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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. 4 |X|
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 6 |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, Vice President
and 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)
|X| on April 30, 1997, pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on April 30, 1997, pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|_| on April 30, 1997, pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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 25, 1997.
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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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RT A
ITEM OF FORM N-4 PROSPECTUS CAPTION
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
ITEM OF FORM N-4 STATEMENT OF ADDITIONAL
INFORMATION CAPTION
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.................... Experts
(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
PROSPECTUS
APRIL 30, 1997
[SBG LOGO]
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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 50551
KALAMAZOO, MICHIGAN 49005-0551
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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 22.
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, 1997, which has been filed with the Securities and
Exchange Commission (the "SEC"). The Statement of Additional Information, as it
may be supplemented from time to time, is incorporated by reference into this
Prospectus and is available at no charge, by writing Security Benefit at 700 SW
Harrison Street, Topeka, Kansas 66636-0001 or by calling 1-800-355-4555. The
table of contents of the Statement of Additional Information is set forth on
page 33 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, 1997
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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................................................... 12
Security Benefit Life Insurance Company.................................. 12
Separate Account......................................................... 12
The Parkstone Advantage Fund............................................. 12
Prime Obligations Fund................................................. 12
Bond Fund.............................................................. 12
Equity Fund............................................................ 12
International Discovery Fund........................................... 12
Small Capitalization Fund.............................................. 13
The Investment Adviser................................................... 13
THE CONTRACT............................................................... 13
General.................................................................. 13
Application for a Contract............................................... 13
Purchase Payments........................................................ 13
Allocation of Purchase Payments.......................................... 14
Dollar Cost Averaging Option............................................. 14
Asset Reallocation Option................................................ 15
Transfers of Contract Value.............................................. 15
Contract Value........................................................... 15
Determination of Contract Value.......................................... 16
Full and Partial Withdrawals............................................. 16
Systematic Withdrawals................................................... 17
Free-Look Right.......................................................... 17
Death Benefit............................................................ 17
CHARGES AND DEDUCTIONS..................................................... 18
Contingent Deferred Sales Charge......................................... 18
Mortality and Expense Risk Charge........................................ 19
Administrative Charge.................................................... 19
Maintenance Fee.......................................................... 19
Premium Tax Charge....................................................... 20
Other Charges............................................................ 20
Variations in Charges.................................................... 20
Guarantee of Certain Charges............................................. 20
Mutual Fund Expenses..................................................... 20
2
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Page
ANNUITY PERIOD............................................................. 20
General.................................................................. 20
Annuity Options.......................................................... 21
Option 1--Life Income.................................................. 21
Option 2--Life Income with Guaranteed Payments of 5, 10, 15 or 20 Years 21
Option 3--Life with Installment Refund Option.......................... 21
Option 4--Joint and Last Survivor...................................... 21
Option 5--Payments for a Specified Period.............................. 21
Option 6--Payments of a Specified Amount............................... 21
Selection of an Option................................................. 21
THE FIXED ACCOUNT.......................................................... 22
Interest................................................................. 22
Death Benefit............................................................ 22
Contract Charges......................................................... 22
Transfers and Withdrawals................................................ 22
Payments from the Fixed Account.......................................... 23
MORE ABOUT THE CONTRACT.................................................... 23
Ownership................................................................ 23
Joint Owners........................................................... 23
Designation and Change of Beneficiary.................................... 23
Participating............................................................ 23
Payments from the Separate Account....................................... 23
Proof of Age and Survival................................................ 23
Misstatements............................................................ 23
Loans.................................................................... 23
Restrictions on Withdrawals from Qualified Plans......................... 24
Restrictions on Withdrawals from 403(b) Programs......................... 24
FEDERAL TAX MATTERS........................................................ 25
Introduction............................................................. 25
Tax Status of Security Benefit and the Separate Account.................. 25
General................................................................ 25
Charge for Security Benefit Taxes...................................... 25
Diversification Standards.............................................. 26
Taxation of Annuities in General--Non-Qualified Plans.................... 26
Surrenders or Withdrawals Prior to the Annuity Start Date.............. 26
Surrenders or Withdrawals on or after Annuity Start Date............... 26
Penalty Tax on Certain Surrenders and Withdrawals...................... 26
Additional Considerations................................................ 27
Distribution-at-Death Rules............................................ 27
Gift of Annuity Contracts.............................................. 27
Contracts Owned by Non-Natural Persons................................. 27
Multiple Contract Rule................................................. 27
Qualified Plans.......................................................... 28
Section 401............................................................ 28
Section 403(b)......................................................... 29
Section 408............................................................ 29
Section 457............................................................ 29
Tax Penalties.......................................................... 30
Withholding............................................................ 30
OTHER INFORMATION.......................................................... 30
Voting of Mutual Fund Shares............................................. 30
Substitution of Investments.............................................. 31
Changes to Comply with Law and Amendments................................ 31
Reports to Owners........................................................ 31
Telephone Transfer Privileges............................................ 32
Legal Proceedings........................................................ 32
Legal Matters............................................................ 32
3
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Page
PERFORMANCE INFORMATION.................................................... 32
ADDITIONAL INFORMATION..................................................... 33
Registration Statement................................................... 33
Financial Statements..................................................... 33
STATEMENT OF ADDITIONAL INFORMATION........................................ 33
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 less 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. A Valuation Period begins at the close
of one Valuation Date and ends at the close of the next succeeding Valuation
Date.
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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," page 22 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 13. 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 12. 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 12. 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," page
22.
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 Annuit 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 16 and "Systematic Withdrawals,"on page 17 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 17 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 Securit Benefit. See "Annuity Period," on page 20.
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 th 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 and circumstances 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
6
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Contract Value. Certain charges will be deducted in connection with the
Contract.
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 18.
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 19.
ADMINISTRATIVE CHARGE
Security Benefit deducts a daily administrative charge 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 20.
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 50551, Kalamazoo, Michigan
49005-0551.
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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 20. 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 18. 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).(1)
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 OTHER MUTUAL FUND
FEE EXPENSES TOTAL EXPENSES
Prime Obligations Fund 0.40% 0.61% 1.01%
Bond Fund 0.74% 0.55% 1.29%
Equity Fund 1.00% 0.42% 1.42%
Small Capitalization Fund 1.00% 0.40% 1.40%
International Discovery Fund 1.25% 0.75% 2.00%
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.
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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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Prime Obligations Subaccount........ $75 $125 $172 $281
Bond Subaccount..................... 78 133 185 308
Equity Subaccount................... 79 137 192 320
Small Capitalization Subaccount..... 79 137 191 319
International Discovery Subaccount.. 85 153 219 374
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Prime Obligations Subaccount........ $25 $ 77 $132 $281
Bond Subaccount..................... 28 85 145 308
Equity Subaccount................... 29 89 152 320
Small Capitalization Subaccount..... 29 89 151 319
International Discovery Subaccount.. 35 106 180 374
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Prime Obligations Subaccount........ $17 $ 54 $ 93 $202
Bond Subaccount..................... 20 62 107 232
Equity Subaccount................... 22 66 114 245
Small Capitalization Subaccount..... 21 66 113 243
International Discovery Subaccount.. 27 84 143 303
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, 1995 and 1996, as well as ending accumulation
units outstanding for Qualified and Non-Qualified Contracts under each of the
Parkstone Subaccounts.
SMALL INTER-
PRIME CAPITAL- NATIONAL
QUALIFIED INDIVIDUAL OBLIGATIONS BOND EQUITY IZATION DISCOVERY
CONTRACTS 1993 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
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
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CONDENSED FINANCIAL INFORMATION (CONTINUED)
SMALL INTER-
PRIME CAPITAL- NATIONAL
NON-QUALIFIED OBLIGATIONS BOND EQUITY IZATION DISCOVERY
INDIVIDUAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
CONTRACTS 1993
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
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<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
SMALL INTER-
PRIME CAPITAL- NATIONAL
OBLIGATIONS BOND EQUITY IZATION DISCOVERY
NON-QUALIFIED TRUST SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
CONTRACTS 1995
Accumulation unit value:
Beginning of period1..$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
QUALIFIED INDIVIDUAL
CONTRACTS 1996
Accumulation unit value:
Beginning of period...$10.43 $10.69 $12.07 $15.23 $10.26
End of period.........$10.75 $10.73 $13.96 $19.47 $11.68
Accumulation units:
Outstanding at the
end of period.........28,738 256,081 599,163 395,660 328,773
NON-QUALIFIED
INDIVIDUAL
CONTRACTS 1996
Accumulation unit value:
Beginning of period...$10.44 $10.69 $12.06 $15.24 $10.27
End of period.........$10.75 $10.73 $13.96 $19.47 $11.68
Accumulation units:
Outstanding at the
end of period.........69,773 359,239 792,396 566,484 520,466
NON-QUALIFIED TRUST
CONTRACTS 1996
Accumulation unit value:
Beginning of period...$10.17 $10.92 $12.32 $15.57 $10.47
End of period.........$10.54 $11.04 $14.36 $20.05 $12.00
Accumulation units:
Outstanding at the
end of period.........26,074 68,266 51,044 22,763 28,057
QUALIFIED TRUST
CONTRACTS 1996
Accumulation unit value:
Beginning of period...$10.00 $10.06 $14.44 $20.55 $11.48
End of period.........$10.18 $10.31 $14.54 $20.28 $12.17
Accumulation units:
Outstanding at the
end of period......... 2,306 16,153 66,424 52,123 51,774
1. The International Discovery Subaccount under the Non-Qualified Trust
Contracts did not begin operations until May 17, 1994; the Bond, Equity and
Small Capitalization Subaccounts under the Non-Qualified Trust Contracts did
not begin operations until August 18, 1994; and the Prime Obligations
Subaccount under the Non-Qualified Trust Contracts did not begin operations
until July 11, 1995.
2. The Prime Obligations Subaccount under the Qualified Trust Contracts did not
begin operations until May 22, 1996; the Equity, Small Capitalization and
International Discovery Subaccounts under the Qualified Trust Contracts did
not begin operations until May 29, 1996; and the Bond Subaccount under the
Qualified Trust Contracts did not begin operations until September 25, 1996.
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<PAGE>
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 1996, Security Benefit had over $15.5 billion of life insurance
in force and total assets of approximately $5.5 billion. Together with its
subsidiaries, Security Benefit has total funds under management of over $6.6
billion.
The Principal Underwriter for the Contracts is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company wholly owned by
Security Benefit.
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.
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
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<PAGE>
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 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 (in
Florida, 75). 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
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<PAGE>
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 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
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<PAGE>
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 22
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 restrictions on transfers as described in "The Fixed Account" on
page 22 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 22 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
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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 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, less 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 18.
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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 20.
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" and "Restrictions on
Withdrawals from 403(b) Programs" on page 24. 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 25.
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.
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
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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. In
Florida, the Contract is not available for issue if any Owner would be 76 or
greater on the date of issue.
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 25 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 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
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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 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.
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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," page 25.
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
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
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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.
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.
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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 13.
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 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
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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 16. In addition, to the same extent as
Contractowners with Contract Value in the Subaccounts, the Owner of a Contract
used in connection with a Qualified Plan may obtain a loan if so permitted under
the terms of 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 during 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, (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 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. The maximum loan that can be taken is
generally equal to the lesser of: (1) $50,000
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reduced by the excess of: (a) the highest outstanding loan balance within the
preceding 12-month period ending on the day before the date the loan is made;
over (b) the outstanding loan balance on the date the loan is made; or (2)
50 percent of the Contract Value or $10,000, whichever is greater. However, an
amount may not be borrowed which exceeds the annuity's total value minus the
amount needed as security for the loan as described below. The Internal Revenue
Code requires aggregation of all loans made to an individual employee under a
single employer plan. However, since Security Benefit has no information
concerning outstanding loans with other providers, we will only use information
available under annuity contracts issued by us. In addition, 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 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." In addition, 10 percent of
the loaned amount will be held in the Fixed Account as security for the loan.
Amounts allocated to the Loan Account earn 3.5 percent, the minimum rate of
interest guaranteed under the Fixed Account. Amounts acting as security for the
loan in the Fixed Account will earn the Current Rate.
Interest will be charged for the loan and will accrue on the loan balance
from the effective date of any loan. The loan interest rate will be 5.50
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, unless Security Benefit determines
that the loan is to be used to acquire a principal residence of the Owner, in
which case the loan must be repaid within 30 years. Loan payments must be made
at least quarterly and may be prepaid at any time. Upon receipt of a loan
payment, Security Benefit will transfer Contract Value from the Loan Account to
the Fixed Account and/or the Subaccounts according to the Contractowner's
current instructions with respect to purchase payments in an amount equal to the
amount by which the payment reduces the amount of the loan outstanding. The
amount held as security for the loan will also be reduced by each loan payment
so that the security is again equal to 10 percent of the outstanding loan
balance immediately after the loan payment is made. However, amounts which are
no longer needed as security for the loan will not automatically be allocated
back among the Fixed Account and/or Subaccounts in accordance with the
Contractowner's purchase payment instructions.
If any required loan payment is not made, within 30 days of the due date
for loans with a monthly repayment schedule or within 90 days of the due date
for loans with a quarterly repayment schedule, the TOTAL OUTSTANDING LOAN
BALANCE will be deemed to be in default, and the entire loan balance, with any
accrued interest, will be reported as income to the Internal Revenue Service
("IRS"). Once a loan has gone into default, regularly scheduled payments will
not be accepted, and no new loans will be allowed while a loan is in default.
Interest will continue to accrue on a loan in default and if such interest is
not paid by December 31st of each year, it will be added to the outstanding
balance of the loan and will be reported to the IRS. Contract Value equal to the
amount of the accrued interest will be transferred to the Loan Account. If a
loan continues to be in default, the total outstanding balance will be deducted
from Contract Value upon the Contractowner's attaining age 59 1/2. The Contract
will be automatically terminated if the outstanding loan balance on a loan in
default equals or exceeds the amount for which the Contract may be surrendered,
plus any withdrawal charge. The proceeds from the Contract will be used to repay
the debt and any applicable withdrawal charge. Because of the adverse tax
consequences associated with defaulting on a loan, a Contractowner should
carefully consider his or her ability to repay the loan and should consult with
a tax adviser before requesting 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 30.
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.
RESTRICTIONS ON WITHDRAWALS FROM 403(B) PROGRAMS
Section 403(b) of the Internal Revenue Code permits public school employees
and employees of certain types of charitable, educational, and scientific
organizations specified in Section 501(c)(3) of the Internal Revenue Code to
purchase annuity contracts, and, subject to certain limitations, to exclude the
amount of purchase payments from gross income for tax purposes. Section 403(b)
imposes
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restrictions on certain distributions from tax-sheltered annuity contracts
meeting the requirements of Section 403(b) that apply to tax years beginning on
or after January 1, 1989.
Section 403(b) requires that distributions from Section 403(b)
tax-sheltered annuities that are attributable to employee contributions made
after December 31, 1988 under a salary reduction agreement begin only after the
employee reaches age 59 1/2, separates from service, dies, becomes disabled, or
incurs a hardship. Furthermore, distributions of gains attributable to such
contributions accrued after December 31, 1988 may not be made on account of
hardship. Hardship, for this purpose, is generally defined as an immediate and
heavy financial need, such as paying for medical expenses, the purchase of a
residence, or paying certain tuition expenses, that may only be met by the
distribution.
An Owner of a Contract purchased as a tax-sheltered Section 403(b) annuity
contract will not, therefore, be entitled to make a full or partial withdrawal,
as described in this Prospectus, in order to receive proceeds from the Contract
attributable to contributions under a salary reduction agreement or any gains
credited to such Contract after December 31, 1988 unless one of the
above-described conditions has been satisfied. In the case of transfers of
amounts accumulated in a different Section 403(b) contract to this Contract
under a Section 403(b) program, the withdrawal constraints described above would
not apply to the amount transferred to the Contract attributable to the Owner's
December 31, 1988 account balance under the old contract, provided the amounts
transferred between contracts qualified as a tax-free exchange under the
Internal Revenue Code. An Owner of a Contract may be able to transfer the
Contract's Full Withdrawal Value to certain other investment alternatives
meeting the requirements of Section 403(b) that are available under an
employer's Section 403(b) arrangement.
Pursuant to Revenue Ruling 90-24, a direct transfer between issuers of an
amount representing all or part of an individual's interest in a Section 403(b)
annuity or custodial account is not a distribution subject to tax or to
premature distribution penalty, provided the funds transferred continue after
the transfer to be subject to distribution requirements at least as strict as
those applicable to them before the transfer.
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
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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.
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 27 and "Diversification
Standards" above.
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
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tax is not applicable to withdrawals: (i) made on or after the death of the
owner (or where the owner is not an individual, the death of the "primary
annuitant," who is defined as the individual the events in whose life are of
primary importance in affecting the timing and amount of the payout under the
contract); (ii) attributable to the taxpayer's becoming totally disabled within
the meaning of Code Section 72(m)(7); (iii) which are part of a series of
substantially equal periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the taxpayer, or the joint lives (or joint
life expectancies) of the taxpayer and his or her beneficiary; (iv) from certain
qualified plans; (v) under a so-called qualified funding asset (as defined in
Code Section 130(d)); (vi) under an immediate annuity contract; or (vii) which
are purchased by an employer on termination of certain types of qualified plans
and which are held by the employer until the employee separates from service.
If the penalty tax does not apply to a surrender or withdrawal as a result
of the application of item (iii) above, and the series of payments are
subsequently modified (other than by reason of death or disability), the tax for
the first year in which the modification occurs will be increased by an amount
(determined by the regulations) equal to the tax that would have been imposed
but for item (iii) above, plus interest for the deferral period, if the
modification takes place (a) before the close of the period which is five years
from the date of the first payment and after the taxpayer attains age 59 1/2, or
(b) before the taxpayer reaches age 59 1/2.
ADDITIONAL CONSIDERATIONS
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 Designated 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
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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. 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 later of the calendar year in which
the employee reaches age 70 1/2 or retires ("required beginning date"). Periodic
distributions must not extend beyond the life of the employee or the lives of
the employee and a designated beneficiary (or over a period extending beyond the
life expectancy of the employee or the joint life expectancy of the employee and
a designated beneficiary).
If an employee dies before reaching his or her required beginning date, the
employee's entire interest in the plan must generally be distributed within five
years of the employee's death. However, the five-year rule will be deemed
satisfied, if distributions begin before the close of the calendar year
following the employee's death to a designated beneficiary and are made over the
life of the beneficiary (or over a period not extending beyond the life
expectancy of the beneficiary). If the designated beneficiary is the employee's
surviving spouse, distributions may be delayed until the employee would have
reached age 70 1/2.
If an employee dies after reaching his or her required beginning date, the
employee's interest in the plan must generally be distributed at least as
rapidly as under the method of distribution in effect at the time of the
employee's death.
Annuity payments distributed from a retirement plan qualified under Code
Section 401 are taxable under Section 72 of the Code. Section 72 provides that
the portion of each payment attributable to contributions that were taxable to
the employee in the year made, if any, is excluded from gross income as a return
of the employee's investment. The portion so excluded is determined by dividing
the employee's investment in the plan by (1) the number of anticipated payments
determined under a table set forth in Section 72 of the Code or (2) in the case
of a contract calling for installment payments, the number of monthly annuity
payments under such contract. The portion of each payment in excess of the
exclusion amount is taxable as ordinary income. Once the employee's investment
has been recovered, the full annuity payment
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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. Five-year averaging has been repealed effective in the
year 2000. 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 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 28.
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
INDIVIDUAL RETIREMENT ANNUITIES. 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.See
the IRA Disclosure Statement that accompanies this Prospectus.
In general, IRAs are subject to minimum distribution requirements similar
to those applicable to retirement plans qualified under Section 401 of the Code;
however, the required beginning date for IRAs is generally the date that the
Contractowner reaches age 70 1/2 -- the Contract-owner's retirement date, if
any, will not affect his or her required beginning date. See "Section 401" on
page 28. 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, if those employees are
participants in an eligible deferred compensation plan. A Section 457 plan may
permit the purchase of Contracts to provide benefits thereunder.
