 31, 1995, there were no
borrowings outstanding under this facility.
The economy and other factors have caused an increase in the number of insurance
companies that have required regulatory supervision. This circumstance is
expected to result in an increase in assessments by state guaranty funds, or
voluntary payments by solvent insurance companies, to cover losses to
policyholders of insolvent or rehabilitated companies. Mandatory assessments can
be partially recovered through a reduction in future premium taxes in some
states. The Company records these assessments on a cash basis and has paid
$2,014,000, $2,270,000 and $2,077,000 for the years ended December 31, 1995,
1994 and 1993, respectively. The ultimate amounts or the ultimate effect of any
such increased assessments or voluntary payments on the Company's financial
position and results of operations are not currently determinable. The
accompanying financial statements do not include any provision for any such
potential assessments.
10. ANNUITY AND DEPOSIT LIABILITIES
The withdrawal characteristics of the liability for future policy benefits for
annuities and supplementary contracts and deposits as of December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
GENERAL SEPARATE
ACCOUNT ACCOUNT TOTAL PERCENT
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal:
With market value adjustment $ 557 $ --- $ 557 ---%
At book value less current surrender
charge of 5% or more 572,902 652,843 1,225,745 30
----------------------------------------------------
Total with adjustment 573,459 652,843 1,226,302 30
Subject to discretionary withdrawal
at book value with minimal or no
charge or adjustment 1,394,680 1,360,750 2,755,430 67
Not subject to discretionary withdrawal 112,382 12,070 124,452 3
----------------------------------------------------
$2,080,521 $2,025,663 $4,106,184 100%
====================================================
</TABLE>
42
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
- - -------- ---------------------------------
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits
(1) Resolution of the Board of Directors of Security Benefit Life
Insurance Company ("SBL") authorizing establishment of the
Separate Account(a)
(2) Not Applicable
(3) Application and Service Agreement(b)
(4) Sample Contracts including riders and endorsements(a)
(5) Form of Application(a)
(6) (a) Composite of Articles of Incorporation of SBL(a)
(b) Bylaws of SBL(a)
(7) Not Applicable
(8) Fund Participation and Variable Contract Marketing
Agreement(b)
(9) Opinion and Consent of Counsel(a)
(10) Consent of Independent Auditors
(11) Not Applicable
(12) Not Applicable
(13) Schedules for Computation of Performance
(14) Financial Data Schedules
(15) Powers of Attorneys of Howard R. Fricke, Thomas R. Clevenger,
Sister Loretto Marie Colwell, John C. Dicus, Melanie S.
Fannin, W. W. Hanna, John E. Hayes, Jr., Laird G. Noller,
Frank C. Sabatini, and Robert C. Wheeler
(a) Incorporated herein by reference to the Exhibits filed with the
Registrant's Registration Statement Number 33-65654 (July 6, 1993).
(b) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 2 to Registration Statement No.
33-65654 (May 20, 1994).
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
- - -------- ---------------------------------------
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR
- - ----------------------------------- ------------------------------------
<S> <C>
Howard R. Fricke* Chairman of the Board, President, Chief Executive
Officer and Director
Thomas R. Clevenger Director
P.O. Box 8514
Wichita, Kansas 67208
Sister Loretto Marie Colwell Director
1700 SW 7th Street
Topeka, Kansas 66044
John C. Dicus Director
700 Kansas Avenue
Topeka, Kansas 66603
Melanie S. Fannin Director
220 SE 6th Street
Topeka, KS 66603
William W. Hanna Director
P.O. Box 2256
Wichita, Kansas 67201
John E. Hayes, Jr. Director
818 Kansas Avenue
Topeka, Kansas 66612
Laird G. Noller Director
2245 Topeka Avenue
Topeka, Kansas 66611
Frank C. Sabatini Director
120 SW 6th Street
Topeka, Kansas 66603
Robert C. Wheeler Director
P.O. Box 148
Topeka, Kansas 66601
Donald J. Schepker* Senior Vice President, Chief Financial Officer and
Treasurer
James L. Woods* Senior Vice President
Jeffrey B. Pantages* Senior Vice President and Chief Investment Officer
</TABLE>
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
- - -------- ---------------------------------------
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address With Depositor
- - ------------------ ---------------------
<S> <C>
Roger K. Viola* Senior Vice President, General Counsel and Secretary
T. Gerald Lee* Senior Vice President - Administration
Malcolm E. Robinson* Senior Vice President and Assistant to the President
Donald E. Caum* Senior Vice President and Chief Marketing Officer
Richard K Ryan* Senior Vice President
Amy J. Lee* Associate General Counsel and Vice President
James R. Schmank* Vice President - Corporate Development
Kathleen R. Blum* Vice President - Administration
</TABLE>
*Located at 700 Harrison Street, Topeka, Kansas 66636.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
- - -------- ------------------------------------------------------
DEPOSITOR OR REGISTRANT
-----------------------
The Depositor, Security Benefit Life Insurance Company ("SBL") is owned by
its policyowners. No one person holds more than approximately 0.0005% of the
voting power of SBL. The Registrant is a segregated asset account of SBL.