Although a participant under a Section 457 plan may be permitted to direct
or choose methods of investment, in the case of a tax-exempt employer sponsor
all amounts deferred under the plan, and any income thereon, remain solely the
property of the employer and subject to the claims of its general creditors,
until paid to the participant. The assets of a Section 457 plan maintained by a
state or local government employer must be held in trust (or custodial account
or an annuity contract) for the exclusive benefit of plan participants, who will
be responsible for taxes upon distribution.
Section 457 plans are generally subject to minimum distribution
requirements similar to those applicable to
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retirement plans qualified under Section 401 of the Code. See "Section 401" on
page 28. 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 distribu-
tions 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; (v) made to pay for certain
medical expenses; (vi) that are exempt withdrawals of an excess contribution;
(vii) that is rolled over or transferred in accordance with Code requirements;
or (viii) that is transferred pursuant to a decree of divorce or separate
maintenance or written instrument incident to such a decree.
The exception to the 10 percent penalty tax described in item (iv) above is
not applicable to IRAs. However, distributions from an IRA to unemployed
individuals can be made without application of the 10 percent tax to pay health
insurance premiums in certain cases. In addition, the 10 percent penalty tax is
generally not applicable to distributions from a Section 457 plan.
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 ($160,000 for 1997), a penalty tax of 15 percent is generally imposed
(in addition to any ordinary income tax) on the excess portion of the
distribution. The 15 percent excise tax on excess distributions will not apply
to withdrawals during calendar years 1997, 1998, and 1999.
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. The
recipient of a periodic distribution may generally elect not to have withholding
apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than ten years) from a Qualified Plan (other than IRAs and
Section 457 plans) are generally subject to mandatory 20 percent income tax
withholding. However, no withholding is imposed if the distribution is
transferred directly to another eligible Qualified Plan. Nonperiodic
distributions from an IRA are subject to income tax withholding at a flat 10
percent rate. The recipient of such a distribution may elect not to have
withholding apply.
The above description of the federal income tax consequences of the
different types of Qualified Plans which may be funded by the Contract offered
by this Prospectus is only a brief summary and is not intended as tax advice.
The rules governing the provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have adverse tax
consequences. A prospective Contractowner considering adoption of a Qualified
Plan and purchase of a Contract in connection therewith should first consult a
qualified and competent tax adviser, with regard to the suitability of the
Contract as an investment vehicle for the Qualified Plan.
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
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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 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
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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.
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
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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, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996, and the
financial statements of the Parkstone Variable Annuity Account for the two years
in the period ended December 31, 1996, are contained in the Statement of
Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to Security Benefit. The Table of Contents of
the statement of Additional Information is set forth below:
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY........................................... 1
DISTRIBUTION OF THE CONTRACT.............................................. 1
LIMITS ON PREMIUMS UNDER TAX QUALIFIED RETIREMENT PLANS................... 1
EXPERTS................................................................... 2
PERFORMANCE INFORMATION................................................... 3
FINANCIAL STATEMENTS...................................................... 4
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PARKSTONE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: APRIL 30, 1997
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, 1997, as it may be supplemented from time to time. 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
EXPERTS.................................................................... 2
PERFORMANCE INFORMATION.................................................... 3
FINANCIAL STATEMENTS....................................................... 5
i
<PAGE>
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.
1
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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. Spousal IRAs allow an Owner and his or her spouse
to contribute up to $2,000 to their respective IRAs so long as a joint tax
return is filed and joint income is $4,000 or more. The maximum amount the
higher compensated spouse may contribute for the year is the lesser of $2,000 or
100% of that spouse's compensation. The maximum the lower compensated spouse may
contribute is the lesser of (i) $2,000 or (ii) 100% of that spouse's
compensation plus the amount by which the higher compensated spouse's
compensation exceeds the amount the higher compensated spouse contributes to his
or her IRA. The extent to which an Owner may deduct contributions to an IRA
depends on the gross income of the Owner and his or her spouse for the year and
whether either participates 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.
EXPERTS
The consolidated financial statements for Security Benefit at December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, and the Separate Account for each of the two years in the
2
<PAGE>
period ended December 31, 1996, appearing 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 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 31, 1996, the yield of the Prime
Obligations Subaccount was 2.78% and the effective yield was 2.82%.
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.
3
<PAGE>
For the one-year period ended December 31, 1996, and the period of
September 24, 1993 (date of inception), to December 31, 1996, respectively the
average annual total return was -7.50% and -2.36% for the Bond Subaccount, 7.03%
and 6.33% for the Equity Subaccount, 5.30% and .37% for the International
Discovery Subaccount, and 18.60% and 18.36% for the Small Capitalization
Subaccount. For the one-year period ended December 31, 1996, and the period of
September 24, 1993 (date of inception), to December 31, 1996, respectively, the
average annual total return without deduction of the contingent deferred sales
charge or the maintenance fee was .37% and 2.18% for the Bond Subaccount, 15.66%
and 10.74% for the Equity Subaccount, 13.84% and 4.86% for the International
Discovery Subaccount, and 27.84% and 22.59% 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, 1996, and the period September 24, 1993
(date of inception), to December 31, 1996, respectively, the cumulative total
return was .37% and 7.30% for the Bond Subaccount, 15.66% and 39.60% for the
Equity Subaccount, 13.84% and 16.80% for the International Discovery Subaccount,
and 27.84% and 94.70% for the Small Capitalization Subaccount.
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.
4
<PAGE>
FINANCIAL STATEMENTS
The consolidated financial statements of Security Benefit at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
and the financial statements of the Parkstone Variable Annuity for each of the
two years in the period ended December 31, 1996, 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.
5
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Parkstone Variable Annuity Account
Financial Statements
Years ended December 31, 1996 and 1995
CONTENTS
Report of Independent Auditors.............................................. 7
Audited Financial Statements
Balance Sheet............................................................. 8
Statements of Operations and Changes in Net Assets........................ 10
Notes to Financial Statements.............................................. 12
6
<PAGE>
Report of Independent Auditors
The Contract Owners of Parkstone Variable Annuity Account and
The Board of Directors of Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of Parkstone Variable Annuity
Account (the Company) as of December 31, 1996, 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, 1996, 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
Account at December 31, 1996, 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
February 7, 1997
7
<PAGE>
Parkstone Variable Annuity Account
Balance Sheet
December 31, 1996
(DOLLARS IN THOUSANDS)
ASSETS
Investments:
Parkstone Advantage Fund:
Prime Obligations Fund - 1,357,148 shares at net asset value
of $1.00 per share (cost $1,357).................................. $ 1,357
Bond Fund - 728,511 shares at net asset value of $10.33 per share
(cost $7,328)..................................................... 7,526
Equity Fund - 1,446,828 shares at net asset value of $14.60 per
share (cost $17,084).............................................. 21,124
International Discovery Fund - 893,799 shares at net asset value
of $12.18 per share (cost $9,594)................................. 10,886
Small Capitalization Fund - 1,112,695 shares at net asset value
of $18.20 per share (cost $17,111)................................ 20,251
-------
Total assets.................................................... $61,144
=======
8
<PAGE>
NET ASSETS
Net assets are represented by (NOTE 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
-------------------------------
NON-TRUST CONTRACTS
Prime Obligations Subaccount:
Accumulation units........................... 98,511 $10.75 $ 1,059
Bond Subaccount:
Accumulation units........................... 615,320 10.73 6,605
Equity Subaccount:
Accumulation units........................... 1,391,560 13.96 19,425
International Discovery Subaccount:
Accumulation units........................... 849,239 11.68 9,919
Small Capitalization Subaccount:
Accumulation units........................... 962,144 19.47 18,737
TRUST CONTRACTS
Prime Obligations Subaccount:
Accumulation units........................... 28,380 10.51 298
Bond Subaccount:
Accumulation units........................... 84,419 10.90 921
Equity Subaccount:
Accumulation units........................... 117,468 14.46 1,699
International Discovery Subaccount:
Accumulation units........................... 79,831 12.11 967
Small Capitalization Subaccount:
Accumulation units........................... 74,886 20.21 1,514
-----
Total net assets $61,144
=======
SEE ACCOMPANYING NOTES.
9
<PAGE>
Parkstone Variable Annuity Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1996
(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................................... $ 43 $ 189 $ - $ 30 $ -
Expenses (NOTE 2):
Mortality and expense risk fee........................ (12) (64) (205) (100) (180)
Administrative fee.................................... (3) (21) (51) (16) (23)
-------------------------------------------------------------------------
Net investment income (loss)............................. 28 104 (256) (86) (203)
Capital gains distributions.............................. - - - - 1,930
Realized gain on investments............................. - 25 474 47 624
Unrealized appreciation (depreciation) on investments.... - (66) 1,820 1,035 82
Net realized and unrealized gain (loss) on investments... - (41) 1,294 1,082 3,378
-------------------------------------------------------------------------
Net increase in net assets resulting from operations.... 28 63 2,038 996 3,175
Net assets at beginning of year......................... 665 3,953 11,965 6,167 9,597
Variable annuity deposits (NOTES 2 AND 3)............... 1,576 3,034 6,587 3,310 7,009
Terminations and withdrawals (NOTES 2 AND 3)............ (1,210) (445) (1,165) (554) (1,044)
--------------------------------------------------------------------------
Net assets at end of year............................... $1,059 $6,605 $19,425 $9,919 $18,737
==========================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<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................................... $ 47 $ 23 $ - $ 3 $ -
Expenses (NOTE 2):
Mortality and expense risk fee......................... (7) (5) (7) (4) (5)
Administrative fee..................................... (1) - - - -
--------------------------------------------------------------------------
Net investment income (loss)............................. 39 18 (7) (1) (5)
Capital gains distributions.............................. - - - - 163
Realized gain on investments............................. - 1 56 2 77
Unrealized appreciation (depreciation) on investments.... - (4) 15 63 (144)
--------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments... - (3) 71 65 96
--------------------------------------------------------------------------
Net increase in net assets resulting from operations..... 39 15 64 64 91
Net assets at beginning of year......................... 140 602 527 181 386
Variable annuity deposits (NOTES 2 AND 3)............... 3,293 471 1,295 740 1,207
Terminations and withdrawals (NOTES 2 AND 3)............ (3,174) (167) (187) (18) (170)
---------------------------------------------------------------------------
Net assets at end of year............................... $ 298 $921 $1,699 $967 $1,514
===========================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
Parkstone Variable Annuity Account
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 ,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 $ - $ - $ -
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 9
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.
11
<PAGE>
Parkstone Variable Annuity Account
Notes to Financial Statements
December 31, 1996 and 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Parkstone Variable Annuity Account (the Account) is a separate account of
Security Benefit Life Insurance Company (SBL). The Account is registered as a
unit investment trust under the Investment Company Act of 1940, as amended.
Deposits received by the Account are 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.
12
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Parkstone Variable Annuity Account
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:
<TABLE>
<CAPTION>
NON-TRUST CONTRACTS TRUST CONTRACTS
------------------------------------------------------------
COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
-------------------------------------------------------------
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996
<S> <C> <C> <C> <C>
Prime Obligations Fund.................. $1,805 $1,411 $3,773 $3,615
Bond Fund............................... 3,383 689 503 181
Equity Fund............................. 6,871 1,705 1,322 221
International Discovery Fund............ 3,512 842 1,109 388
Small Capitalization Fund............... 9,211 1,519 1,393 199
YEAR ENDED DECEMBER 31, 1995
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
</TABLE>
ANNUITY RESERVES
As of December 31, 1996, annuity reserves have not been established because
there are no contracts that 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.
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.
13
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Parkstone Variable Annuity Account
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
A contingent deferred sales charge is assessed by SBL 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 $43,278 and $27,915 during 1996 and 1995,
respectively.
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.
14
<PAGE>
Parkstone Variable Annuity Account
Notes to Financial Statements (continued)
3. SUMMARY OF UNIT TRANSACTIONS
<TABLE>
<CAPTION>
NON-TRUST CONTRACTS TRUST CONTRACTS
-----------------------------------------------------------------
1996 1995 1996 1995
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Prime Obligations Subaccount:
Variable annuity deposits....................... 149 72 327 14
Terminations and withdrawals.................... 115 26 313 -
Bond Subaccount:
Variable annuity deposits....................... 289 127 45 50
Terminations and withdrawals.................... 43 50 16 -
Equity Subaccount:
Variable annuity deposits....................... 487 332 88 38
Terminations and withdrawals.................... 87 91 14 -
International Discovery Subaccount:
Variable annuity deposits....................... 299 183 64 8
Terminations and withdrawals.................... 51 69 2 -
Small Capitalization Subaccount:
Variable annuity deposits....................... 390 243 59 20
Terminations and withdrawals.................... 57 51 9 -
</TABLE>
15
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONTENTS
Report of Independent Auditors........................................... 17
Audited Consolidated Financial Statements
Consolidated Balance Sheets......................................... 18
Consolidated Statements of Income................................... 20
Consolidated Statements of Changes in Equity........................ 21
Consolidated Statements of Cash Flows............................... 22
Notes to Consolidated Financial Statements.......................... 24
16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying consolidated balance sheets of Security Benefit
Life Insurance Company and Subsidiaries (the Company) as of December 31, 1996
and 1995, and the related consolidated statements of income, changes in equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security Benefit
Life Insurance Company and Subsidiaries at December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in NOTE 1 to the consolidated financial statements, in 1996, the
Company adopted certain accounting changes to conform with generally accepted
accounting principles for mutual life insurance enterprises and retroactively
restated the 1994 and 1995 financial statements for the change. Also, as
discussed in NOTE 1 to the consolidated financial statements, the Company
changed its method of accounting for debt securities as of January 1, 1994.
Ernst & Young LLP
February 7, 1997
17
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
1996 1995*
----------------------------
(IN THOUSANDS)
ASSETS
Investments:
Securities available-for-sale, at
fair value (NOTES 2 AND 9):
Fixed maturities.............................. $1,805,066 $1,778,370
Equity securities ............................ 89,188 21,880
Fixed maturities held-to-maturity, at
amortized cost (NOTE 2)......................... 528,045 536,137
Mortgage loans.................................. 66,611 74,342
Real estate..................................... 4,000 5,864
Policy loans.................................... 106,822 100,452
Short-term investments.......................... - 992
Cash and cash equivalents....................... 8,310 16,788
Other invested assets........................... 40,531 37,769
---------------------------
Total investments.................................. 2,648,573 2,572,594
Premiums deferred and uncollected.................. 149 574
Accrued investment income.......................... 32,161 30,623
Accounts receivable................................ 4,256 3,064
Reinsurance recoverable (NOTE 4)................... 92,197 78,877
Notes receivable................................... 110 147
Property and equipment, net........................ 18,592 18,884
Deferred policy acquisition costs (NOTE 1)......... 216,918 186,940
Other assets....................................... 24,680 36,221
Separate account assets (NOTE 10).................. 2,802,927 2,065,306
---------------------------
$5,840,563 $4,993,230
===========================
18
<PAGE>
DECEMBER 31
1996 1995*
-------------------------
(IN THOUSANDS)
LIABILITIES AND EQUITY
Liabilities:
Policy reserves and annuity account values........ $2,497,998 $2,495,113
Policy and contract claims........................ 10,607 10,571
Other policyholder funds.......................... 24,073 21,305
Accounts payable and accrued expenses............. 18,003 13,609
Income taxes payable (NOTE 5):
Current......................................... 6,686 10,371
Deferred........................................ 54,847 53,659
Long-term debt (NOTE 8)........................... 65,000 -
Other liabilities................................. 11,990 11,619
Separate account liabilities...................... 2,793,911 2,051,292
-------------------------
Total liabilities.................................... 5,483,115 4,667,539
Equity:
Retained earnings................................. 357,927 314,084
Unrealized appreciation (depreciation)
of securities
available-for-sale, net......................... (479) 11,607
---------------------------
Total equity......................................... 357,448 325,691
===========================
$5,840,563 $4,993,230
===========================
*As restated
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Insurance premiums and other considerations........... $28,848 $49,608 $55,148
Net investment income................................. 192,636 179,940 166,857
Asset based fees...................................... 55,977 40,652 33,809
Other product charges................................. 10,470 10,412 7,335
Realized gains (losses) on investments................ (244) 3,876 134
Other revenues........................................ 20,033 22,164 27,241
------------------------------------------------------
Total revenues........................................... 307,720 306,652 290,524
Benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances............... 108,705 113,700 103,087
Benefit claims in excess of account balances........ 7,541 6,808 7,145
Traditional life insurance benefits................... 6,474 7,460 6,203
Supplementary contract payments....................... 11,121 11,508 11,286
Increase in traditional life reserves................. 8,580 13,212 12,977
Dividends to policyholders............................ 2,374 2,499 2,669
Other benefits........................................ 20,790 22,379 29,924
------------------------------------------------------
Total benefits........................................... 165,585 177,566 173,291
Commissions and other operating expenses................. 45,539 46,233 39,998
Amortization of deferred policy acquisition costs........ 25,930 26,628 24,674
Other expenses........................................... 1,667 1,099 785
Interest expense......................................... 4,285 7 630
------------------------------------------------------
Total benefits and expenses.............................. 243,006 251,533 239,378
------------------------------------------------------
Income before income taxes............................... 64,714 55,119 51,146
Income taxes (NOTE 5).................................... 20,871 17,927 17,129
------------------------------------------------------
Net income............................................... $43,843 $37,192 $34,017
======================================================
</TABLE>
*As restated
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Retained earnings:
Beginning of year, as previously reported............. $207,669 $150,726 $128,785
Cumulative effect of change in accounting principle... 106,415 126,166 114,090
------------------------------------------------------
Beginning of year, as restated........................ 314,084 276,892 242,875
Net income............................................ 43,843 37,192 34,017
------------------------------------------------------
End of year........................................... 357,927 314,084 276,892
Unrealized appreciation (depreciation)
of securities available-for-sale, net:
Beginning of year................................... 11,607 (48,466) (10,034)
Cumulative effect of change in accounting principle
(NOTE 1).......................................... - - 10,733
Change in unrealized appreciation (depreciation) of
securities available-for-sale, net................ (12,086) 60,073 (49,165)
------------------------------------------------------
End of year......................................... (479) 11,607 (48,466)
------------------------------------------------------
Total equity............................................. $357,448 $325,691 $228,426
======================================================
</TABLE>
*As restated
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $43,843 $37,192 $34,017
Adjustments to reconcile net income to net cash provided
by operating activities:
Annuity and interest sensitive life products:
Interest credited to account balances............. 108,705 113,700 103,087
Charges for mortality and administration.......... (13,115) (16,585) (17,000)
Decrease (increase) in traditional life policy
reserves.......................................... 10,697 2,142 (5,950)
Increase in accrued investment income............... (1,538) (4,573) (567)
Policy acquisition costs deferred................... (36,865) (33,021) (38,737)
Policy acquisition costs amortized.................. 25,930 26,628 24,674
Accrual of discounts on investments................. (3,905) (3,421) (3,588)
Amortization of premiums on investments............. 11,284 9,782 15,726
Provision for depreciation and amortization......... 3,748 3,750 3,201
Other............................................... (3,379) (4,225) 2,511
------------------------------------------------------
Net cash provided by operating activities................ 145,405 131,369 117,374
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities available-for-sale................... 870,240 517,480 318,252
Fixed maturities held-to-maturity..................... 58,874 59,873 147,043
Equity securities available-for-sale.................. 8,857 10,242 3,830
Mortgage loans........................................ 12,545 23,248 21,096
Real estate........................................... 2,935 3,173 2,782
Short-term investments................................ 20,069 229,871 834,082
Other invested assets................................. 6,224 22,839 6,748
------------------------------------------------------
979,744 866,726 1,333,833
Acquisition of investments:
Fixed maturities available-for-sale................... (936,376) (591,121) (552,433)
Fixed maturities held-to-maturity..................... (52,422) (125,276) (56,398)
Equity securities available-for-sale.................. (68,222) (19,500) (4,627)
Mortgage loans........................................ (4,538) (4,179) (34,260)
Real estate........................................... (2,637) (1,511) (554)
Short-term investments................................ (19,070) (180,259) (854,833)
Other invested assets................................. (3,712) (31,861) (18,581)
------------------------------------------------------
(1,086,977) (953,707) (1,521,686)
</TABLE>
22
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Other investing activities:
Purchase of property and equipment.................... $(1,879) $(2,036) $(2,932)
Net increase in policy loans.......................... (6,370) (8,058) (5,569)
Net cash transferred per coinsurance agreement........ - (16,295) -
------------------------------------------------------
Net cash used in investing activities.................... (115,482) (113,370) (196,354)
FINANCING ACTIVITIES
Issuance of long-term debt............................... 65,000 - -
Annuity and interest sensitive life products:
Deposits credited to account balances................. 705,118 509,183 553,542
Withdrawals from account balances..................... (808,519) (526,509) (466,760)
------------------------------------------------------
Net cash provided by (used in) financing activities...... (38,401) (17,326) 86,782
------------------------------------------------------
Increase (decrease) in cash and cash equivalents......... (8,478) 673 7,802
Cash and cash equivalents at beginning of year........... 16,788 16,115 8,313
------------------------------------------------------
Cash and cash equivalents at end of year................. $8,310 $16,788 $16,115
======================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.............................................. $2,966 $120 $157
======================================================
Income taxes.......................................... $16,213 $11,551 $14,634
======================================================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Conversion of mortgage loans to real estate owned........ $844 $- $2,350
======================================================
</TABLE>
*As restated
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Security Benefit Life Insurance Company (SBL or the Company) is a
Kansas-domiciled mutual life insurance company whose insurance operations are
licensed to sell insurance products in 50 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 accompanying consolidated financial statements have been prepared on the
basis of generally accepted accounting principles (GAAP). Prior to 1996, the
Company prepared its financial statements in conformity with accounting
practices prescribed or permitted by the Kansas Insurance Department, which
practices were considered GAAP for mutual life insurance companies and their
stock life insurance subsidiaries. Financial Accounting Standards Board (FASB)
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises," as amended, which is
effective for 1996 annual financial statements and thereafter, no longer permits
statutory-basis financial statements to be described as being prepared in
conformity with GAAP. Accordingly, the Company has adopted GAAP, including
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 Statement of Position 95-1,
"Accounting for Certain Insurance Activities of Mutual Life Insurance
Enterprises," which address the accounting for long-duration and short-duration
insurance and reinsurance contracts, including all participating business.
Pursuant to the requirements of FASB Interpretation No. 40 and SFAS No. 120, the
effect of the changes in accounting have been applied retroactively, and the
previously issued 1995 and 1994 financial statements have been restated for the
change. The effect of the changes applicable to years prior to January 1, 1994
has been presented as a restatement of retained earnings as of that date. The
adoption had the effect of increasing net income for 1996, 1995 and 1994 by
approximately $5,897,000, $8,436,000 and $6,663,000, respectively.
The consolidated financial statements include the operations and accounts of
Security Benefit Life Insurance Company and the following wholly-owned
subsidiaries: Security Benefit Group, Inc., First Security Benefit Life
Insurance and Annuity Company of New York, Security Management
24
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company, LLC, Security Distributors, Inc., Security Benefit Academy, Inc., First
Advantage Insurance Agency, Inc. and Creative Impressions, Inc. Significant
intercompany transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ACCOUNTING CHANGE
Prior to January 1, 1994, fixed maturities were reported at cost, adjusted for
amortization of premiums and accrual of discounts. Effective January 1, 1994,
the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." SFAS No. 115 requires that fixed maturities are to be
classified as either held-to-maturity, trading or available-for-sale. Equity
securities are to be classified as either available-for-sale or trading. The
adoption had no effect on net income and resulted in an increase in equity at
January 1, 1994 of $10,733,000, net of the related effect of deferred policy
acquisition costs and deferred income taxes.
INVESTMENTS
Fixed maturities have been classified as either held-to-maturity or
available-for-sale. Fixed maturities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accrual of discounts. Such amortization and accrual
on these securities are included in investment income. Fixed maturities not
classified as held-to-maturity are classified as available-for-sale.
Available-for-sale fixed maturities are stated at fair value with the unrealized
appreciation or depreciation, net of adjustment of deferred policy acquisition
costs and deferred income taxes, reported in a separate component of equity and,
accordingly, have no effect on net income. The DPAC offsets to the unrealized
appreciation or depreciation represent valuation adjustments or restatements of
DPAC that would have been required as a charge or credit to operations had such
unrealized amounts been realized. The amortized cost of fixed maturities
classified as available-for-sale is adjusted for amortization of premiums and
accrual of discounts. Premiums and discounts are recognized over the estimated
lives of the assets adjusted for prepayment activity.
Equity securities consisting of common stocks, mutual funds and nonredeemable
preferred stock are carried at fair value and are reported in accordance with
SFAS No. 115. Mortgage loans and short-term investments are reported at cost,
adjusted for amortization of premiums and accrual of
25
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
discounts. Real estate investments are carried at the lower of depreciated cost
or estimated realizable value. Policy loans are reported at unpaid principal.
Investments accounted for by the equity method include investments in, and
advances to, various joint ventures and partnerships. Realized gains and losses
on sales of investments are recognized in revenues on the specific
identification method.
The carrying amounts of all the Company's investments are reviewed on an ongoing
basis. If this review indicates a decline in value that is other than temporary
for any investment, the amortized cost of the investment is reduced to its fair
value. Such reductions in carrying amount are recognized as realized losses in
the determination of net income.
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 reprice or 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.
Interest rate exchange agreements are used to convert the interest rate
characteristics (fixed or variable) of certain investments to match those of the
related insurance liabilities that the investments are supporting. The net
interest effect of such swap transactions is reported as an adjustment of
interest income as incurred.
Gains and losses on those instruments are included in the carrying amount of the
underlying hedged investments, or anticipated investment transactions, and are
amortized over the remaining lives of the hedged investments as adjustments to
investment income. Any unamortized gains or losses are recognized when the
underlying investments are sold.
DEFERRED POLICY ACQUISITION COSTS
To the extent recoverable from future policy revenues and gross profits,
commissions and other policy-issue, underwriting and marketing costs incurred to
acquire or renew traditional life insurance, interest sensitive life and
deferred annuity business that vary with and are primarily related to the
production of new and renewal business have been deferred.
26
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Traditional life insurance deferred policy acquisition costs are being amortized
in proportion to premium revenues over the premium-paying period of the related
policies using assumptions consistent with those used in computing policy
benefit reserves.
For interest sensitive life and deferred annuity business, deferred policy
acquisition costs are amortized in proportion to the present value (discounted
at the crediting rate) of expected gross profits from investment, mortality and
expense margins. That amortization is adjusted retrospectively when estimates of
current or future gross profits to be realized from a group of products are
revised.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers certificates
of deposits with original maturities of 90 days or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment, including real estate, furniture and fixtures, and data
processing hardware and related systems, are recorded at cost, less accumulated
depreciation. The provision for depreciation of property and equipment is
computed using the straight-line method over the estimated lives of the related
assets.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for the benefit of
contractholders who bear the investment risk. The separate account assets and
liabilities are carried at fair value. Revenues and expenses related to separate
account assets and liabilities, to the extent of benefits paid or provided to
the separate account contractholders, are excluded from the amounts reported in
the consolidated statements of income. Investment income and gains or losses
arising from separate accounts accrue directly to the contractholders and are,
therefore, not included in investment earnings in the accompanying statements of
income. Revenues to the Company from separate accounts consist principally of
contract maintenance charges, administrative fees, and mortality and expense
risk charges.
POLICY RESERVES AND ANNUITY ACCOUNT VALUES
The liabilities for future policy benefits for traditional life and reinsurance
products are computed using a net level premium method, including assumptions as
to investment yields, mortality, withdrawals, and other assumptions that
approximate expected experience.
27
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Liabilities for future policy benefits for interest sensitive life and deferred
annuity products represent accumulated contract values without reduction for
potential surrender charges and deferred front-end contract charges that are
amortized over the life of the policy. Interest on accumulated contract values
is credited to contracts as earned. Crediting rates ranged from 3.5% to 7.25%
during 1996, 4.0% to 7.75% during 1995, and 4.5% to 7.75% during 1994.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
SFAS No. 109, "Accounting for Income Taxes." Under that method, deferred tax
assets and liabilities are determined based on differences between the financial
reporting and income tax bases of assets and liabilities and are measured using
the enacted tax rates and laws. Deferred income tax expenses or credits
reflected in the Company's statements of income are based on the changes in
deferred tax assets or liabilities from period to period (excluding the SFAS No.
115 adjustment, which is charged or credited directly to equity).
RECOGNITION OF REVENUES
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these traditional products are
recognized as revenues when due. Revenues from interest sensitive life insurance
products and deferred annuities consist of policy charges for the cost of
insurance, policy administration charges and surrender charges assessed against
contractholder account balances during the period.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash, certificates of deposits and short-term investments: The carrying
amounts reported in the balance sheet for these instruments approximate
their fair values.
Investment securities: Fair values for fixed maturities are based on quoted
market prices, where available. For fixed maturities not actively traded,
fair values are estimated using values obtained from independent pricing
services or estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality and maturity of
the investments. The fair values for equity securities are based on quoted
market prices.
Mortgage loans and policy loans: Fair values for mortgage loans and policy
loans are estimated using discounted cash flow analyses based on interest
rates currently being offered
28
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for similar loans to borrowers with similar credit ratings. Loans with
similar characteristics are aggregated for purposes of the calculations.
Investment-type contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using the assumption
reinsurance method, whereby the amount of statutory profit the assuming
company would realize from the business is calculated. Those amounts are
then discounted at a rate of return commensurate with the rate presently
offered by the Company on similar contracts.
Long-term debt: Fair values for long-term debt are estimated using
discounted cash flow analyses based on current borrowing rates available
for similar types of borrowing arrangements.
2. INVESTMENTS
Information as to the amortized cost, gross unrealized gains and losses, and
fair values of the Company's portfolio of fixed maturities and equity securities
at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $173,884 $414 $1,431 $172,867
Obligations of states and political subdivisions. 23,244 361 705 22,900
Special revenue and assessment................... 330 - - 330
Corporate securities............................. 863,124 13,758 18,651 858,231
Mortgage-backed securities....................... 627,875 9,091 9,308 627,658
Asset-backed securities.......................... 122,523 832 275 123,080
=================================================================
Total fixed maturities........................... $1,810,980 $24,456 $30,370 $1,805,066
=================================================================
Equity securities................................ $86,991 $2,422 $225 $89,188
=================================================================
</TABLE>
29
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
HELD-TO-MATURITY
Obligations of states and political subdivisions. $81,791 $463 $1,036 $81,218
Special revenue and assessment................... 420 - - 420
Corporate securities............................. 128,487 2,003 1,830 128,660
Mortgage-backed securities....................... 264,155 2,121 1,347 264,929
Asset-backed securities.......................... 53,192 382 97 53,477
-----------------------------------------------------------------
Total fixed maturities........................... $528,045 $4,969 $4,310 $528,704
=================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $5,746 $522 $- $6,268
Obligations of states and political subdivisions. 23,304 510 139 23,675
Special revenue and assessment................... 330 2 - 332
Corporate securities............................. 857,926 29,671 13,146 874,451
Mortgage-backed securities....................... 857,685 17,838 1,879 873,644
-----------------------------------------------------------------
Total fixed securities........................... $1,744,991 $48,543 $15,164 $1,778,370
=================================================================
Equity securities................................ $21,278 $687 $85 $21,880
=================================================================
HELD-TO-MATURITY
Obligations of states and political subdivisions. $67,160 $1,221 $- $68,381
Special revenue and assessment................... 870 - - 870
Corporate securities............................. 163,032 6,426 43 169,415
Mortgage-backed securities....................... 305,075 5,539 4 310,610
-----------------------------------------------------------------
Totals........................................... $536,137 $13,186 $47 $549,276
=================================================================
</TABLE>
The change in the Company's unrealized appreciation (depreciation) on fixed
maturities was $(51,773,000), $220,048,000 and $(219,496,000) during 1996, 1995
and 1994, respectively; the
30
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS (CONTINUED)
corresponding amounts for equity securities were $1,595,000, $1,034,000 and
$(1,702,000) during 1996, 1995 and 1994, respectively.
The amortized cost and fair value of fixed maturities at December 31, 1996, 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.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
-------------------------------------------------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
-------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less........................ $17,711 $17,764 $320 $320
Due after one year through five years.......... 197,414 197,267 12,184 12,240
Due after five years through 10 years.......... 469,394 471,099 47,804 48,193
Due after 10 years............................. 376,063 368,198 150,390 149,545
Mortgage-backed securities..................... 627,875 627,658 264,155 264,929
Asset-backed securities........................ 122,523 123,080 53,192 53,477
-------------------------------------------------------------------
$1,810,980 $1,805,066 $528,045 $528,704
===================================================================
</TABLE>
Late in 1995, the FASB issued a special report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." This report provided companies with an opportunity for a one-time
reassessment and reclassification of securities as of a single measurement date
without tainting the held-to-maturity debt securities classification. On
December 8, 1995, the Company reclassified securities with an amortized cost of
$202,417,000 from held-to-maturity to available-for-sale. The transfer resulted
in an increase to unrealized gains on securities of approximately $2,162,000 net
of related adjustments for deferred policy acquisition costs and deferred income
taxes.
The Company did not hold any investments that individually exceeded 10% of
equity at December 31, 1996 except for securities guaranteed by the U.S.
government or an agency of the U.S. government.
31
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS (CONTINUED)
Major categories of net investment income are summarized as follows:
1996 1995 1994
--------------------------------
(IN THOUSANDS)
Interest on fixed maturities............. $174,592 $165,684 $154,739
Dividends on equity securities........... 5,817 1,309 712
Interest on mortgage loans............... 6,680 7,876 7,746
Real estate income....................... 781 1,287 1,326
Interest on policy loans................. 6,372 5,927 5,462
Interest on short-term investments....... 1,487 2,625 2,272
Other.................................... 3,418 1,453 525
--------------------------------
Total investment income.................. 199,147 186,161 172,782
Investment expenses...................... 6,511 6,221 5,925
================================
Net investment income.................... $192,636 $179,940 $166,857
================================
Proceeds from sales of fixed maturities and equity securities and related
realized gains and losses, including valuation adjustments, are as follows:
1996 1995 1994
-------------------------------------------
(IN THOUSANDS)
Proceeds from sales............... $393,189 $310,590 $128,533
Gross realized gains.............. 9,407 5,901 5,814
Gross realized losses............. 9,723 3,361 4,889
The composition of the Company's portfolio of fixed maturities by quality rating
at December 31, 1996 is as follows:
QUALITY RATING CARRYING AMOUNT %
- -------------------------- ------------------------- --------------------
(IN THOUSANDS)
AAA...................... $1,199,762 51.4%
AA....................... 158,785 6.8
A........................ 361,008 15.5
BBB...................... 416,589 17.9
Noninvestment grade...... 196,967 8.4
========================= ====================
$2,333,111 100.0%
========================= ====================
The Company has a diversified portfolio of commercial and residential mortgage
loans outstanding in 14 states. The loans are somewhat geographically
concentrated in the midwestern
32
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENTS (CONTINUED)
and southwestern United States with the largest outstanding balances at December
31, 1996 being in the states of Kansas (34%), Iowa (15%) and Texas (14%).
Net realized gains (losses) consist of the following:
1996 1995 1994
--------------------------------------
(IN THOUSANDS)
Fixed maturities...................... $(1,329) $1,805 $397
Equity securities..................... 1,013 735 528
Other................................. 72 1,336 (791)
======================================
Total realized gains (losses)......... $(244) $3,876 $134
======================================
Deferred losses totaling $2.2 million and $3.9 million at December 31, 1996 and
1995, respectively, resulting from terminated and expired futures contracts are
included in fixed maturities and will be amortized as an adjustment to net
investment income. The notional amount of outstanding agreements to sell
securities was $79 million at December 31, 1995. There were no outstanding
agreements at December 31, 1996.
For interest rate exchange agreements, one agreement was terminated during 1996
resulting in a deferred gain of $1.1 million. The notional amount of the
remaining outstanding agreements was $30 million at December 31, 1996. Also, as
of December 31, 1996, these agreements have maturities ranging from March 1997
to May 2005. Under these agreements, the Company receives variable rates based
on the one- and three-month LIBOR and pays fixed rates ranging from 6.875% to
7.215%.
3. EMPLOYEE BENEFIT PLANS
Substantially all Company employees are covered by a qualified, noncontributory
defined benefit pension plan sponsored by the Company and certain of its
affiliates. Benefits are based on years of service and an employee's highest
average compensation over a period of five consecutive years during the last 10
years of service. The Company's policy has been to contribute funds to the plan
in amounts required to maintain sufficient plan assets to provide for accrued
benefits. In applying this general policy, the Company considers, among other
factors, the recommendations of its independent consulting actuaries, the
requirements of federal pension law and the limitations on deductibility imposed
by federal income tax law. The Company records pension cost in accordance with
the provisions of SFAS No. 87, "Employers' Accounting for Pensions."
33
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
Pension cost for the plan for 1996, 1995 and 1994 is summarized as follows:
1996 1995 1994
----------------------------------
(IN THOUSANDS)
Service cost................................ $670 $528 $679
Interest cost............................... 587 508 535
Actual return on plan assets................ (1,064) (1,568) 310
Net amortization and deferral............... 284 900 (949)
----------------------------------
Net pension cost............................ $477 $368 $575
==================================
The funded status of the plan as of December 31, 1996 and 1995 was as follows:
DECEMBER 31
1996 1995
-------------------------
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefit obligation......................... $(6,059) $(5,243)
Non-vested benefit obligation..................... (202) (165)
-------------------------
Accumulated benefit obligation.................... (6,261) (5,408)
Excess of projected benefit
obligation over accumulated
benefit obligation.............................. (2,961) (2,865)
-------------------------
Projected benefit obligation...................... (9,222) (8,273)
Plan assets, at fair market value.................... 10,085 8,342
-------------------------
Plan assets greater than projected
benefit obligation................................ 863 69
Unrecognized net loss................................ 1,007 1,560
Unrecognized prior service cost...................... 700 758
Unrecognized net asset established
at the date of initial application................. (1,841) (2,025)
-------------------------
Net prepaid pension cost............................. $729 $362
=========================
Assumptions were as follows:
1996 1995 1994
-------------------------
Weighted average discount rate................... 7.75% 7.5% 8.5%
Weighted average rate of increase in
compensation 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
34
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
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
1996. Plan assets are invested in a diversified portfolio of affiliated mutual
funds that invest in equity and debt securities.
In addition to the Company's defined benefit pension plan, the Company provides
certain medical and life insurance benefits to full-time employees who have
retired after the age of 55 with five years of service. The plan is
contributory, with retiree contributions adjusted annually and contains other
cost-sharing features such as deductibles and coinsurance. Contributions vary
based on the employee's years of service earned after age 40. The Company's
portion of the costs is frozen after 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.