<PAGE>
The following chart indicates the persons controlled by or under common
control with Parkstone Variable Annuity or SBL:
<TABLE>
<CAPTION>
PERCENT OF VOTING SECURITIES
NAME JURISDICTION OF INCORPORATION OWNED BY SBL
---- ----------------------------- ----------------------------
<S> <C> <C>
Security Benefit Life Insurance Kansas -----
Company (Mutual Life
Insurance Company
Security Benefit Group, Inc. Kansas 100%
(Holding Company)
Security Management Company Kansas 100%
(Investment Adviser)
Security Distributors, Inc. Kansas 100%
(Broker/Dealer, Principal
Underwriter of Mutual Funds)
Security Benefit Academy, Inc. Kansas 100%
(Daycare Company)
Creative Impressions, Inc. Kansas 100%
(Advertising Agency)
Security Benefit Clinic and Kansas 100%
Hospital (Nonprofit provider of
hospital benevolences for
fraternal certificate holders)
First Advantage Insurance Kansas 100%
Agency, Inc. (Insurance
Agency)
First Security Benefit Life New York 100%
Insurance and Annuity Company
of New York
</TABLE>
<PAGE>
SBL is also the depositor of the following separate accounts: SBL Variable
Annuity Accounts I, III, IV, and Variflex, SBL Variable Life Insurance Account
Varilife, Security Varilife Separate Account, Variflex LS, and T. Rowe Price
Variable Annuity Account.
Through the above-referenced separate accounts, SBL might be deemed to
control the open-end management investment companies listed below. The
approximate percentage of ownership by the separate accounts for each company is
as follows:
Security Equity Fund 18% Security Income Fund 5.9%
Corporate Bond Series
Security Growth and 41% SBL Fund 100%
Income Fund
ITEM 27. NUMBER OF CONTRACTOWNERS
- - -------- ------------------------
As of March 31, 1996, there were 1,060 owners of Parkstone Variable Annuity
Qualified Contracts, 928 owners of Parkstone Non-Qualified Contracts, and 17
owners of Parkstone Non-Qualified Trust Contracts.
ITEM 28. INDEMNIFICATION
- - -------- ---------------
The bylaws of Security Benefit Life Insurance Company provide that the
Company shall, to the extent authorized by the laws of the State of Kansas,
indemnify officers and directors for certain liabilities threatened or incurred
in connection with such person's capacity as director or officer.
The Articles of Incorporation include the following provision:
A Director shall not be personally liable to the Corporation or to its
policyholders for monetary damages for breach of fiduciary duty as a
director, provided that this sentence shall not eliminate nor limit the
liability of a director
A. for any breach of his or her duty of loyalty to the Corporation
or its policyholders;
B. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
C. under the provisions of K.S.A. 17-6424 and amendments thereto; or
<PAGE>
D. for any transaction from which the director derived an improper
personal benefit.
This Article Eighth shall not eliminate or limit the liability of a
director for any act or omission occurring prior to the date this Article
Eighth becomes effective.