Retiree medical care and life insurance cost for the total plan for 1996, 1995
and 1994 is summarized as follows:
1996 1995 1994
--------------------------------
(IN THOUSANDS)
Service cost........................ $157 $151 $116
Interest cost....................... 280 305 275
--------------------------------
$437 $456 $391
================================
The funded status of the plan as of December 31, 1996 and 1995 was as follows:
DECEMBER 31
1996 1995
----------------------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees.......................................... $(2,498) $(2,514)
Active participants:
Retirement eligible............................... (568) (632)
Others............................................ (1,023) (1,035)
----------------------
(4,089) (4,181)
Unrecognized net (gain) loss......................... (348) 67
----------------------
Accrued postretirement benefit cost.................. $(4,437) $(4,114)
======================
The annual assumed rate of increase in the per capita cost of covered benefits
is 10% for 1996 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, 1996 by
$191,000
35
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1996 by $54,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.75%, 7.5% and 8.5% at December 31, 1996, 1995 and 1994,
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 $1,783,000,
$1,567,000 and $1,075,000 for 1996, 1995 and 1994, respectively.
4. REINSURANCE
The Company assumes and cedes reinsurance with other companies to provide for
greater diversification of business, allow management to control exposure to
potential losses arising from large risks, and provide additional capacity for
growth. The Company's maximum retention on any one life is $500,000. The Company
does not use financial or surplus relief reinsurance. Life insurance in force
ceded at December 31, 1996 and 1995 was $4.0 and $3.9 billion, respectively.
Principal reinsurance transactions are summarized as follows:
1996 1995 1994
-----------------------------------
(IN THOUSANDS)
Reinsurance ceded:
Premiums paid...................... $25,442 $5,305 $3,980
===================================
Commissions received............... $4,669 $230 $1,443
===================================
Claim recoveries................... $5,235 $3,089 $2,485
===================================
In the accompanying financial statements, premiums, benefits, settlement
expenses and deferred policy acquisition costs are reported net of reinsurance
ceded; policy liabilities and accruals are reported gross of reinsurance ceded.
The Company remains liable to policyholders if the reinsurers are unable to meet
their contractual obligations under the applicable reinsurance agreements. To
minimize its exposure to significant losses from reinsurance insolvencies, the
Company evaluates the financial condition of its reinsurers and monitors
concentrations of credit
36
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE (CONTINUED)
risk arising from similar geographic regions, activities or economic
characteristics of reinsurers. At December 31, 1996 and 1995, the Company had
established a receivable totaling $92,197,000 and $78,877,000 for reserve
credits, reinsurance claims and other receivables from its reinsurers. The
amount of reinsurance assumed is not significant.
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.
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, 1996, the Company believes adequate
provision has been made for such losses.
5. INCOME TAXES
The Company files a life/nonlife consolidated federal income tax return. The
provision for income taxes includes current federal income tax expense or
benefit and deferred income tax expense or benefit due to temporary differences
between the financial reporting and income tax bases of assets and liabilities.
Such differences relate principally to liabilities for future policy benefits
and accumulated contract values, deferred compensation, deferred policy
acquisition costs, postretirement benefits, deferred selling commissions,
depreciation expense and unrealized appreciation (depreciation) on securities
available-for-sale.
Income tax expense consists of the following for 1996, 1995 and 1994:
1996 1995 1994
----------------------------------------------
(IN THOUSANDS)
Current......................... $12,528 $15,200 $11,361
Deferred........................ 8,343 2,727 5,768
----------------------------------------------
$20,871 $17,927 $17,129
==============================================
The provision for income taxes differs from the amount computed at the statutory
federal income tax rate due primarily to dividends received deductions and tax
credits.
Income taxes paid by the Company were $16,213,000, $11,551,000, and $14,634,000
during 1996, 1995, and 1994, respectively.
37
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Net deferred tax assets or liabilities consist of the following:
1996 1995
-------------------------
(IN THOUSANDS)
Deferred tax assets:
Future policy benefits.......................... $20,487 $17,780
Net unrealized depreciation on
securities available-for-sale................. 1,409 -
Guaranty fund assessments....................... 1,400 1,260
Employee benefits............................... 4,852 3,836
Other........................................... 4,620 3,662
-------------------------
Total deferred tax assets.......................... 32,768 26,538
Deferred tax liabilities:
Deferred policy acquisition costs............... 69,647 50,580
Net unrealized appreciation on
securities available-for-sale................. - 12,539
Deferred gain on investments.................... 10,446 8,681
Depreciation.................................... 2,061 988
Other........................................... 5,461 7,409
-------------------------
Tax deferred tax liabilities....................... 87,615 80,197
-------------------------
Net deferred tax liabilities....................... $54,847 $53,659
=========================
6. CONDENSED FAIR VALUE INFORMATION
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosures of fair value information about financial instruments, whether
recognized or not recognized in a company's balance sheet, for which it is
practicable to estimate that value. The methods and assumptions used by the
Company to estimate the following fair value disclosures for financial
instruments are set forth in NOTE 1.
SFAS No. 107 excludes certain insurance liabilities and other nonfinancial
instruments from its disclosure requirements. However, the liabilities under all
insurance contracts are taken into consideration in the Company's overall
management of interest rate risk that minimizes exposure to changing interest
rates through the matching of investment maturities with amounts due under
insurance contracts. The fair value amounts presented herein do not include an
amount for the value associated with customer or agent relationships, the
expected interest margin (interest earnings in excess of interest credited) to
be earned in the future on investment-type products or other intangible items.
Accordingly, the aggregate fair value amounts presented herein do not
necessarily represent the underlying value of the Company; likewise, care should
be exercised in deriving conclusions about the Company's business or financial
condition based on the fair value information presented herein.
38
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CONDENSED FAIR VALUE INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------- ---------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------------------------------- -------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Investments:
Fixed maturities (NOTE 2)................. $2,333,111 $2,333,770 $2,314,507 $2,327,646
Equity securities (NOTE 2)................ 89,188 89,188 21,880 21,880
Mortgage loans............................ 66,611 69,004 74,342 80,175
Policy loans.............................. 106,822 108,685 100,452 104,077
Short-term investments.................... - - 992 992
Cash and cash equivalents................. 8,310 8,310 16,788 16,788
Accrued investment income................. 32,161 32,161 30,623 30,623
Futures contracts......................... - - - (737)
Interest rate exchange agreements ........ - (282) - (2,291)
Liabilities:
Supplementary contracts without life
contingencies........................... 33,225 33,803 34,363 35,387
Individual and group annuities............ 1,942,697 1,767,692 1,922,901 1,774,642
Long-term debt............................ 65,000 67,683 - -
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases various equipment under several operating lease agreements.
Total expense for all operating leases amounted to $1,904,000, $1,302,000 and
$1,450,000 for 1996, 1995 and 1994, respectively. The Company has aggregate
future lease commitments at December 31, 1996 of $4,337,000 for noncancelable
operating leases consisting of $992,000 in 1997, $941,000 in 1998, $829,000 in
1999, $818,000 in 2000 and $757,000 in 2001 and thereafter.
In addition, in 2001, under the terms of an operating lease for an airplane, the
Company has the option to renew the lease for another five years, purchase the
airplane for approximately $4.7 million, or return the airplane to the lessor
and pay a termination charge of approximately $3.7 million. If the option to
renew the lease for five years is selected, at the end of the five-year period
(2006), the Company has the option to purchase the airplane for approximately
$3.4 million or return the airplane to the lessor and pay a termination charge
of approximately $2.7 million.
The economy and other factors have caused an increase in the number of insurance
companies that have required regulatory supervision. Guaranty fund assessments
are levied on the Company by life and health guaranty associations in most
states in which it is licensed to cover losses of policyholders of insolvent or
rehabilitated insurers. In some states, these assessments can be
39
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
partially recovered through a reduction in future premium taxes. The Company
cannot predict whether and to what extent legislative initiatives may affect the
right to offset. Based on information from the National Organization of Life and
Health Guaranty Association and information from the various state guaranty
associations, the Company believes that it is probable that these insolvencies
will result in future assessments. The Company regularly evaluates its reserve
for these insolvencies and updates its reserve based on the Company's
interpretation of information recently received. The associated costs for a
particular insurance company can vary significantly based on its premium volume
by line of business in a particular state and its potential for premium tax
offset. The Company accrued and charged to expense $1,574,000, $2,302,000 and
$237,000 for 1996, 1995 and 1994, respectively. At December 31, 1996, the
Company has reserved $4,000,000 to cover current and estimated future
assessments net of related premium tax credits.
8. LONG-TERM DEBT
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. No amounts were outstanding at
December 31, 1996.
In February 1996, the Company negotiated three separate $5,000,000 advances with
the Federal Home Loan Bank of Topeka. The advances are due February 27, 1998,
February 26, 1999 and February 28, 2001 and carry interest rates of 5.59%, 5.76%
and 6.04%, respectively.
In May 1996, the Company issued $50 million of 8.75% surplus notes maturing on
May 15, 2016. The surplus notes were issued pursuant to Rule 144A under the
Securities Act of 1933. The surplus notes have repayment conditions and
restrictions whereby each payment of interest on or principal of the surplus
notes may be made only with the prior approval of the Kansas Insurance
Commissioner and only out of surplus funds that the Kansas Insurance
Commissioner determines to be available for such payment under the Kansas
Insurance Code.
9. RELATED-PARTY TRANSACTIONS
The Company owns shares of mutual funds managed by Security Management Company,
LLC with a net asset value totaling $60,559,000 and $5,364,000 at December 31,
1996 and 1995, respectively.
40
<PAGE>
10. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets were as follows:
1996 1995
--------------------------
(IN THOUSANDS)
Premium and annuity considerations
for the variable annuity products and
variable universal life product for
which the contractholder, rather than
the Company, bears the
investment risk................................ $2,793,911 $2,051,292
Assets of the separate accounts owned by
the Company, at fair value..................... 9,016 14,014
--------------------------
$2,802,927 $2,065,306
==========================
11. STATUTORY INFORMATION
The Company and its insurance subsidiary prepare statutory-basis financial
statements in accordance with accounting practices prescribed or permitted by
the Kansas and New York Insurance regulatory authorities, respectively.
Accounting practices used to prepare statutory-basis financial statements for
regulatory filings of life insurance companies differ in certain instances from
GAAP. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners (NAIC), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed; such practices may differ from state to state, may differ from
company to company within a state and may change in the future. Statutory
capital and surplus of the insurance operations are $286,689,000 and
$207,669,000 at December 31, 1996 and 1995, respectively.
41
<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
(5) Form of Application
(6) (a) Composite of Articles of Incorporation of SBL
(b) Bylaws of SBL(a)
(7) Not Applicable
(8) Fund Participation and Variable Contract Marketing Agreement
(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
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
- ------------------ ---------------------
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
P.O. Box 889
Topeka, Kansas 66601
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
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
- ------------------ ---------------------
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
(and Interim Chief Investment Officer)
Kathleen R. Blum* Vice President - Administration
*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 0.0004% 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:
PERCENT OF
JURISDICTION OF VOTING SECURITIES
NAME INCORPORATION OWNED BY SBL
Security Benefit Life Insurance Company Kansas -----
(Mutual Life Insurance Company
Security Benefit Group, Inc. (Holding Kansas 100%
Company)
Security Management Company, LLC Kansas 100%
(Investment Adviser)
Security Distributors, Inc. Kansas 100%
(Broker/Dealer, Principal Underwriter
of Mutual Funds)
Security Benefit Academy, Inc. (Daycare Kansas 100%
Company)
Creative Impressions, Inc. Kansas 100%
(Advertising Agency)
Security Benefit Clinic and Hospital Kansas 100%
(Nonprofit provider of hospital
benevolences for fraternal certificate
holders)
First Advantage Insurance Agency, Inc. Kansas 100%
First Security Benefit Life Insurance New York 100%
and Annuity Company of New York
<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 15.9% Security Income Fund 7.6%
Corporate Bond Series
Security Growth and 40.1% SBL Fund 100%
Income Fund
ITEM 27. NUMBER OF CONTRACTOWNERS
As of March 31, 1997, there were 1,272 owners of Parkstone Variable
Annuity Qualified Contracts, 1,268 owners of Parkstone Non-Qualified Contracts,
15 owners of Parkstone Non-Qualified Trust Contracts, and 2 owners of Parkstone
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 following management investment companies for
which Security Management Company, LLC, 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. Harwood Treasurer
Louis R. Jicha Vice President and Director
Daniel McNichol Vice President
Clark A. Anderson Regional Vice President
Robert L. Kirchner Regional Vice President
Paul Richardson 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
William G. Mancuso Regional Vice President
Marek E. Lakotko Regional Vice President
Eric M. Aanes Regional Vice President
Susan L. Tully 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>
(f) Registrant represents that the fees and charges deducted under the
contract, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the Registrant.
<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(b) for effectiveness of this
Registration Statement and has caused this Registration Statement to be signed
on its behalf, in the City of Topeka, and State of Kansas on this 23rd day of
April, 1997.
SIGNATURES AND TITLES
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman (The Depositor)
of the Board,
President and
Chief Executive Officer
By: ROGER K. VIOLA
-------------------------------------------------
Roger K. Viola, Senior Vice President,
Thomas R. Clevenger General Counsel and Secretary as Attorney-In-Fact
Director for the Officers and Directors
Whose Names Appear Opposite
Sister Loretto
Marie Colwell
Director
PARKSTONE VARIABLE ANNUITY
John C. Dicus (The Registrant)
Director
Melanie S. Fannin By: SECURITY BENEFIT LIFE INSURANCE COMPANY
Director (The Depositor)
William W. Hanna
Director By: HOWARD R. FRICKE
-------------------------------------------------
John E. Hayes, Jr. Howard R. Fricke, Chairman of the Board,
Director President and Chief Executive Officer
Laird G. Noller
Director
By: DONALD J. SCHEPKER
Frank C. Sabatini -------------------------------------------------
Director Donald J. Schepker, Senior Vice President,
Chief Financial Officer and Treasurer
Robert C. Wheeler
Director
(ATTEST): ROGER K. VIOLA
------------------------------------------
Roger K. Viola, Senior Vice President,
General Counsel and Secretary
Date: April 23, 1997
<PAGE>
EXHIBIT INDEX
(1) None
(2) None
(3) None
(4) Sample Contracts
(5) Form of Application
(6) (a) Composite of Articles of Incorporation of SBL
(b) None
(7) None
(8) Fund Participation and Variable Contract Marketing Agreement
(9) None
(10) Consent of Independent Auditors
(11) None
(12) None
(13) Schedules for Computation of Performance
(14) Financial Data Schedules
(15) Powers of Attorney
<PAGE>
PARKSTONE
VARIABLE ANNUITY
ANNUITY CONTRACT
THE COMPANY'S PROMISE
In consideration for the Purchase Payments and the attached application,
Security Benefit Life Insurance Company will pay the benefits of this Contract
according to its provisions.
LEGAL CONTRACT
PLEASE READ YOUR CONTRACT CAREFULLY. It is a legal Contract between the Owner
and the Company, Security Benefit Life Insurance Company. The Contract's table
of contents is on page 2.
RIGHT TO CANCEL
THIS CONTRACT MAY BE RETURNED WITHIN 10 DAYS AFTER RECEIVING IT BY DELIVERING OR
MAILING IT TO THE HOME OFFICE OR THE AGENT THROUGH WHOM IT WAS PURCHASED.
IMMEDIATELY ON SUCH DELIVERY OR MAILING, THE CONTRACT SHALL BE DEEMED VOID FROM
THE BEGINNING. ANY PURCHASE PAYMENTS PAID AND ALLOCATED TO THE FIXED ACCOUNT
WILL BE REFUNDED. THE VARIABLE ACCOUNT CONTRACT VALUE WILL BE REFUNDED AS OF THE
DATE THE CONTRACT IS RECEIVED BY THE COMPANY. ANY FEES OR CHARGES ON PURCHASE
PAYMENTS PAID AND ALLOCATED TO THE VARIABLE ACCOUNT WILL BE REFUNDED.
SIGNED FOR SECURITY BENEFIT LIFE INSURANCE COMPANY ON THE CONTRACT DATE.
ROGER K. VIOLA HOWARD R. FRICKE
Secretary President
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
* Purchase Payments may be made until the earlier of the Annuity Start Date or
termination of the Contract.
* A Death Benefit may be paid prior to the Annuity Start Date according to the
contract provisions.
* Annuity Payments begin on the Annuity Start Date using the method as
specified in this Contract.
* This is a participating Contract.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT, ARE VARIABLE AND THESE DOLLAR AMOUNTS ARE
NOT GUARANTEED. (SEE "CONTRACT VALUE AND EXPENSE PROVISIONS" AND "ANNUITY
PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGL]
Security Benefit Life Insurance Company
A Member of The Security Benefit Group of Companies
700 Harrison, Topeka, KS 66636-0001
1-800-355-4555
Form V6020-1 (R4-94) 15-60200-50
BP 602PP1
<PAGE>
TABLE OF CONTENTS
CONTRACT SPECIFICATIONS ........................................... 3
DEFINITIONS ....................................................... 4, 5
GENERAL PROVISIONS ................................................ 6, 7
The Contract ................................................. 6
Compliance ................................................... 6
Misstatement of Age and Sex .................................. 6
Evidence of Survival ......................................... 6
Incontestability ............................................. 6
Assignment ................................................... 6
Received By The Company ...................................... 7
Transfers .................................................... 7
Claims of Creditors .......................................... 7
Nonforfeiture Values ......................................... 7
Dividends .................................................... 7
Reports ...................................................... 7
OWNERSHIP, ANNUITANT AND
BENEFICIARY PROVISIONS ............................................ 8
Ownership .................................................... 8
Joint Ownership .............................................. 8
Annuitant .................................................... 8
Primary and Contingent Beneficiaries ......................... 8
Ownership and Beneficiary Changes ............................ 8
PURCHASE PAYMENT PROVISIONS ....................................... 9
Flexible Purchase Payments ................................... 9
Purchase Payment Limitations ................................. 9
Purchase Payment Allocation .................................. 9
Place of Payment ............................................. 9
CONTRACT VALUE AND EXPENSE PROVISIONS ............................. 9, 11
Contract Value ............................................... 9
Fixed Account Contract Value ................................. 9
Fixed Account Interest Crediting ............................. 9
Variable Account Contract Value .............................. 10
Determining Accumulation Units ............................... 10
Accumulation Unit Value ...................................... 10
Net Asset Value .............................................. 10
Contract Maintenance Charge .................................. 10
Mortality and Expense Risk Charge ............................ 11
Administration Charge ........................................ 11
Premium Tax Expense .......................................... 11
WITHDRAWAL PROVISIONS ............................................. 11-13
Withdrawals .................................................. 11
Withdrawal Value ............................................. 11
Withdrawal Charge ............................................ 12
Free Withdrawals ............................................. 12
Systematic Withdrawals ....................................... 12
Free Systematic Withdrawals .................................. 12
Disability Waiver ............................................ 12
Date of Request .............................................. 13
Payment of Withdrawal Benefits ............................... 13
DEATH BENEFIT PROVISIONS .......................................... 13, 14
Death Benefit ................................................ 13
Proof of Death ............................................... 13
Distribution Requirements .................................... 14
ANNUITY PAYMENT PROVISIONS ........................................ 14-17
Annuity Start Date ........................................... 14
Change of Annuity Start Date ................................. 14
Annuity Start Amount ......................................... 14
Annuity Payment Guarantees ................................... 15
Annuity Payments ............................................. 15
Change of Annuity Payments ................................... 15
Fixed Annuity Payments ....................................... 15
Variable Annuity Payments .................................... 15
First Variable Annuity Payment ............................... 15
Annuity Unit Value ........................................... 15
Net Investment Factor ........................................ 16
Net Asset Value per Share .................................... 16
Subsequent Variable Annuity Payments ......................... 16
Annuity Options .............................................. 17
ANNUITY OPTION RATES .............................................. 18
AMENDMENTS OR ENDORSEMENTS, if any
- 2 -
15-60200-50
BP 602PP1
<PAGE>
- --------------------------------------------------------------------------------
PARKSTONE TRUST VARIABLE ANNUITY POLICY SPECIFICATIONS
- --------------------------------------------------------------------------------
OWNER NAME: John A. Doe
OWNER DATE OF BIRTH: 10-30-1953
JOINT OWNER NAME: Mary K. Doe
JOINT OWNER DATE OF BIRTH: 7-18-1981
ANNUITANT NAME: Betty M. Doe
ANNUITANT DATE OF BIRTH: 5-13-1987
ANNUITANT SEX: Female
PRIMARY BENEFICIARY NAME: Linda L. Doe
CONTRACT NUMBER: Specimen
TRUST ACCT. NUMBER: 04201
CONTRACT DATE: 6-30-1993
ISSUE DATE: 6-30-1993
ANNUITY START DATE: 7-1-2052
PLAN: TSA
ASSIGNMENT: This Policy may not be assigned
See Assignment Provision of your Policy.