Insofar as indemnification for a liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Depositor has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the Securities being registered, the
Depositor will, unless in the opinion of its counsel the matter has been settled
by a controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITER
- - -------- ---------------------
(a) Security Distributors, Inc. ("SDI"), a subsidiary of SBL, acts as
distributor of the Parkstone Variable Annuity contracts. SDI receives no
compensation for its distribution function in excess of the commissions it pays
to selling broker/dealers. SDI performs similar functions for SBL Variable
Annuity Accounts I, III, IV, Variflex, SBL Variable Life Insurance Account
Varilife, Variflex LS, Security Varilife Separate Account. SDI also acts as
principal underwriter for The Parkstone Advantage Fund and for the following
management investment companies for which Security Management Company, a
subsidiary of SBL, acts as investment adviser: Security Equity Fund, Security
Income Fund, Security Growth and Income Fund, Security Tax-Exempt Fund and
Security Ultra Fund.
<PAGE>
(b)
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
------------------ --------------------
Richard K Ryan President and Director
John D. Cleland Vice President and Director
James W. Lammers Senior Vice President and Director
James R. Schmank Vice President and Director
Mark E. Young Vice President
Amy J. Lee Secretary
Brenda M. Luthi Treasurer
Louis R. Jicha Vice President and Director
Daniel McNichol Vice President
Steven S. Doerrer Regional Vice President
Robert L. Kirchner Regional Vice President
Daniel R. Murphy Regional Vice President
Ronald V. Vermillion Regional Vice President
Jennifer A. Zaat Regional Vice President
Kent N. Spillman Regional Vice President
Carla D. Griffin Regional Vice President
Anthony Hammock Regional Vice-President
*700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
- - -------- --------------------------------
All accounts and records required to be maintained by Section 31(a) of the 1940
Act and the rules under it are maintained by SBL at its administrative offices
- - -- 700 Harrison, Topeka, Kansas 66636-0001.
ITEM 31. MANAGEMENT SERVICES
- - -------- -------------------
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS
- - -------- ------------
(a) Registrant undertakes that it will file a post-effective amendment to this
Registration Statement as frequently as necessary to ensure that the audited
financial statements in the Registration Statement are never more than sixteen
(16) months old for so long as payments under the Variable Annuity contracts may
be accepted.
(b) Registrant undertakes that it will include as part of the Parkstone Variable
Annuity contract application a space that an applicant can check to request a
Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information and
any financial statements required to be made available under this Form promptly
upon written or oral request to SBL at the address or phone number listed in the
prospectus.
(d) SBL, sponsor of the unit investment trust, Parkstone Variable Annuity,
hereby represents that it is relying upon the Securities and Exchange
Commission's No-Action Letter Ref. No. IP-6-88, American Council of Life
Insurance, and that it has complied with the provisions of paragraphs (1)-(4) of
such no-action letter which are incorporated herein by reference.
(e) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the 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 hereafter duly adopted pursuant to authority conferred
in that Section.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements of Securities Act Rule 485 for effectiveness of this Registration
Statement and has caused this Registration Statement to be signed on its behalf,
in the City of Topeka, and State of Kansas on this 25th day of April, 1996.
SIGNATURES AND TITLES
- - ---------------------
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of the Board, (The Depositor)
President and Chief Executive
Officer
By: Roger K. Viola
--------------------------------------
Thomas R. Clevenger Roger K. Viola, Senior Vice President,
Director General Counsel and Secretary as
Attorney-In-Fact for the Officers and
Directors Whose Names Appear Opposite
Sister Loretto Marie Colwell
Director
PARKSTONE VARIABLE ANNUITY
John C. Dicus (The Registrant)
Director
By: SECURITY BENEFIT LIFE INSURANCE
Melanie S. Fannin COMPANY
Director (The Depositor)
By: Howard R. Fricke
William W. Hanna --------------------------------------
Director Howard R. Fricke, Chairman of the
Board, President and Chief Executive
Officer
John E. Hayes, Jr.
Director By: Donald J. Schepker
--------------------------------------
Donald J. Schepker, Senior Vice
Laird G. Noller President, Chief Financial Officer and
Director Treasurer
Frank C. Sabatini (ATTEST): Roger K. Viola
Director --------------------------------
Roger K. Viola, Senior Vice
Robert C. Wheeler President, General Counsel and
Director Secretary
Date: April 25, 1996
<PAGE>
EXHIBIT INDEX
(1) None
(2) None
(3) None
(4) None
(5) None
(6) (a) None
(b) None
(7) None
(8) None
(9) None
(10) Consent of Independent Auditors
(11) None
(12) None
(13) Schedules for Computation of Performance
(14) Financial Data Schedules
(15) Powers of Attorneys
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated February 2, 1996, with respect to the
financial statements of Security Benefit Life Insurance Company and the
financial statements of Parkstone Variable Annuity included in the Registration
Statement on Form N-4 and the related Statement of Additional Information
accompanying Prospectus of Parkstone Variable Annuity.
Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
April 24, 1996
<PAGE>
Item 24(b) Exhibit (13)
EQUITY FUND
Average annual total return as of December 31, 1995
1.00 Year
1000 (1+T) = 1,181.04
(1+T) = 1.18104
T = .18104
2.27 Years (since inception September 24, 1993)
1000 (1+T)2.27 = 1,080.09
((1+T)2.27) 1/2.27 = (1.0809)1/2.27
1+T = 1.0345
T = .0345
SMALL CAPITALIZATION FUND
1.00 Year
1000 (1+T) = 1,242.88
1+T = 1.24288
T = .24288
2.27 Years (since inception September 24, 1993)
1000 (1+T)2.27 = 1,377.61
((1+T)2.27)1/2.27 = (1.37761)1/2.27
1+T = 1.1517
T = .1517
<PAGE>
Item 24(b) Exhibit (13)
BOND FUND
1.00 Year
1000 (1+T) = 1,067.03
1+T = 1.06703
T = .06703
2.27 Years (since inception September 24, 1993)
1000 (1+T)2.27 = 1,013.25
((1+T)2.27) 1/2.27 = (1.01325)1/2.27
1+T = 1.0058
T = .0058
INTERNATIONAL DISCOVERY FUND
1.00 Year
1000 (1+T) = 999.67
1+T = .99967
T = .00032
2.27 Years (since inception September 24, 1993)
1000 (1+T)2.27 = 914.60
((1+T)2.27) 1/2.27 = (.91460) 1/2.27
1+T = .9614
T = -.0386
<PAGE>
Item 24(b) Exhibit (13)
PRIME OBLIGATIONS FUND
CALCULATION OF WEEKLY MAINTENANCE FEE FACTOR:
- - --------------------------------------------
600 1995 AF
- - --------------------------
207,134.08 1995 Average Assets
= .0028966746 x 7/365 = .000055553
CALCULATION OF CHANGE IN UNIT VALUE:
- - -----------------------------------
(Unrounded Unrounded)
( Price Price )
(12-29-XX - 12-22-XX ) = 10.4310634344 - 10.4235850451 = .000717449
----------------------- -----------------------------
( Unrounded Price )
( 12-22-XX ) 10.4235850451
ANNUALIZED YIELD:
- - ----------------
365/7 (.000717449-.000055553) = 3.45%
EFFECTIVE YIELD:
- - ---------------
(1 + .000661896)365/7 - 1 = 3.51%
<PAGE>
Item 24(b) Exhibit (13)
NONSTANDARDIZED TOTAL RETURN
(SMALL CAPITALIZATION)
(ENDING PRICE ) - 1 = Nonstandardized Total Return
---------------
(Beginning Price)
Nonstandardized Total Return
1.00 Year
15.23 = 33.83%
-----
11.38
2.27 Years (since date of inception September 24, 1993)
15.23 = 52.30%
-----
10.00
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 1
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<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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<INVESTMENTS-AT-COST> 665
<INVESTMENTS-AT-VALUE> 665
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 665
<PAYABLE-FOR-SECURITIES> 665
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 665
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 63,768
<SHARES-COMMON-PRIOR> 17,573
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 665
<DIVIDEND-INCOME> 14
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (5)
<NET-INVESTMENT-INCOME> 9
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9
<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 72
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<PER-SHARE-NAV-BEGIN> 10.15
<PER-SHARE-NII> .03
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.43
<EXPENSE-RATIO> (.02)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> JUL-11-1995
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<INVESTMENTS-AT-COST> 140
<INVESTMENTS-AT-VALUE> 140
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<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 140
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<OTHER-ITEMS-LIABILITIES> 0
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<SHARES-COMMON-STOCK> 13,728
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> .13
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.17
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 2
<NAME> BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
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<INVESTMENTS-AT-COST> 3,700
<INVESTMENTS-AT-VALUE> 3,953
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<PAYABLE-FOR-SECURITIES> 3,953
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 3,953
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 370
<SHARES-COMMON-PRIOR> 293
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 357
<NET-ASSETS> 3,953
<DIVIDEND-INCOME> 141
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (56)
<NET-INVESTMENT-INCOME> 9
<REALIZED-GAINS-CURRENT> (1)
<APPREC-INCREASE-CURRENT> 357
<NET-CHANGE-FROM-OPS> 441
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 127
<NUMBER-OF-SHARES-REDEEMED> 50
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 77
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.27
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.42
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.69
<EXPENSE-RATIO> (.02)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 2
<NAME> BOND TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
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<INVESTMENTS-AT-VALUE> 602
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<OTHER-ITEMS-ASSETS> 0
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<OTHER-ITEMS-LIABILITIES> 0
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
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<SHARES-COMMON-PRIOR> 5
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18
<NET-ASSETS> 602
<DIVIDEND-INCOME> 14
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (2)
<NET-INVESTMENT-INCOME> 12
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 18
<NET-CHANGE-FROM-OPS> 30
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 50
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 50
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.40