CONTINGENT BENEFICIARY NAME: Mary K. Doe
- --------------------------------------------------------------------------------
INITIAL PURCHASE PAYMENT ............................... $500,000
MINIMUM SUBSEQUENT PURCHASE PAYMENTS ................... $5,000
MORTALITY AND EXPENSE RISK CHARGE ...................... 0.65% Annually
ADMINISTRATION CHARGE .................................. 0.05% Annually
CONTRACT MAINTENANCE CHARGE ............................ $0
WITHDRAWAL CHARGES: .................................... None
FREE SYSTEMATIC WITHDRAWAL AVAILABILITY DATE ........... 7-1-1993
MINIMUM GUARANTEED INTEREST RATE ....................... 3.5%
ANNUITY OPTION ......................................... Option 2
SUB-ACCOUNTS:
Prime Obligations
Bond
Equity
International Discovery
Small Capitalization
METHOD FOR DEDUCTIONS:
Deductions for any Contract Maintenance Charge, any Transfer Charges,
any Premium Taxes collected after the Purchase Payments are applied,
and any unallocated partial withdrawals will be made sequentially from
the Contract Value. In descending order of the Sub-Accounts listed
above, the value of each account will be depleted before the next is
charged. The Fixed Account is the last account charged.
- 3 -
V6020 A (3-93) SBL 20
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
ACCUMULATION UNIT
The Accumulation Unit is a unit of measure. It is used to calculate the
Variable Account Contract Value prior to the Annuity Start Date. It is
also used to calculate the Variable Account Contract Value after the
Annuity Start Date for Annuity Options 5 and 6.
ANNUITANT
The Annuitant is the person named by the Owner to receive Annuity
Payments under this Contract. Please see "Annuitant" provisions on page
8.
ANNUITY OPTION
The Annuity Option is the method for making Annuity Payments. The
Annuity Option is selected prior to the Annuity Start Date. Please see
"Annuity Options" on page 17.
ANNUITY START DATE
The Annuity Start Date is the date on which Annuity Payments are
scheduled to begin. This date may be changed by the Owner. The Annuity
Start Date is shown on Page 3.
ANNUITY UNIT
The Annuity Unit is a unit of measure. It is used to calculate Variable
Annuity Payments after the Annuity Start Date for Annuity Options 1
through 4.
COMPANY
The Company is Security Benefit Life Insurance Company.
CONTRACT ANNIVERSARY
A Contract Anniversary is a 12-month anniversary of the Contract Date
as defined below.
CONTRACT DATE
The Contract Date is the date the Contract begins. The Contract Date is
shown on page 3.
CONTRACT YEAR
Contract Years are measured from the Contract Date.
DESIGNATED BENEFICIARY
Upon the first death of the Owner or Joint Owner, the Designated
Beneficiary will be the first person on the following list who is alive
on the date of death:
1. Primary Beneficiary;
2. Contingent Beneficiary;
3. Owner;
4. Joint Owner;
5. Annuitant; and
6. the Owner's estate if no one listed above is alive.
The Designated Beneficiary may receive a death benefit upon the death
of the Owner. For more information please see "Ownership, Annuitant,
and Beneficiary Provisions" on page 8 and the "Death Benefit
Provisions" on pages 13 and 14.
EARNINGS
Earnings include interest, dividends, realized gains or losses, and
unrealized gains or losses.
FIXED ACCOUNT
The Fixed Account invests in the general account of the Company. The
Company manages the general account and guarantees that an effective
rate of return of at least 3 1/2% will be credited to the Fixed Account
Contract Value.
HOME OFFICE
The Address of the Home Office is 700 SW Harrison St., Topeka, KS
66636-0001.
ISSUE DATE
The Issue Date is the date the Company uses to determine the date the
Contract becomes incontestable. The Issue Date is shown on Page 3.
- 4 -
15-60200-00
V 6020 B (3-93) BP 602011
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS (Continued)
- --------------------------------------------------------------------------------
JOINT OWNER
The Joint Owner, if any, possesses an undivided interest in the entire
Contract in conjunction with the Owner. The Joint Owner, if any, is
named on page 3. Please see "Joint Ownership" provisions on page 8.
NONNATURAL PERSON
Any group or entity that is not a living person such as a trust or
corporation.
OWNER
The Owner is the person who possesses all rights under the Contract.
The Owner is named on page 3. Please see "Ownership" provisions on page
8.
PREMIUM TAX
Any Premium Taxes levied by a state or other governmental entity will
be charged against this Contract. When Premium Tax is assessed after
the premium is applied, it will be deducted as described on page 3.
PURCHASE PAYMENT
A Purchase Payment is money received by the Company and applied to the
Contract.
PURCHASE PAYMENT ANNIVERSARY
A Purchase Payment Anniversary is a 12-month anniversary of the date
the Purchase Payment is applied.
PURCHASE PAYMENT YEAR
A Purchase Payment Year is each 12-month period starting with either
the Purchase Payment Anniversary or the date the Purchase Payment is
applied. The first Purchase Payment year begins on the date the
Purchase Payment is applied and increases by one on each successive
Purchase Payment Anniversary.
SUB-ACCOUNTS
The Variable Account is divided into Sub-Accounts which invest in
shares of mutual funds. Each Sub-Account may invest its assets in a
separate class or series of a designated investment company or
companies. The Sub-Accounts are shown on page 3. Subject to the
regulatory requirements then in force, the Company reserves the right
to:
1. change or add designated investment companies;
2. add, remove or combine Sub-Accounts;
3. add, delete or make substitutions for securities that are held or
purchased by the Variable Account or any Sub-Account;
4. operate the Variable Account as a managed investment company;
5. combine the assets of the Variable Account with other Variable
Accounts of the Company or an affiliate thereof; and
6. restrict or eliminate any voting rights of the Owner with respect
to the Variable Account or other persons who have voting rights as
to the Variable Account.
If any of these changes result in a material change to the Variable
Account or a Sub-Account, the Company will notify the Owner of the
change. The Company will not change the investment policy of any
Sub-Account without the filing and other procedures established by
insurance regulators of the state of issue.
VALUATION DATE
A Valuation Date is each day the New York Stock Exchange and the
Company's Home Office are open for business.
VALUATION PERIOD
A Valuation Period is the interval of time from one Valuation Date to
the next Valuation Date.
VARIABLE ACCOUNT
The Variable Account is a separate account established and maintained
by the Company under Kansas law. The Variable Account is divided into
Sub-Accounts which are listed on page 3. The assets held in the
Variable Account supporting Contract liabilities are not chargeable
with liabilities arising from any other business the Company may
conduct.
- 5 -
15-60200-00
BP 602011
<PAGE>
- --------------------------------------------------------------------------------
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT
The entire Contract between the Owner and the Company consists of this
Contract, the attached Application, and any Amendments, Endorsements or
Riders attached to the Policy. All statements made in the Application
will, in the absence of fraud, as determined by a court of competent
jurisdiction, be deemed representations and not warranties. The Company
will use no statement made by or on behalf of the Owner or the
Annuitant to void this Contract unless it is in the written Application
and unless successfully contested by the Company. Any change in the
Contract can be made only with the written consent of the President, a
Vice President, or the Secretary of the Company.
The Purchase Payment(s) and the Application must be acceptable to the
Company under its rules and practices. If they are not, the Company's
liability will be limited to a return of the Purchase Payment(s).
COMPLIANCE
The Company reserves the right to make any change to the provisions of
this Contract to comply with or give the Owner benefit of any federal
or state statute, rule or regulation. This includes, but is not limited
to, requirements for annuity contracts under the Internal Revenue Code
or that of any state. The Company will provide the Owner with a copy of
any such change and will also file such a change with the insurance
regulatory officials of the state in which the contract is delivered.
MISSTATEMENT OF AGE AND SEX
If the age or sex of the Annuitant has been misstated, all payments and
benefits under this Contract will be adjusted when legally permitted.
Payments and benefits will be made on the basis of the Annuitant's
correct age or sex. Proof of the age of an Annuitant may be required at
any time, in a form suitable to the Company. When the age or sex of an
Annuitant has been misstated, the dollar amount of any overpayment plus
interest will be deducted from the next payment(s) due under this
Contract. The dollar amount of any underpayment made by the Company as
a result of any such misstatement will be paid in full plus interest
with the next payment due under this Contract. The interest portion of
these adjustments will be calculated at 6%.
EVIDENCE OF SURVIVAL
When any payments under this contract depend on the recipient being
alive on a given date, proof that the recipient is living may be
required by the Company. Such proof must be in a form acceptable to the
Company, and may be required prior to making the payments.
INCONTESTABILITY
This Contract will not be contested after it has been in force for two
years from the Issue Date during the lifetime of the Owner. This
provision does not apply to any benefits payable in the event of
disability.
ASSIGNMENT
No Assignment under this Contract is binding unless received by the
Company in writing. The Company assumes no responsibility for the
validity, legality, or taxability of any Assignment. The Assignment
will be subject to any payment made or other action taken by the
Company before the Assignment is received by the Company. Once filed,
the rights of the Owner, Annuitant and Beneficiary are subject to the
Assignment. Any claim is subject to proof of interest of the assignee.
Please refer to page 3 to see if this Contract may be assigned.
- 6 -
15-60200-40
V 6020 C (3-93) BP 602FF1
<PAGE>
- --------------------------------------------------------------------------------
GENERAL PROVISIONS (Continued)
- --------------------------------------------------------------------------------
RECEIVED BY THE COMPANY
The phrase "Received by the Company" means receipt by the Company at
its Home Office.
TRANSFERS
The Owner may Transfer funds among the Fixed Account and Sub-Accounts
subject to the following.
Prior to the Annuity Start Date: The Owner may make 12 Transfers per
calendar year without charge. For each additional Transfer, a $25
dollar charge is deducted from the Contract Value. Transfers are not
permitted within 30 days of the Annuity Start Date.
After the Annuity Start Date: For Annuity Options 1, 2, 3, and 4, the
Owner may make 1 Transfer per calendar year without charge. It must be
between Sub-Accounts and no additional Transfers are permitted in a
calendar year. For Annuity Options 5 and 6, the Owner may make 12
Transfers per calendar year without charge. For each additional
Transfer in a calendar year, a $25 charge is deducted from the Contract
Value.
TRANSFER RIGHTS (PRIOR TO THE EFFECTIVE DATE OF A SETTLEMENT OPTION):
The Company reserves the right to limit: (1) the size of Transfers; (2)
the number of Transfers to 12 per calendar year; and (3) the amount
remaining in an account after a Transfer. Transfers must be at least
$500 or the lesser remaining balance in the Fixed Account or a
Sub-Account. The total dollar amount that may be Transferred from the
Fixed Account in a Contract Year is the greatest of:
1. $5,000;
2. 1/3 of the Accumulated Value in the Fixed Account at the time of
the first Transfer in the Contract Year; or
3. 120% of the dollar amount Transferred from the Fixed Account in
the prior Contract Year subject to the limitation below.
The Company 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% of the lesser of:
a. the dollar amount Transferred from the Fixed Account in the
prior Contract Year; or
b. The maximum total dollar amount that would have been allowed
in the prior Contract Year under the Transfer provisions above
absent the Waiver Period.
When a Transfer charge is deducted from the Contract Value, it shall be
deducted as described on page 3. The Company reserves the right to
delay Transfers from the Fixed Account for up to 6 months. The Company
will notify you if there will be a delay.
CLAIMS OF CREDITORS
The Contract Value and other benefits under this Contract are exempt
from the claims of creditors to the extent permitted by law.
NONFORFEITURE VALUES
The Death Benefits, Surrender Values and Annuity Start Values will at
least equal the minimum required by law.
DIVIDENDS
The Company is a mutual life insurance company. Consequently, it pays
dividends on some of its contracts. However, the Company does not
expect any dividends to become payable on this Contract. At the end of
each Contract Year the Company will determine the Contract's dividend,
if any. The Owner may choose to have it: (1) added to the Contract
Value, or (2) paid in cash. If the Owner does not make a choice, it
will be added to the Contract Value.
REPORTS
At least once each Contract Year the Owner shall be sent a statement
including the current Contract Value and any other information required
by law.
- 7 -
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BP 602FF1
<PAGE>
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OWNERSHIP, ANNUITANT AND BENEFICIARY PROVISIONS
- --------------------------------------------------------------------------------
OWNERSHIP
The Owner has all rights in the Contract unless otherwise provided. All
rights in the Contract remain with the Owner after the Annuity Start
Date. If the purchaser names someone other than himself as Owner, the
purchaser has no rights in the Contract, unless later changed by the
Owner. If the Owner dies, a distribution may be made to the Designated
Beneficiary. No Owner, named in the Contract, may be older than 80 on
the Contract Date.
JOINT OWNERSHIP
If a Joint Owner is named in the application, then the Owner and Joint
Owner will share an undivided interest in the entire Contract. When an
Owner and Joint Owner have been named, the Company will only honor
requests for changes and the exercise of other Ownership rights made by
both the Owner and Joint Owner. When a Joint Owner is named, all
references to "Owner" throughout this Contract should be construed to
mean both the Owner and Joint Owner, except for the "Reports" provision
on page 7 and the "Death Benefit Provisions" on pages 13 and 14.
ANNUITANT
The Owner may change the Annuitant prior to the Annuity Start Date. The
request for this change must be made in writing and Received by the
Company at least 30 days prior to the Annuity Start Date. No Annuitant
may be named who is more than 80 years old on the Contract Date. When
the Annuitant dies prior to the Annuity Start Date, the Owner must name
a new Annuitant within 30 days. If a new Annuitant is not named, the
Owner becomes the Annuitant. The Annuitant is named on page 3.
PRIMARY AND CONTINGENT BENEFICIARIES
The Primary Beneficiary and any Contingent Beneficiary are named in the
Application, unless later changed by the Owner. If the Primary
Beneficiary dies prior to the Owner, the Contingent Beneficiary becomes
the Primary Beneficiary. Unless the Owner has provided otherwise, when
there are two or more Primary Beneficiaries, they will receive equal
shares, unless otherwise specified.
OWNERSHIP AND BENEFICIARY CHANGES
Subject to the terms of any existing Assignment, the Owner may name a
new Owner, new Primary Beneficiary or a new Contingent Beneficiary. Any
new choice of Owner, Primary Beneficiary or Contingent Beneficiary will
automatically revoke any prior choice of Owner, Primary Beneficiary or
Contingent Beneficiary. Any change must be made in writing and recorded
at the Home Office. The change will become effective as of the date the
written request is signed, whether or not the Owner is living at the
time the change is recorded. A new choice of Primary Beneficiary or
Contingent Beneficiary will not apply to any payment made or action
taken by the Company prior to the time it was recorded. The Company may
require the Contract be returned so these changes may be made.
- 8 -
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V 6020 D (3-93) BP 602031
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE PAYMENT PROVISIONS
- --------------------------------------------------------------------------------
FLEXIBLE PURCHASE PAYMENTS
The Contract becomes in force when the initial Purchase Payment is
applied. The Owner is not required to continue Purchase Payments in the
amount or frequency originally anticipated. The Owner may: (1) increase
or decrease the amount of Purchase Payments, subject to any Contract or
administrative limitations; or (2) change the frequency of Purchase
Payments. A change in frequency or amount of Purchase Payments does not
require a written request. After the Annuity Start Date, the Company
will not apply any new Purchase Payments to this Contract.
PURCHASE PAYMENT LIMITATIONS
Purchase Payments may not be greater than $1,000,000 without prior
approval by the Company. The Minimum Subsequent Purchase Payment amount
is shown on page 3.
PURCHASE PAYMENT ALLOCATION
Purchase Payments may be allocated among the Fixed Account and the
Sub-Accounts. The allocations may be made by specifying the dollar
amount or the whole percentage to go to each account. However, no less
than $25 per Purchase Payment may be allocated to any account. The
Owner may change the allocations by written notice to the Company.
PLACE OF PAYMENT
All Purchase Payments under this Contract are payable to the Company at
its Home Office. Purchase Payments are applied after they are received
by the Company at its Home Office.
- --------------------------------------------------------------------------------
CONTRACT VALUE AND EXPENSE PROVISIONS
- --------------------------------------------------------------------------------
CONTRACT VALUE
On any Valuation Date, the Contract Value is the sum of (1) the
Variable Account Contract Value; and (2) the Fixed Account Contract
Value. At any time after the first Contract Year and before the Annuity
Start Date, the Company reserves the right to pay to the Owner the
Contract Value as a lump sum if it is below $2,000.
FIXED ACCOUNT CONTRACT VALUE
On any Valuation Date, the Fixed Account Contract Value is based on the
following transactions with respect to this Contract:
1. the sum of all Purchase Payments allocated under the Contract to
the Fixed Account;
2. any Transfers from the Variable Account;
3. the interest credited to the Fixed Account;
4. any Withdrawals and applicable Withdrawal Charges deducted from the
Fixed Account;
5. any Transfers to the Variable Account;
6. any applicable Contract Maintenance Charges and Transfer Charges
deducted from the Fixed Account;
7. any applicable Premium Taxes;
8. any amounts held in the Fixed Account which are applied towards
Annuity Options 1 through 4.
FIXED ACCOUNT INTEREST CREDITING
The Company will credit interest on the Fixed Account Contract Value
from the Contract Date. The renewal interest rates will be declared and
reset at the Company's discretion. However, the renewal interest rate
will be at least the Minimum Guaranteed Interest Rate shown on page 3.
- 9 -
15-60200-02
BP 602031
<PAGE>
- --------------------------------------------------------------------------------
CONTRACT VALUE AND EXPENSE PROVISIONS (Continued)
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT CONTRACT VALUE
The Variable Account Contract Value is the sum of the value in each
Sub-Account for this Contract. Each Sub-Account value is the product of
the Accumulation Units under this Contract and the Accumulation Unit
Value.
DETERMINING ACCUMULATION UNITS
The number of Accumulation Units for a particular Sub-Account is found
by dividing: (1) the value of the Sub-Account; by (2) the Accumulation
Unit Value for the Sub-Account. The number of Accumulation Units will
not change as a result of investment experience. Events that change the
number of Accumulation Units are:
1. Purchase Payments that are applied to the Sub-Account;
2. funds that are Transferred into or out of the Sub-Account;
3. Withdrawals that are deducted from the Sub-Account; and
4. certain charges or taxes that are deducted.
ACCUMULATION UNIT VALUE
The initial Accumulation Unit Value for each Sub-Account was set at
$10. The subsequent Accumulation Values are found by dividing (1) by
(2), where:
1. is the net result of:
a. the Net Asset Value determined at the end of the current
Valuation Period, plus
b. any dividends declared by the Sub-Account's underlying mutual
fund that are not reflected in the Net Asset Value; less
c: the accrued Mortality and Expense Risk Charge and the accrued
Administrative Charge.
2. the number of Accumulation Units at the beginning of the Valuation
Period.
The Accumulation Unit Value may increase or decrease from one Valuation
period to the next.
NET ASSET VALUE
The Net Asset Value is the net value of all shares of the underlying
mutual fund held by the Sub-Account. The Net Asset Value is: (1) the
value of the securities; plus (2) any cash or other assets; less (3)
all liabilities.