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 1.47
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.92
<EXPENSE-RATIO> (.01)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 3
<NAME> EQUITY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
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<INVESTMENTS-AT-COST> 10,767
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<PAYABLE-FOR-SECURITIES> 11,965
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<TOTAL-LIABILITIES> 11,965
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 992
<SHARES-COMMON-PRIOR> 751
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,255
<NET-ASSETS> 11,965
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (152)
<NET-INVESTMENT-INCOME> (152)
<REALIZED-GAINS-CURRENT> 104
<APPREC-INCREASE-CURRENT> 2,255
<NET-CHANGE-FROM-OPS> 2,207
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 332
<NUMBER-OF-SHARES-REDEEMED> 38
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 294
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.48
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 2.61
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.07
<EXPENSE-RATIO> (.02)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 3
<NAME> EQUITY TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
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<EXCHANGE-RATE> 1
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<OTHER-ITEMS-ASSETS> 0
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
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<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47
<NET-ASSETS> 527
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (2)
<NET-INVESTMENT-INCOME> (2)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 47
<NET-CHANGE-FROM-OPS> 45
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 38
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 9.62
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<PER-SHARE-GAIN-APPREC> 2.71
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<PER-SHARE-NAV-END> 12.32
<EXPENSE-RATIO> (.01)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 4
<NAME> INTERNATIONAL DISCOVERY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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<INVESTMENTS-AT-COST> 5,977
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 601
<SHARES-COMMON-PRIOR> 487
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 514
<NET-ASSETS> 6,167
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (77)
<NET-INVESTMENT-INCOME> (77)
<REALIZED-GAINS-CURRENT> (26)
<APPREC-INCREASE-CURRENT> 514
<NET-CHANGE-FROM-OPS> 411
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 183
<NUMBER-OF-SHARES-REDEEMED> 8
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 171
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.48
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> .79
<PER-SHARE-DIVIDEND> 0
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.26
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 4
<NAME> INTERNATIONAL DISCOVERY TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 177
<INVESTMENTS-AT-VALUE> 181
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
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<SENIOR-EQUITY> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11
<NET-ASSETS> 181
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<EXPENSES-NET> (1)
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<NUMBER-OF-SHARES-SOLD> 69
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> .87
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> (.01)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 5
<NAME> SMALL CAPITALIZATION FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
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<SHARES-COMMON-STOCK> 630
<SHARES-COMMON-PRIOR> 438
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,911
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (99)
<NET-INVESTMENT-INCOME> (99)
<REALIZED-GAINS-CURRENT> 190
<APPREC-INCREASE-CURRENT> 1,911
<NET-CHANGE-FROM-OPS> 2,002
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 243
<NUMBER-OF-SHARES-REDEEMED> 51
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 192
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 11.38
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 3.86
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.23
<EXPENSE-RATIO> (.02)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 5
<NAME> SMALL CAPITALIZATION TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 319
<INVESTMENTS-AT-VALUE> 386
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 386
<PAYABLE-FOR-SECURITIES> 386
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 386
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 25
<SHARES-COMMON-PRIOR> 5
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58
<NET-ASSETS> 386
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (1)
<NET-INVESTMENT-INCOME> (1)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 58
<NET-CHANGE-FROM-OPS> 57
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 20
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 11.58
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 3.99
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.57
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Thomas R. Clevenger, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any PARKSTONE VARIABLE ANNUITY 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 5th day of April, 1996.