CONTRACT MAINTENANCE CHARGE
Except as noted below, the Company deducts a Contract Maintenance
Charge on each Contract Anniversary. The applicable Contract
Maintenance Charge is shown on page 3. When a Contract is Withdrawn for
its full Contract Value, a pro rata portion of this charge is deducted
at the time of Withdrawal. No Contract Maintenance Charge is deducted
on or after the Annuity Start Date when one of the first four Annuity
Options is used. When Contract Maintenance Charges are deducted from
the Contract Value, they shall be deducted as described on page 3.
- 10 -
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V 6020 E (3-93) BP 602051
<PAGE>
- --------------------------------------------------------------------------------
CONTRACT VALUE AND EXPENSE PROVISIONS (Continued)
- --------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct the annualized Mortality and Expense Risk
Charge shown on page 3. The deduction will be: (1) made from each
Sub-Account; (2) computed on a daily basis; and (3) made in the same
proportion that the Sub-Account Contract Value bears to the Variable
Account Contract Value. This charge is not directly taken from each
Sub-Account Contract Value. It is factored into the Accumulation Unit
Value and the Annuity Unit Value on a daily basis.
ADMINISTRATION CHARGE
The Company will deduct the annualized Administration Charge shown on
page 3. The deduction will be: (1) made from each Sub-Account; (2)
computed on a daily basis; and (3) made in the same proportion that the
Sub-Account Contract Value bears to the Variable Account Contract
Value. This charge is not directly taken from each Sub-Account Contract
Value. It is factored into the Accumulation Unit Value and the Annuity
Unit Value on a daily basis.
PREMIUM TAX EXPENSE
Any applicable Premium Taxes may be deducted from the Contract Value.
The Company reserves the right to deduct premium tax when due or any
time thereafter.
- --------------------------------------------------------------------------------
WITHDRAWAL PROVISIONS
- --------------------------------------------------------------------------------
WITHDRAWALS
The Owner may Withdraw all or part of the Contract Value at any time.
This provision is subject to any federal or state Withdrawal
restrictions. All Withdrawals must meet the following conditions.
1. The request for Withdrawal must be Received by the Company in
writing.
2. The Owner must apply: (a) while this contract is in force; and (b)
prior to the Annuity Start Date.
3. The amount Withdrawn must be at least $500.00 except for
Systematic Withdrawals, as discussed below, or when terminating
the Contract.
A partial Withdrawal request should specify the allocations for
deducting the Withdrawal from each account. In the absence of these
instructions the Company will make the deductions as described on page
3.
WITHDRAWAL VALUE
The Withdrawal Value at any time will be the Contract Value less;
1. any applicable Withdrawal Charges; and
2. any applicable Contract Maintenance Charges; and
3. any uncollected Premium Taxes.
- 11 -
15-60200-04
BP 602051
<PAGE>
- --------------------------------------------------------------------------------
WITHDRAWAL PROVISIONS (continued)
- --------------------------------------------------------------------------------
WITHDRAWAL CHARGE
If part or all of the Contract Value is Withdrawn, Withdrawal Charges
may be applied at the time of Withdrawal. The Withdrawal Charges apply
to each Purchase Payment based on the number of Purchase Payment Years
it has been in the Contract as shown on page 3. For the purpose of
determining the Withdrawal Charges, Purchase Payments are deducted
before Earnings. Also, when determining the Withdrawal Charges,
Purchase Payments are deducted from the Contract Value on a first in
first out basis. This means the oldest Purchase Payment with the lowest
Withdrawal Charge is deducted first. The Withdrawal Charge will not be
assessed against:
1. any Free Withdrawal amounts;
2. any Free Systematic Withdrawal amounts;
3. any Purchase Payments kept in the Contract at least 84 months;
4. any amounts remaining after all the Purchase Payments are deducted;
5. Annuity Options 1 through 4.
6. Annuity Options 5 and 6 provided that Annuity Payments are made for
at least 7 years.
The Withdrawal charge will be assessed against the Sub-Accounts and the
Fixed Account in the same proportion as the Withdrawal is Allocated.
FREE WITHDRAWALS
Beginning in the second Contract Year, one Free Withdrawal may be made
per Contract Year. The Maximum Free Withdrawal amount is equal to the
Free Withdrawal Percentage, as shown on page 3, times the Contract
Value at the time of the Withdrawal. The Free Withdrawal amount is
applied only to the first Withdrawal in a Contract Year. A Free
Withdrawal is not available in any Contract Year that Free Systematic
Withdrawals have been made. Free Withdrawals are not available after
the Annuity Start Date. This Free Withdrawal Provision waives any
Withdrawal Charges on the Withdrawn amount up to the amount of the Free
Withdrawal. The Free Withdrawal is non-cumulative. Unused Free
Withdrawal amounts cannot be carried from one Contract Year to the
next.
SYSTEMATIC WITHDRAWALS
Systematic Withdrawals are automatic periodic distributions from the
Contract prior to the Annuity Start Date. In order to initiate
Systematic Withdrawals, the Owner must make the request in writing.
Each Systematic Withdrawal must be at least $50.00. The Owner must
indicate the type of payment and its frequency. The payment frequency
may be: (1) monthly; (2) quarterly; (3) semiannually; or (4) annually.
FREE SYSTEMATIC WITHDRAWALS
Free Systematic Withdrawals are Systematic Withdrawals without the
imposition of a Withdrawal Charge. Free Systematic Withdrawals are
available after the Free Systematic Withdrawal Availability Date shown
on page 3. Free Systematic Withdrawals are not available in any
Contract Year in which a Free Withdrawal has been made. Free Systematic
Withdrawals may be made until the cumulative distributions in a
Contract Year equal that year's Free Withdrawal limit. The limit for
each Contract Year is the Free Withdrawal Percentage, as shown on page
3, times the Contract Value on the date of the first Systematic
Withdrawal in that Contract Year. Any amounts exceeding this limit will
incur a Withdrawal Charge as described above.
DISABILITY WAIVER
The Company will waive the Withdrawal Charges if an Owner becomes
totally and permanently disabled prior to age 65. To qualify, the Owner
must provide: (1) a certified copy of their birth certificate; and (2)
proof of total and permanent disability within the meaning of Internal
Revenue Code Section 72(m)(7) or any successor provision. The Company
reserves the right to: (1) investigate any disability claim; and (2)
require current proof of qualification with each withdrawal request.
DATE OF REQUEST
The day on which the Company receives all the required information to
process a Transfer or a Withdrawal will determine the date used in
calculating these benefits.
PAYMENT OF WITHDRAWAL BENEFITS
The Company reserves the right to suspend or delay the payment date of
a Transfer or a Withdrawal payment from the Variable Account for any
period:
- 12 -
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V 6020 F (3-94) BP 602BB1
<PAGE>
- --------------------------------------------------------------------------------
WITHDRAWAL PROVISIONS (continued)
- --------------------------------------------------------------------------------
1. when the New York Stock Exchange is closed; or
2. when trading on the New York Stock Exchange is restricted; or
3. when an emergency exists as a result of which: (a) disposal of
securities held in the Variable Account is not reasonably
practicable; or (b) it is not reasonably practicable to fairly
determine the value of the net assets of the Variable Account; or
4. during any other period when the Securities and Exchange
Commission, by order, so permits for the protection of
securityholders.
Rules and regulations of the Securities and Exchange Commission will
govern as to whether the conditions set forth above exist.
The Company further reserves the right to delay payment of a Withdrawal
from the Fixed Account for up to six months. This right is required by
most states. The Company will notify you if there will be a delay.
- --------------------------------------------------------------------------------
DEATH BENEFIT PROVISIONS
- --------------------------------------------------------------------------------
DEATH BENEFIT
If any Owner dies prior to the Annuity Start Date, a Death Benefit will
be payable to the Designated Beneficiary when due Proof of Death and
instructions regarding payment are Received by the Company within 6
months of the date of death. If the Owner is a Nonnatural Person, then
the Death Benefit is payable in the event of the death of the Annuitant
prior to the Annuity Start Date. Also, if the Owner is a Nonnatural
Person, the amount of the death benefit is based on the age of the
Annuitant on the Issue Date.
If the age of each Owner was 75 or younger on the Issue Date, the Death
Benefit during the first seven Contract Years will be the greater of:
(1) the cumulative Purchase Payments, less any Premium Tax and
reductions caused by previous Withdrawals; or (2) the Contract Value on
the date due Proof of Death is received by the Company, less any
Premium Tax. If the age of each Owner was 75 or younger on the Issue
Date, the Death Benefit during any subsequent seven Contract Year
period will be the greater of: (1) the cumulative Purchase Payments,
less any Premium Tax and any reductions caused by previous Withdrawals;
(2) the Contract Value on the date due Proof of Death is received by
the Company less any Premium Tax; or (3) the Stepped-Up Death Benefit
described below.
If the age of any Owner on the Issue Date was 76 or older, or if due
Proof of Death and instructions regarding payment are not Received by
the Company within six months of the date of the Owner's death, the
lump sum Death Benefit will be the Withdrawal Value. If a lump sum
payment is requested, the payment will be made in accordance with any
applicable laws and regulations governing the payment of Death
Benefits. The value of the Death Benefit is determined as of the date
that both Proof of Death and the election of a lump sum settlement are
Received by the Company in good order.
STEPPED-UP DEATH BENEFIT
The Stepped-Up Death Benefit is:
1. 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
2. any Purchase Payments received since the applicable seventh
Contract Anniversary; less
3. any reductions caused by previous Withdrawals since the applicable
seventh Contract Anniversary; less
4. any Premium Tax.
PROOF OF DEATH
Any of the following will serve as proof of death:
1. certified copy of the death certificate;
2. certified decree of a court of competent jurisdiction as to the
finding of death;
3. written statement by a medical doctor who attended the deceased
Owner; or
4. any proof satisfactory to the Company.
- 13 -
15-60200-34
BP 602BB1
<PAGE>
- --------------------------------------------------------------------------------
DEATH BENEFIT PROFISIONS (Continued)
- --------------------------------------------------------------------------------
DISTRIBUTION REQUIREMENTS
The entire Death Benefit with interest shall be paid within 5 years
after the death of the Owner, except as provided below. In the event
that the Designated Beneficiary elects an Annuity Option, the length of
time for the payment period may be longer than 5 years if: (1) the
Designated Beneficiary is a natural person; (2) the Death Benefit is
paid out under Annuity Options 1 through 6; (3) payments are made over
a period that does not exceed the life expectancy of the Designated
Beneficiary; and (4) annuity payments begin within one year of the
death of the Owner. If the Owner's spouse is the sole Designated
Beneficiary, the spouse shall become the sole Owner of the Contract,
and he or she may keep it in force until the earlier of the spouse's
death or the Annuity Start Date.
If any Owner dies after the Annuity Start Date, the Ownership rights
pass to the Designated Beneficiary and Annuity Payments shall continue
to be distributed at least as rapidly as under the method of
distribution being used as of the date of the Owner's death.
If the Owner is a Nonnatural Person, the distribution rules set forth
above apply in the event of the death of or a change in the Annuitant.
This Contract is deemed to incorporate any provision of Section 72(s)
of the Internal Revenue Code of 1986, as amended (the "Code"), or any
successor provision, as interpreted by the Company and deemed necessary
to qualify this Contract as an annuity.
The foregoing distribution requirements do not apply to qualified plans
as defined in Section 401(a) of the Code.
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS
- --------------------------------------------------------------------------------
ANNUITY START DATE
The Annuity Start Date may be chosen by the Owner at the time of
application. For Annuity Options 1 through 4, this date must be at
least 3 years after the Contract Date. For Annuity Options 5 and 6,
this date must be after the Free Systematic Withdrawal Availability
Date. The Annuity Start Date must be prior to the later of: (1) the
oldest Annuitant's eighty-fifth birthday; or (2) the tenth Contract
Anniversary.
The Annuity Start Date is the date the first payment will be made to
the Annuitant under Annuity Options 1 through 6.
CHANGE OF ANNUITY START DATE
The Owner may change the Annuity Start Date. A request for the change
must be made in writing. The written request must be Received by the
Company at least 30 days prior to the new Annuity Start Date as well as
30 days prior to the previous Annuity Start Date.
ANNUITY START AMOUNT
The Annuity Start Amount is applied to one of the Annuity Options
listed on page 17. The Annuity Start Amount is used with the annuity
rates to determine the Annuity Payments. The Annuity Start Amount is:
(1) the entire Contract Value on the Annuity Start Date; less (2) any
applicable Premium Tax.
- 14 -
15-60200-42
V 6020 G (R4-94) BP 602JJ1
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (Continued)
- --------------------------------------------------------------------------------
ANNUITY PAYMENT GUARANTEES
The Annuity Payments made under each Annuity Option will reflect
current annuity rates in effect on the Annuity Start Date. The current
annuity rates will not be less than the guaranteed Annuity Option
rates. The guaranteed Annuity Option rates are guaranteed for the life
of the Contract. The guaranteed rates are based on interest credited at
3 1/2% per year and the 1983 Table A individual annuity mortality table
updated for 45 years with factors from Projection Scale G. Tables A and
B illustrate some of these guaranteed rates per $1,000. Rates not shown
will be provided upon request.
ANNUITY PAYMENTS
The Owner may select any form of Annuity Payments that is satisfactory
to the Company. Several guaranteed Annuity Options are listed on page
17. No Annuity Option can be selected that requires the Company to make
periodic payments of less than $50.00. The standard Annuity Option is
Option 2 with 10 years of payments certain. This Annuity Option will
automatically be used if no Annuity Option is elected prior to the
Annuity Start Date. Each Annuity Option allows for making payments
annually, semiannually, quarterly or monthly.
CHANGE OF ANNUITY PAYMENTS
Prior to the Annuity Start Date, the Owner may change the Annuity
Option selected. The change must be made in writing. The written
request must be received by the Company at least 30 days prior to the
Annuity Start Date.
After the Annuity Start Date, the Owner may change the Annuity Option
if payments are being made under Annuity Options 5 or 6. The change
must be requested in writing.
After the change is recorded by the Company, it will be effective as of
the date it was requested. A change will not apply to any payment made
or action taken by the Company prior to the time it was recorded.
FIXED ANNUITY PAYMENTS
Fixed Annuity Payments provide a minimum interest rate which is
guaranteed by the Company during the Annuity Payment period for Annuity
Options 1 through 4. On the Annuity Start Date, the Annuity Start
Amount will be applied to the applicable Annuity Table.
VARIABLE ANNUITY PAYMENTS
For Annuity Options 1 through 4, Variable Annuity Payments are payments
which: (1) are not predetermined or guaranteed as to dollar amount; and
(2) vary in amount with the investment experience of the Sub-Account.
FIRST VARIABLE ANNUITY PAYMENT
On the Annuity Start Date, the Annuity Start Amount will be applied to
the applicable Annuity Table for Annuity Options 1 through 4. This will
be done in accordance with the Annuity Option selected.
ANNUITY UNIT VALUE
An Annuity Unit is used to calculate the value of Annuity Payments. The
value of an Annuity Unit for each Sub-Account was originally set at $1.
The value for any later Valuation Period is found as follows:
1. For each Sub-Account the Annuity Unit Value for the prior
Valuation Period is multiplied by the Net Investment Factor for
the second Valuation Period preceding the current one.
2. The result is multiplied by an interest factor. This is done to
neutralize the assumed investment rate of 3.5% per year, which is
built into the Annuity Tables.
- 15 -
15-60200-42
BP 602JJ1
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (Continued)
- --------------------------------------------------------------------------------
NET INVESTMENT FACTOR
The Net Investment Factor is an index used to update the investment
performance of a Sub-Account from one Valuation Period to the next. The
Net Investment Factor may be more than or less than one; therefore, the
value of an Annuity Unit may increase or decrease.
The Net Investment Factor for any Sub-Account in any Valuation Period
is determined by dividing (1) by (2) and subtracting (3) from the
result, where:
1. is the net result of:
a. the Net Asset Value Per Share of the mutual fund held in the
Sub-Account, determined at the end of the current Valuation
Period; plus
b. the per share amount of any dividend or capital gain
distributions made by the Sub-Account's underlying the mutual
fund that is not included in the Net Asset Value Per Share;
plus or minus
c. a per share charge or credit for any taxes reserved for, which
is determined by the Company to have resulted from the
investment operations of the Sub-Account.
2. is the net result of:
a. the Net Asset Value per share of the Sub-Account's underlying
the mutual fund as determined at the end of the prior
Valuation Period; plus or minus
b. the per share charge or credit for any taxes reserved for the
prior valuation Period.
3. is a factor representing the Mortality and Expense Risk Charge and
the Administration Charge deducted from the Variable Account.
For underlying mutual funds that credit dividends on a daily basis and
pay such dividends once a month, the Net Investment Factor allows for
the monthly reinvestment of these daily dividends. As described above,
the gains and losses from each Sub-Account is credited or charged
against the Sub-Account without regard to the gains or losses in the
Company or other Sub-Accounts.
NET ASSET VALUE PER SHARE
The Net Asset Value Per Share is found by dividing the Net Asset Value
by the number of outstanding shares.
SUBSEQUENT VARIABLE ANNUITY PAYMENTS
After the first Variable Annuity Payment the payments vary in amount.
The amount of each payment changes with the investment performance of
the Sub-Accounts. The dollar amount of such payments is determined as
follows:
1. The dollar amount of the first Variable Annuity Payment is divided
by the Annuity Unit Value on the Annuity Start Date. The result
establishes the fixed number of Annuity Units for each subsequent
payment. This number of Units remains fixed during the Annuity
Payment period.
2. The fixed number of Annuity Units is multiplied by the Annuity
Unit Value for the Valuation Period for which the payment is due.
This result establishes the dollar amount of the payment.
After the first payment the Company guarantees that the dollar amount
of each payment will not be affected by variations in expenses or
mortality experience.
- 16 -
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V 6020 H (3-93) BP 602081
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (Continued)
- --------------------------------------------------------------------------------
ANNUITY OPTIONS
OPTION 1
LIFE OPTION: This option provides payments for the lifetime of the
Annuitant. Table A illustrates some of the guaranteed rates for this
option.
OPTION 2
LIFE WITH FIXED PERIOD OPTION: This option provides payments for the
lifetime of the Annuitant. A fixed period of 5, 10, 15 or 20 years may
be chosen. Payments will continue to the end of this period even if the
Annuitant dies prior to the end of the period. If the Annuitant dies
before receiving all the payments during the fixed period, the
remaining payments will be made to the Designated Beneficiary. Table A
illustrates some of the guaranteed rates for this option.
OPTION 3
LIFE WITH INSTALLMENT REFUND OPTION: This option provides payments for
the lifetime of the Annuitant. A fixed number of payments will be
determined by dividing the benefit amount by the payment amount. A
fixed number of payments will be made even if the Annuitant dies. If
the Annuitant dies before receiving the fixed number of payments, any
remaining payments will be made to the Designated Beneficiary. Table A
illustrates some of the guaranteed rates for this option.
OPTION 4
JOINT AND LAST SURVIVOR OPTION: This option provides payments for the
lifetime of the Annuitant and Joint Annuitant. Payments will continue
as long as either is living. Table B illustrates some of the guaranteed
rates for this option.
OPTION 5
FIXED PERIOD OPTION: This option provides payments for a fixed number
of years between 5 and 20. If the Contract Value is held in the Fixed
Account, then the amount of the payments will vary as a result of the
interest rate (as adjusted periodically) credited on the Fixed Account.
If the Contract Value is held in the Variable Account, then the amount
of the payments will vary as a result of the investment performance of
the specific Sub-Accounts chosen. If all the Annuitants dies before
receiving the fixed number of payments, any remaining payments will be
made to the Designated Beneficiary.
OPTION 6
FIXED PAYMENT OPTION: This option provides a fixed payment amount. This
amount is paid until the initial amount applied, including daily
interest adjustments, is paid. If the Contract Value is held in the
Fixed Account, then the number of payments will vary as a result of the
interest rate (as adjusted periodically) credited on the Fixed Account.
If the Contract Value is held in the Variable Account, then the number
of payments will vary as a result of the investment performance of the
specific Sub-Accounts chosen. If all the Annuitants dies before
receiving all the payments, any remaining payments will be made to the
Designated Beneficiary.
- 17 -
15-60200-07
BP 602081
<PAGE>
ANNUITY OPTION RATES
- --------------------------------------------------------------------------------
SINGLE LIFE INCOME OPTIONS
Table A - Monthly
Payments for a fixed term and
afterwards as long as the Annuitant lives
per $1,000 of benefit amount
- --------------------------------------------------------------------------------
GUARANTEED MONTHLY PAYMENTS
Age of Payee 0 60 120 180 240 Unit Refund
MALE
- --------------------------------------------------------------------------------
55 4.45 4.44 4.41 4.37 4.30 4.31
56 4.52 4.51 4.48 4.43 4.36 4.37
57 4.60 4.59 4.56 4.50 4.42 4.44
58 4.68 4.67 4.64 4.57 4.47 4.51
59 4.77 4.76 4.72 4.65 4.53 4.58
60 4.87 4.85 4.81 4.72 4.60 4.65
61 4.97 4.95 4.90 4.80 4.66 4.73
62 5.07 5.05 5.00 4.89 4.72 4.82
63 5.19 5.17 5.10 4.97 4.79 4.90
64 5.31 5.29 5.20 5.06 4.85 5.00
65 5.44 5.41 5.32 5.15 4.92 5.09
66 5.58 5.55 5.44 5.24 4.98 5.20
67 5.73 5.69 5.56 5.34 5.05 5.30
68 5.89 5.84 5.69 5.44 5.11 5.41
69 6.06 6.00 5.82 5.54 5.17 5.53
70 6.24 6.17 5.97 5.64 5.23 5.66
FEMALE
55 4.11 4.11 4.10 4.08 4.05 4.05
56 4.17 4.17 4.16 4.14 4.10 4.10
57 4.23 4.23 4.22 4.19 4.15 4.15
58 4.30 4.29 4.28 4.25 4.21 4.21
59 4.37 4.36 4.35 4.32 4.27 4.27
60 4.44 4.44 4.42 4.38 4.33 4.34
61 4.52 4.51 4.49 4.45 4.39 4.40
62 4.60 4.59 4.57 4.52 4.45 4.47
63 4.69 4.68 4.65 4.60 4.52 4.55
64 4.78 4.77 4.74 4.68 4.58 4.63
65 4.88 4.87 4.84 4.76 4.65 4.71
66 4.99 4.98 4.93 4.85 4.72 4.80
67 5.10 5.09 5.04 4.94 4.79 4.89
68 5.23 5.21 5.15 5.04 4.86 4.99
69 5.36 5.34 5.27 5.14 4.94 5.09
70 5.50 5.48 5.39 5.24 5.01 5.20
Rates not shown will be provided on request.
- --------------------------------------------------------------------------------
JOINT & LAST
SURVIVOR
TABLE B - MONTHLY FEMALE MALE AGE
INSTALLMENTS AGE 55 60 62 65 70
- --------------------------------------------------------------------------------
Until last Death 55 3.85 3.93 3.95 3.99 4.03
of Two Payees 60 3.98 4.10 4.15 4.21 4.29
per $1,000 of 62 4.03 4.18 4.23 4.30 4.40
benefit amount 65 4.11 4.28 4.35 4.45 4.59
70 4.21 4.45 4.54 4.69 4.92
Option 1, 2, 3, or 4 available at ages 40 through 80.
Annual, semiannual, or quarterly payments can be determined from Table A or B by
multiplying the monthly payments by 11.812854, 5.9572233, and 2.9914201,
respectively.
- 18 -
15-60200-08
V 6020 I (3-93) BP 60209
<PAGE>
PARKSTONE
VARIABLE ANNUITY
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
* Purchase Payments may be made until the earlier of the Annuity Start Date or
termination of the Contract.
* A Death Benefit may be paid prior to the Annuity Start Date according to the
contract provisions.
* Annuity Payments begin on the Annuity Start Date using the method as
specified in this Contract.
* This is a participating Contract.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT, ARE VARIABLE AND THESE DOLLAR AMOUNTS ARE
NOT GUARANTEED. (SEE "CONTRACT VALUE AND EXPENSE PROVISIONS" AND "ANNUITY
PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGO]
Security Benefit Life Insurance Company
A Member of The Security Benefit Group of Companies
700 Harrison, Topeka, KS 66636-0001
1-800-355-4555
15-60200-50
BP 602PP4
<PAGE>
PARKSTONE
VARIABLE ANNUITY
ANNUITY CONTRACT
THE COMPANY'S PROMISE
In consideration for the Purchase Payments and the attached application,
Security Benefit Life Insurance Company will pay the benefits of this Contract
according to its provisions.
LEGAL CONTRACT
PLEASE READ YOUR CONTRACT CAREFULLY. It is a legal Contract between the Owner
and the Company, Security Benefit Life Insurance Company. The Contract's table
of contents is on page 2.
RIGHT TO CANCEL
THIS CONTRACT MAY BE RETURNED WITHIN 10 DAYS AFTER RECEIVING IT BY DELIVERING OR
MAILING IT TO THE HOME OFFICE OR THE AGENT THROUGH WHOM IT WAS PURCHASED.
IMMEDIATELY ON SUCH DELIVERY OR MAILING, THE CONTRACT SHALL BE DEEMED VOID FROM
THE BEGINNING. ANY PURCHASE PAYMENTS PAID AND ALLOCATED TO THE FIXED ACCOUNT
WILL BE REFUNDED. THE VARIABLE ACCOUNT CONTRACT VALUE WILL BE REFUNDED AS OF THE
DATE THE CONTRACT IS RECEIVED BY THE COMPANY. ANY FEES OR CHARGES ON PURCHASE
PAYMENTS PAID AND ALLOCATED TO THE VARIABLE ACCOUNT WILL BE REFUNDED.
SIGNED FOR SECURITY BENEFIT LIFE INSURANCE COMPANY ON THE CONTRACT DATE.
ROGER K. VIOLA HOWARD R. FRICKE
Secretary President
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
* Purchase Payments may be made until the earlier of the Annuity Start Date or
termination of the Contract.
* A Death Benefit may be paid prior to the Annuity Start Date according to the
contract provisions.
* Annuity Payments begin on the Annuity Start Date using the method as
specified in this Contract.
* This is a participating Contract.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT, ARE VARIABLE AND THESE DOLLAR AMOUNTS ARE
NOT GUARANTEED. (SEE "CONTRACT VALUE AND EXPENSE PROVISIONS" AND "ANNUITY
PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGL]
Security Benefit Life Insurance Company
A Member of The Security Benefit Group of Companies
700 Harrison, Topeka, KS 66636-0001
1-800-355-4555
Form V6020 (R4-94) 15-60200-49
BP 602001
<PAGE>
TABLE OF CONTENTS
CONTRACT SPECIFICATIONS ............................................. 3
DEFINITIONS ......................................................... 4, 5
GENERAL PROVISIONS .................................................. 6, 7
The Contract ................................................... 6
Compliance ..................................................... 6
Misstatement of Age and Sex .................................... 6
Evidence of Survival ........................................... 6
Incontestability ............................................... 6
Assignment ..................................................... 6
Received By The Company ........................................ 7
Transfers ...................................................... 7
Claims of Creditors ............................................ 7
Nonforfeiture Values ........................................... 7
Dividends ...................................................... 7
Reports ........................................................ 7
OWNERSHIP, ANNUITANT AND
BENEFICIARY PROVISIONS .............................................. 8
Ownership ...................................................... 8
Joint Ownership ................................................ 8
Annuitant ...................................................... 8
Primary and Contingent Beneficiaries ........................... 8
Ownership and Beneficiary Changes .............................. 8
PURCHASE PAYMENT PROVISIONS ......................................... 9
Flexible Purchase Payments ..................................... 9
Purchase Payment Limitations ................................... 9
Purchase Payment Allocation .................................... 9
Place of Payment ............................................... 9
CONTRACT VALUE AND EXPENSE PROVISIONS ............................... 9, 11
Contract Value ................................................. 9
Fixed Account Contract Value ................................... 9
Fixed Account Interest Crediting ............................... 9
Variable Account Contract Value ................................ 10
Determining Accumulation Units ................................. 10
Accumulation Unit Value ........................................ 10
Net Asset Value ................................................ 10
Contract Maintenance Charge .................................... 10
Mortality and Expense Risk Charge .............................. 11
Administration Charge .......................................... 11
Premium Tax Expense ............................................ 11
WITHDRAWAL PROVISIONS ............................................... 11-13
Withdrawals .................................................... 11
Withdrawal Value ............................................... 11
Withdrawal Charge .............................................. 12
Free Withdrawals ............................................... 12
Systematic Withdrawals ......................................... 12
Free Systematic Withdrawals .................................... 12
Disability Waiver .............................................. 12
Date of Request ................................................ 13
Payment of Withdrawal Benefits ................................. 13
DEATH BENEFIT PROVISIONS ............................................ 13, 14
Death Benefit .................................................. 13
Proof of Death ................................................. 13
Distribution Requirements ...................................... 14
ANNUITY PAYMENT PROVISIONS .......................................... 14-17
Annuity Start Date ............................................. 14
Change of Annuity Start Date ................................... 14
Annuity Start Amount ........................................... 14
Annuity Payment Guarantees ..................................... 15
Annuity Payments ............................................... 15
Change of Annuity Payments ..................................... 15
Fixed Annuity Payments ......................................... 15
Variable Annuity Payments ...................................... 15
First Variable Annuity Payment ................................. 15
Annuity Unit Value ............................................. 15
Net Investment Factor .......................................... 16
Net Asset Value per Share ...................................... 16
Subsequent Variable Annuity Payments ........................... 16
Annuity Options ................................................ 17
ANNUITY OPTION RATES ................................................ 18
AMENDMENTS OR ENDORSEMENTS, if any
- 2 -
15-60200-49
BP 602001
<PAGE>
- --------------------------------------------------------------------------------
PARKSTONE ADVANTAGE VARIABLE ANNUITY POLICY SPECIFICATIONS
- --------------------------------------------------------------------------------
OWNER NAME: John A. Doe
OWNER DATE OF BIRTH: 10-30-1953
JOINT OWNER NAME: Mary K. Doe
JOINT OWNER DATE OF BIRTH: 7-18-1981
ANNUITANT NAME: Betty M. Doe
ANNUITANT DATE OF BIRTH: 5-13-1987
ANNUITANT SEX: Female
PRIMARY BENEFICIARY NAME: Linda L. Doe
CONTRACT NUMBER: Specimen
CONTRACT DATE: 6-30-1993
ISSUE DATE: 6-30-1993
ANNUITY START DATE: 7-1-2052
PLAN: Non-qualified
ASSIGNMENT: This Policy may be assigned
See Assignment Provision of your Policy.
CONTINGENT BENEFICIARY NAME: Mary K. Doe
- --------------------------------------------------------------------------------
INITIAL PURCHASE PAYMENT ........................... $500,000
SUBSEQUENT PURCHASE PAYMENTS ....................... $10,000
SUBSEQUENT PURCHASE PAYMENT FREQUENCY .............. Annual
MINIMUM SUBSEQUENT PURCHASE PAYMENTS ............... $2,000 or $50 through
an automatic
investment program
MORTALITY AND EXPENSE RISK CHARGE .................. 1.25% Annually
ADMINISTRATION CHARGE .............................. .15% Annually
CONTRACT MAINTENANCE CHARGE ........................ $30
WITHDRAWAL CHARGES:
Purchase Payment Year ......... 1 2 3 4 5 6 7 8+
Withdrawal Charge ............. 5% 5% 5% 5% 4% 3% 2% 0%
FREE WITHDRAWAL PERCENTAGE ......................... 10%
FREE SYSTEMATIC WITHDRAWAL AVAILABILITY DATE ....... 7-1-1993
MINIMUM GUARANTEED INTEREST RATE ................... 3.5%
ANNUITY OPTION ..................................... Option 2
SUB-ACCOUNTS:
Prime Obligations
Bond
Equity
International Discovery
Small Capitalization
METHOD FOR DEDUCTIONS:
Deductions for any Contract Maintenance Charge, any Transfer Charges,
any Premium Taxes collected after the Purchase Payments are applied,
and any unallocated partial withdrawals will be made sequentially from
the Contract Value. In descending order of the Sub-Accounts listed
above, the value of each account will be depleted before the next is
charged. The Fixed Account is the last account charged.
- 3 -
V6020 A (3-93) SBL 21
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
ACCUMULATION UNIT
The Accumulation Unit is a unit of measure. It is used to calculate the
Variable Account Contract Value prior to the Annuity Start Date. It is
also used to calculate the Variable Account Contract Value after the
Annuity Start Date for Annuity Options 5 and 6.
ANNUITANT
The Annuitant is the person named by the Owner to receive Annuity
Payments under this Contract. Please see "Annuitant" provisions on page
8.
ANNUITY OPTION
The Annuity Option is the method for making Annuity Payments. The
Annuity Option is selected prior to the Annuity Start Date. Please see
"Annuity Options" on page 17.
ANNUITY START DATE
The Annuity Start Date is the date on which Annuity Payments are
scheduled to begin. This date may be changed by the Owner. The Annuity
Start Date is shown on Page 3.
ANNUITY UNIT
The Annuity Unit is a unit of measure. It is used to calculate Variable
Annuity Payments after the Annuity Start Date for Annuity Options 1
through 4.
COMPANY
The Company is Security Benefit Life Insurance Company.
CONTRACT ANNIVERSARY
A Contract Anniversary is a 12-month anniversary of the Contract Date
as defined below.
CONTRACT DATE
The Contract Date is the date the Contract begins. The Contract Date is
shown on page 3.
CONTRACT YEAR
Contract Years are measured from the Contract Date.
DESIGNATED BENEFICIARY
Upon the first death of the Owner or Joint Owner, the Designated
Beneficiary will be the first person on the following list who is alive
on the date of death:
1. Primary Beneficiary;
2. Contingent Beneficiary;
3. Owner;
4. Joint Owner;
5. Annuitant; and
6. the Owner's estate if no one listed above is alive.
The Designated Beneficiary may receive a death benefit upon the death
of the Owner. For more information please see "Ownership, Annuitant,
and Beneficiary Provisions" on page 8 and the "Death Benefit
Provisions" on pages 13 and 14.
EARNINGS
Earnings include interest, dividends, realized gains or losses, and
unrealized gains or losses.
FIXED ACCOUNT
The Fixed Account invests in the general account of the Company. The
Company manages the general account and guarantees that an effective
rate of return of at least 3 1/2% will be credited to the Fixed Account
Contract Value.
HOME OFFICE
The Address of the Home Office is 700 SW Harrison St., Topeka, KS
66636-0001.
ISSUE DATE
The Issue Date is the date the Company uses to determine the date the
Contract becomes incontestable. The Issue Date is shown on Page 3.
- 4 -
15-60200-00
V 6020 B (3-93) BP 602011
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS (Continued)
- --------------------------------------------------------------------------------
JOINT OWNER
The Joint Owner, if any, possesses an undivided interest in the entire
Contract in conjunction with the Owner. The Joint Owner, if any, is
named on page 3. Please see "Joint Ownership" provisions on page 8.
NONNATURAL PERSON
Any group or entity that is not a living person such as a trust or
corporation.
OWNER
The Owner is the person who possesses all rights under the Contract.
The Owner is named on page 3. Please see "Ownership" provisions on page
8.
PREMIUM TAX
Any Premium Taxes levied by a state or other governmental entity will
be charged against this Contract. When Premium Tax is assessed after
the premium is applied, it will be deducted as described on page 3.
PURCHASE PAYMENT
A Purchase Payment is money received by the Company and applied to the
Contract.
PURCHASE PAYMENT ANNIVERSARY
A Purchase Payment Anniversary is a 12-month anniversary of the date
the Purchase Payment is applied.
PURCHASE PAYMENT YEAR
A Purchase Payment Year is each 12-month period starting with either
the Purchase Payment Anniversary or the date the Purchase Payment is
applied. The first Purchase Payment year begins on the date the
Purchase Payment is applied and increases by one on each successive
Purchase Payment Anniversary.
SUB-ACCOUNTS
The Variable Account is divided into Sub-Accounts which invest in
shares of mutual funds. Each Sub-Account may invest its assets in a
separate class or series of a designated investment company or
companies. The Sub-Accounts are shown on page 3. Subject to the
regulatory requirements then in force, the Company reserves the right
to:
1. change or add designated investment companies;
2. add, remove or combine Sub-Accounts;
3. add, delete or make substitutions for securities that are held or
purchased by the Variable Account or any Sub-Account;
4. operate the Variable Account as a managed investment company;
5. combine the assets of the Variable Account with other Variable
Accounts of the Company or an affiliate thereof; and
6. restrict or eliminate any voting rights of the Owner with respect
to the Variable Account or other persons who have voting rights as
to the Variable Account.
If any of these changes result in a material change to the Variable
Account or a Sub-Account, the Company will notify the Owner of the
change. The Company will not change the investment policy of any
Sub-Account without the filing and other procedures established by
insurance regulators of the state of issue.
VALUATION DATE
A Valuation Date is each day the New York Stock Exchange and the
Company's Home Office are open for business.
VALUATION PERIOD
A Valuation Period is the interval of time from one Valuation Date to
the next Valuation Date.
VARIABLE ACCOUNT
The Variable Account is a separate account established and maintained
by the Company under Kansas law. The Variable Account is divided into
Sub-Accounts which are listed on page 3. The assets held in the
Variable Account supporting Contract liabilities are not chargeable
with liabilities arising from any other business the Company may
conduct.
- 5 -
15-60200-00
BP 602011
<PAGE>
- --------------------------------------------------------------------------------
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT
The entire Contract between the Owner and the Company consists of this
Contract, the attached Application, and any Amendments, Endorsements or
Riders attached to the Policy. All statements made in the Application
will, in the absence of fraud, as determined by a court of competent
jurisdiction, be deemed representations and not warranties. The Company
will use no statement made by or on behalf of the Owner or the
Annuitant to void this Contract unless it is in the written Application
and unless successfully contested by the Company. Any change in the
Contract can be made only with the written consent of the President, a
Vice President, or the Secretary of the Company.
The Purchase Payment(s) and the Application must be acceptable to the
Company under its rules and practices. If they are not, the Company's
liability will be limited to a return of the Purchase Payment(s).
COMPLIANCE
The Company reserves the right to make any change to the provisions of
this Contract to comply with or give the Owner benefit of any federal
or state statute, rule or regulation. This includes, but is not limited
to, requirements for annuity contracts under the Internal Revenue Code
or that of any state. The Company will provide the Owner with a copy of
any such change and will also file such a change with the insurance
regulatory officials of the state in which the contract is delivered.
MISSTATEMENT OF AGE AND SEX
If the age or sex of the Annuitant has been misstated, all payments and
benefits under this Contract will be adjusted when legally permitted.
Payments and benefits will be made on the basis of the Annuitant's
correct age or sex. Proof of the age of an Annuitant may be required at
any time, in a form suitable to the Company. When the age or sex of an
Annuitant has been misstated, the dollar amount of any overpayment plus
interest will be deducted from the next payment(s) due under this
Contract. The dollar amount of any underpayment made by the Company as
a result of any such misstatement will be paid in full plus interest
with the next payment due under this Contract. The interest portion of
these adjustments will be calculated at 6%.
EVIDENCE OF SURVIVAL
When any payments under this contract depend on the recipient being
alive on a given date, proof that the recipient is living may be
required by the Company. Such proof must be in a form acceptable to the
Company, and may be required prior to making the payments.
INCONTESTABILITY
This Contract will not be contested after it has been in force for two
years from the Issue Date during the lifetime of the Owner. This
provision does not apply to any benefits payable in the event of
disability.