Thomas R. Clevenger
---------------------------------------------------------------
Thomas R. Clevenger
SUBSCRIBED AND SWORN to before me this 5th day of April, 1996.
Jana R. Selley
---------------------------------------------------------------
Notary Public
My Commission Expires:
June 14, 1996
- - -------------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Sister Loretto Marie Colwell, being a Director of SECURITY BENEFIT LIFE
INSURANCE COMPANY, by these presents do make, constitute and appoint Howard R.
Fricke, James R. Schmank and Roger K. Viola, and each of them, my true and
lawful attorneys, each with full power and authority for me and in my name and
behalf to sign Registration Statements, any amendments thereto and any
applications for exemptive relief filed pursuant to the Investment Company Act
of 1940 or the Securities Act of 1933, as amended, and any instrument or
document filed as part thereof, or in connection therewith or in any way related
thereto, in connection with Variable Annuity Contracts offered, issued or sold
by SECURITY BENEFIT LIFE INSURANCE COMPANY and any PARKSTONE VARIABLE ANNUITY
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 28th day of March, 1996.
Sister Loretto Marie Colwell
---------------------------------------------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 28th day of March, 1996.
Julia A. Smrha
---------------------------------------------------------------
Notary Public
My Commission Expires:
July 7, 1996
- - -------------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John C. Dicus, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any PARKSTONE VARIABLE ANNUITY 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 1st day of April, 1996.
John C. Dicus
---------------------------------------------------------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 1st day of April, 1996.
Jana R. Selley
---------------------------------------------------------------
Notary Public
My Commission Expires:
June 14, 1996
- - -------------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Melanie S. Fannin, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any PARKSTONE VARIABLE ANNUITY 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 28th day of March, 1996.
Melanie S. Fannin
---------------------------------------------------------------
Melanie S. Fannin
SUBSCRIBED AND SWORN to before me this 28th day of March, 1996.
Nancy A. Gerval
---------------------------------------------------------------
Notary Public
My Commission Expires:
Oct. 02, 1997
- - -------------------------------------
<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 PARKSTONE VARIABLE ANNUITY 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 26th day of March, 1996.
Howard R. Fricke
---------------------------------------------------------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 26th day of March, 1996.
Deborah D. Pryer
---------------------------------------------------------------
Notary Public
My Commission Expires:
April 11, 1999
- - -------------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, W. W. Hanna, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any PARKSTONE VARIABLE ANNUITY 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 1st day of April, 1996.
W. W. Hanna
---------------------------------------------------------------
W. W. Hanna
SUBSCRIBED AND SWORN to before me this 1st day of April, 1996.
Carolyn R. Souders
---------------------------------------------------------------
Notary Public
My Commission Expires:
July 21, 1999
- - -------------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John E. Hayes, Jr., being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any PARKSTONE VARIABLE ANNUITY 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 29th day of March, 1996.
John E. Hayes, Jr.
---------------------------------------------------------------
John E. Hayes, Jr.
SUBSCRIBED AND SWORN to before me this 29th day of March, 1996.
Jana R. Selley
---------------------------------------------------------------
Notary Public
My Commission Expires:
June 14, 1996
- - -------------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Laird G. Noller, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any PARKSTONE VARIABLE ANNUITY 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 March, 1996.
Laird G. Noller
---------------------------------------------------------------
Laird G. Noller
SUBSCRIBED AND SWORN to before me this 27th day of March, 1996.
Anne S. Reinking
---------------------------------------------------------------
Notary Public
My Commission Expires:
March 13, 2000
- - -------------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Frank C. Sabatini, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any PARKSTONE VARIABLE ANNUITY 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 5th day of April, 1996.
Frank C. Sabatini
---------------------------------------------------------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 5th day of April, 1996.
Joan B. Anderson
---------------------------------------------------------------
Notary Public
My Commission Expires:
July 20, 1996
- - -------------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Robert C. Wheeler, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any PARKSTONE VARIABLE ANNUITY 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 March, 1996.
Robert C. Wheeler
---------------------------------------------------------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 27th day of March, 1996.
Jana R. Selley
---------------------------------------------------------------
Notary Public
My Commission Expires:
June 14, 1996
- - -------------------------------------