ASSIGNMENT
No Assignment under this Contract is binding unless received by the
Company in writing. The Company assumes no responsibility for the
validity, legality, or taxability of any Assignment. The Assignment
will be subject to any payment made or other action taken by the
Company before the Assignment is received by the Company. Once filed,
the rights of the Owner, Annuitant and Beneficiary are subject to the
Assignment. Any claim is subject to proof of interest of the assignee.
Please refer to page 3 to see if this Contract may be assigned.
- 6 -
15-60200-01
V 6020 C (3-93) BP 602021
<PAGE>
- --------------------------------------------------------------------------------
GENERAL PROVISIONS (Continued)
- --------------------------------------------------------------------------------
RECEIVED BY THE COMPANY
The phrase "Received by the Company" means receipt by the Company at
its Home Office.
TRANSFERS
The Owner may Transfer funds among the Fixed Account and Sub-Accounts
subject to the following.
Prior to the Annuity Start Date: The Owner may make 12 Transfers per
calendar year without charge. For each additional Transfer, a $25
dollar charge is deducted from the Contract Value. Transfers are not
permitted within 30 days of the Annuity Start Date.
After the Annuity Start Date: For Annuity Options 1, 2, 3, and 4, the
Owner may make 1 Transfer per calendar year without charge. It must be
between Sub-Accounts and no additional Transfers are permitted in a
calendar year. For Annuity Options 5 and 6, the Owner may make 12
Transfers per calendar year without charge. For each additional
Transfer in a calendar year, a $25 charge is deducted from the Contract
Value.
The Company reserves the right to limit the size of Transfers and to
limit Transfers to 12 per calendar year. Transfers must be at least
$500 or the remaining balance in the Fixed Account or a Sub-Account.
The total dollar amount that may be Transferred from the Fixed Account
in a Contract Year is limited to the greatest of:
1. $5,000;
2. 1/3 of the Fixed Account value at the time of Transfer; or
3. 120% of the dollar amount Transferred from the Fixed Account in
the prior Contract Year.
When a Transfer charge is deducted from the Contract Value, it shall be
deducted as described on page 3. The Company reserves the right to
delay Transfers from the Fixed Account for up to 6 months. The Company
will notify you if there will be a delay.
CLAIMS OF CREDITORS
The Contract Value and other benefits under this Contract are exempt
from the claims of creditors to the extent permitted by law.
NONFORFEITURE VALUES
The Death Benefits, Surrender Values and Annuity Start Values will at
least equal the minimum required by law.
DIVIDENDS
The Company is a mutual life insurance company. Consequently, it pays
dividends on some of its contracts. However, the Company does not
expect any dividends to become payable on this Contract. At the end of
each Contract Year the Company will determine the Contract's dividend,
if any. The Owner may choose to have it: (1) added to the Contract
Value, or (2) paid in cash. If the Owner does not make a choice, it
will be added to the Contract Value.
REPORTS
At least once each Contract Year the Owner shall be sent a statement
including the current Contract Value and any other information required
by law.
- 7 -
15-60200-01
BP 602021
<PAGE>
- --------------------------------------------------------------------------------
OWNERSHIP, ANNUITANT AND BENEFICIARY PROVISIONS
- --------------------------------------------------------------------------------
OWNERSHIP
The Owner has all rights in the Contract unless otherwise provided. All
rights in the Contract remain with the Owner after the Annuity Start
Date. If the purchaser names someone other than himself as Owner, the
purchaser has no rights in the Contract, unless later changed by the
Owner. If the Owner dies, a distribution may be made to the Designated
Beneficiary. No Owner, named in the Contract, may be older than 80 on
the Contract Date.
JOINT OWNERSHIP
If a Joint Owner is named in the application, then the Owner and Joint
Owner will share an undivided interest in the entire Contract. When an
Owner and Joint Owner have been named, the Company will only honor
requests for changes and the exercise of other Ownership rights made by
both the Owner and Joint Owner. When a Joint Owner is named, all
references to "Owner" throughout this Contract should be construed to
mean both the Owner and Joint Owner, except for the "Reports" provision
on page 7 and the "Death Benefit Provisions" on pages 13 and 14.
ANNUITANT
The Owner may change the Annuitant prior to the Annuity Start Date. The
request for this change must be made in writing and Received by the
Company at least 30 days prior to the Annuity Start Date. No Annuitant
may be named who is more than 80 years old on the Contract Date. When
the Annuitant dies prior to the Annuity Start Date, the Owner must name
a new Annuitant within 30 days. If a new Annuitant is not named, the
Owner becomes the Annuitant. The Annuitant is named on page 3.
PRIMARY AND CONTINGENT BENEFICIARIES
The Primary Beneficiary and any Contingent Beneficiary are named in the
Application, unless later changed by the Owner. If the Primary
Beneficiary dies prior to the Owner, the Contingent Beneficiary becomes
the Primary Beneficiary. Unless the Owner has provided otherwise, when
there are two or more Primary Beneficiaries, they will receive equal
shares, unless otherwise specified.
OWNERSHIP AND BENEFICIARY CHANGES
Subject to the terms of any existing Assignment, the Owner may name a
new Owner, new Primary Beneficiary or a new Contingent Beneficiary. Any
new choice of Owner, Primary Beneficiary or Contingent Beneficiary will
automatically revoke any prior choice of Owner, Primary Beneficiary or
Contingent Beneficiary. Any change must be made in writing and recorded
at the Home Office. The change will become effective as of the date the
written request is signed, whether or not the Owner is living at the
time the change is recorded. A new choice of Primary Beneficiary or
Contingent Beneficiary will not apply to any payment made or action
taken by the Company prior to the time it was recorded. The Company may
require the Contract be returned so these changes may be made.
- 8 -
15-60200-02
V 6020 D (3-93) BP 602031
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE PAYMENT PROVISIONS
- --------------------------------------------------------------------------------
FLEXIBLE PURCHASE PAYMENTS
The Contract becomes in force when the initial Purchase Payment is
applied. The Owner is not required to continue Purchase Payments in the
amount or frequency originally anticipated. The Owner may: (1) increase
or decrease the amount of Purchase Payments, subject to any Contract or
administrative limitations; or (2) change the frequency of Purchase
Payments. A change in frequency or amount of Purchase Payments does not
require a written request. After the Annuity Start Date, the Company
will not apply any new Purchase Payments to this Contract.
PURCHASE PAYMENT LIMITATIONS
Purchase Payments may not be greater than $1,000,000 without prior
approval by the Company. The Minimum Subsequent Purchase Payment amount
is shown on page 3.
PURCHASE PAYMENT ALLOCATION
Purchase Payments may be allocated among the Fixed Account and the
Sub-Accounts. The allocations may be made by specifying the dollar
amount or the whole percentage to go to each account. However, no less
than $25 per Purchase Payment may be allocated to any account. The
Owner may change the allocations by written notice to the Company.
PLACE OF PAYMENT
All Purchase Payments under this Contract are payable to the Company at
its Home Office. Purchase Payments are applied after they are received
by the Company at its Home Office.
- --------------------------------------------------------------------------------
CONTRACT VALUE AND EXPENSE PROVISIONS
- --------------------------------------------------------------------------------
CONTRACT VALUE
On any Valuation Date, the Contract Value is the sum of (1) the
Variable Account Contract Value; and (2) the Fixed Account Contract
Value. At any time after the first Contract Year and before the Annuity
Start Date, the Company reserves the right to pay to the Owner the
Contract Value as a lump sum if it is below $2,000.
FIXED ACCOUNT CONTRACT VALUE
On any Valuation Date, the Fixed Account Contract Value is based on the
following transactions with respect to this Contract:
1. the sum of all Purchase Payments allocated under the Contract to
the Fixed Account;
2. any Transfers from the Variable Account;
3. the interest credited to the Fixed Account;
4. any Withdrawals and applicable Withdrawal Charges deducted from
the Fixed Account;
5. any Transfers to the Variable Account;
6. any applicable Contract Maintenance Charges and Transfer Charges
deducted from the Fixed Account;
7. any applicable Premium Taxes;
8. any amounts held in the Fixed Account which are applied towards
Annuity Options 1 through 4.
FIXED ACCOUNT INTEREST CREDITING
The Company will credit interest on the Fixed Account Contract Value
from the Contract Date. The renewal interest rates will be declared and
reset at the Company's discretion. However, the renewal interest rate
will be at least the Minimum Guaranteed Interest Rate shown on page 3.
- 9 -
15-60200-02
BP 602031
<PAGE>
- --------------------------------------------------------------------------------
CONTRACT VALUE AND EXPENSE PROVISIONS (Continued)
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT CONTRACT VALUE
The Variable Account Contract Value is the sum of the value in each
Sub-Account for this Contract. Each Sub-Account value is the product of
the Accumulation Units under this Contract and the Accumulation Unit
Value.
DETERMINING ACCUMULATION UNITS
The number of Accumulation Units for a particular Sub-Account is found
by dividing: (1) the value of the Sub-Account; by (2) the Accumulation
Unit Value for the Sub-Account. The number of Accumulation Units will
not change as a result of investment experience. Events that change the
number of Accumulation Units are:
1. Purchase Payments that are applied to the Sub-Account;
2. funds that are Transferred into or out of the Sub-Account;
3. Withdrawals that are deducted from the Sub-Account; and
4. certain charges or taxes that are deducted.
ACCUMULATION UNIT VALUE
The initial Accumulation Unit Value for each Sub-Account was set at
$10. The subsequent Accumulation Values are found by dividing (1) by
(2), where:
1. is the net result of:
a. the Net Asset Value determined at the end of the current
Valuation Period, plus
b. any dividends declared by the Sub-Account's underlying mutual
fund that are not reflected in the Net Asset Value; less
c: the accrued Mortality and Expense Risk Charge and the accrued
Administrative Charge.
2. the number of Accumulation Units at the beginning of the Valuation
Period.
The Accumulation Unit Value may increase or decrease from one Valuation
period to the next.
NET ASSET VALUE
The Net Asset Value is the net value of all shares of the underlying
mutual fund held by the Sub-Account. The Net Asset Value is: (1) the
value of the securities; plus (2) any cash or other assets; less (3)
all liabilities.
CONTRACT MAINTENANCE CHARGE
Except as noted below, the Company deducts a Contract Maintenance
Charge on each Contract Anniversary. The applicable Contract
Maintenance Charge is shown on page 3. When a Contract is Withdrawn for
its full Contract Value, a pro rata portion of this charge is deducted
at the time of Withdrawal. No Contract Maintenance Charge is deducted
on or after the Annuity Start Date when one of the first four Annuity
Options is used. When Contract Maintenance Charges are deducted from
the Contract Value, they shall be deducted as described on page 3.
- 10 -
15-60200-04
V 6020 E (3-93) BP 602051
<PAGE>
- --------------------------------------------------------------------------------
CONTRACT VALUE AND EXPENSE PROVISIONS (Continued)
- --------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct the annualized Mortality and Expense Risk
Charge shown on page 3. The deduction will be: (1) made from each
Sub-Account; (2) computed on a daily basis; and (3) made in the same
proportion that the Sub-Account Contract Value bears to the Variable
Account Contract Value. This charge is not directly taken from each
Sub-Account Contract Value. It is factored into the Accumulation Unit
Value and the Annuity Unit Value on a daily basis.
ADMINISTRATION CHARGE
The Company will deduct the annualized Administration Charge shown on
page 3. The deduction will be: (1) made from each Sub-Account; (2)
computed on a daily basis; and (3) made in the same proportion that the
Sub-Account Contract Value bears to the Variable Account Contract
Value. This charge is not directly taken from each Sub-Account Contract
Value. It is factored into the Accumulation Unit Value and the Annuity
Unit Value on a daily basis.
PREMIUM TAX EXPENSE
Any applicable Premium Taxes may be deducted from the Contract Value.
The Company reserves the right to deduct premium tax when due or any
time thereafter.
- --------------------------------------------------------------------------------
WITHDRAWAL PROVISIONS
- --------------------------------------------------------------------------------
WITHDRAWALS
The Owner may Withdraw all or part of the Contract Value at any time.
This provision is subject to any federal or state Withdrawal
restrictions. All Withdrawals must meet the following conditions.
1. The request for Withdrawal must be Received by the Company in
writing.
2. The Owner must apply: (a) while this contract is in force; and (b)
prior to the Annuity Start Date.
3. The amount Withdrawn must be at least $500.00 except for
Systematic Withdrawals, as discussed below, or when terminating
the Contract.
A partial Withdrawal request should specify the allocations for
deducting the Withdrawal from each account. In the absence of these
instructions the Company will make the deductions as described on page
3.
WITHDRAWAL VALUE
The Withdrawal Value at any time will be the Contract Value less;
1. any applicable Withdrawal Charges; and
2. any applicable Contract Maintenance Charges; and
3. any uncollected Premium Taxes.
- 11 -
15-60200-04
BP 602051
<PAGE>
- --------------------------------------------------------------------------------
WITHDRAWAL PROVISIONS (Continued)
- --------------------------------------------------------------------------------
WITHDRAWAL CHARGE
If part or all of the Contract Value is Withdrawn, Withdrawal Charges
may be applied at the time of Withdrawal. The Withdrawal Charges apply
to each Purchase Payment based on the number of Purchase Payment Years
it has been in the Contract as shown on page 3. For the purpose of
determining the Withdrawal Charges, Purchase Payments are deducted from
the Contract Value on a first in first out basis. This means the oldest
Purchase Payment with the lowest Withdrawal Charge is deducted first.
The Withdrawal Charge will not be assessed against.
1. any Free Withdrawal amounts;
2. any Free Systematic Withdrawal amounts;
3. any Purchase Payments kept in the Contract at least 84 months;
4. any amounts remaining after all the Purchase Payments are deducted;
5. Annuity Options 1 through 4.
6. Annuity Options 5 and 6 provided that Annuity Payments are made for
at least 7 years.
The Withdrawal charge will be assessed against the Sub-Accounts and the
Fixed Account in the same proportion as the Withdrawal is Allocated.
FREE WITHDRAWALS
Beginning in the second Contract Year, one Free Withdrawal may be made
per Contract Year. The Maximum Free Withdrawal amount is equal to the
Free Withdrawal Percentage, as shown on page 3, times the Contract
Value at the time of the Withdrawal. The Free Withdrawal amount is
applied only to the first Withdrawal in a Contract Year. A Free
Withdrawal is not available in any Contract Year that Free Systematic
Withdrawals have been made. Free Withdrawals are not available after
the Annuity Start Date. This Free Withdrawal Provision waives any
Withdrawal Charges on the Withdrawn amount up to the amount of the Free
Withdrawal. The Free Withdrawal is non-cumulative. Unused Free
Withdrawal amounts cannot be carried from one Contract Year to the
next.
SYSTEMATIC WITHDRAWALS
Systematic Withdrawals are automatic periodic distributions from the
Contract prior to the Annuity Start Date. In order to initiate
Systematic Withdrawals, the Owner must make the request in writing.
Each Systematic Withdrawal must be at least $50.00. The Owner must
indicate the type of payment and its frequency. The payment frequency
may be: (1) monthly; (2) quarterly; (3) semiannually; or (4) annually.
FREE SYSTEMATIC WITHDRAWALS
Free Systematic Withdrawals are Systematic Withdrawals without the
imposition of a Withdrawal Charge. Free Systematic Withdrawals are
available after the Free Systematic Withdrawal Availability Date shown
on page 3. Free Systematic Withdrawals are not available in any
Contract Year in which a Free Withdrawal has been made. Free Systematic
Withdrawals may be made until the cumulative distributions in a
Contract Year equal that year's Free Withdrawal limit. The limit for
each Contract Year is the Free Withdrawal Percentage, as shown on page
3, times the Contract Value on the date of the first Systematic
Withdrawal in that Contract Year. Any amounts exceeding this limit will
incur a Withdrawal Charge as described above.
DISABILITY WAIVER
The Company will waive the Withdrawal Charges if an Owner becomes
totally and permanently disabled prior to age 65. To qualify, the Owner
must provide: (1) a certified copy of their birth certificate; and (2)
proof of total and permanent disability within the meaning of Internal
Revenue Code Section 72(m)(7) or any successor provision. The Company
reserves the right to: (1) investigate any disability claim; and (2)
require current proof of qualification with each withdrawal request.
- 12 -
15-60200-04
V 6020 E (3-93) BP 602051
<PAGE>
- --------------------------------------------------------------------------------
WITHDRAWAL PROVISIONS (Continued)
- --------------------------------------------------------------------------------
DATE OF REQUEST
The day on which the Company receives all the required information to
process a Transfer or a Withdrawal will determine the date used in
calculating these benefits.
PAYMENT OF WITHDRAWAL BENEFITS
The Company reserves the right to suspend or delay the payment date of
a Transfer or a Withdrawal payment from the Variable Account for any
period:
1. when the New York Stock Exchange is closed; or
2. when trading on the New York Stock Exchange is restricted; or
3. when an emergency exists as a result of which: (a) disposal of
securities held in the Variable Account is not reasonably
practicable; or (b) it is not reasonably practicable to fairly
determine the value of the net assets of the Variable Account; or
4. during any other period when the Securities and Exchange
Commission, by order, so permits for the protection of
securityholders.
Rules and regulations of the Securities and Exchange Commission will
govern as to whether the conditions set forth above exist.
The Company further reserves the right to delay payment of a Withdrawal
from the Fixed Account for up to six months. This right is required by
most states. The Company will notify you if there will be a delay.
- --------------------------------------------------------------------------------
DEATH BENEFIT PROVISIONS
- --------------------------------------------------------------------------------
DEATH BENEFIT
If any Owner dies prior to the Annuity Start Date, a Death Benefit will
be payable to the Designated Beneficiary when due Proof of Death and
instructions regarding payment are Received by the Company within 6
months of the date of death. If the Owner is a Nonnatural Person, then
the Death Benefit is payable in the event of the death of the Annuitant
prior to the Annuity Start Date. Also, if the Owner is a Nonnatural
Person, the amount of the death benefit is based on the age of the
Annuitant on the Issue Date.
If the age of each Owner was 75 or younger on the Issue Date, the Death
Benefit will be the larger of: (1) the cumulative Purchase Payments
less any Withdrawals and any Premium Tax; or (2) the Contract Value
less any Premium Tax. If the age of any Owner on the Issue Date was 76
or older, or if due Proof of Death and instructions regarding payment
are not Received by the Company within six months of the date of the
Owner's death, the lump sum Death Benefit will be the Withdrawal Value.
If a lump sum payment is requested, the payment will be made in
accordance with any applicable laws and regulations governing the
payment of Death Benefits. The value of the Death Benefit is determined
as of the date that both Proof of Death and the election of a lump sum
settlement are Received by the Company in good order.
PROOF OF DEATH
Any of the following will serve as proof of death:
1. certified copy of the death certificate;
2. certified decree of a court of competent jurisdiction as to the
finding of death;
3. written statement by a medical doctor who attended the deceased
Owner; or
4. any proof satisfactory to the Company.
- 13 -
15-60200-05
BP 602061
<PAGE>
- --------------------------------------------------------------------------------
DEATH BENEFIT PROFISIONS (Continued)
- --------------------------------------------------------------------------------
DISTRIBUTION REQUIREMENTS
The entire Death Benefit with interest must be paid within 5 years
after the death of the Owner. In the event that the Designated
Beneficiary elects an Annuity Option, Annuity Payments must begin
within one year of the death of the Owner. However, the length of time
for the payment period may be longer than 5 years if: (1) the
Designated Beneficiary is a natural person; (2) the Death Benefit is
paid out under Annuity Options 1 through 6; and (3) payments are made
over a period that does not exceed the life expectancy of the
Designated Beneficiary. If the Owner's spouse is the sole Designated
Beneficiary, the spouse will become the sole Owner of the Contract, and
he or she may keep it in force until the earlier of the spouse's death
or the Annuity Start Date.
If any Owner dies after the Annuity Start Date, the Ownership rights
pass to the Designated Beneficiary and Annuity Payments will continue
to be distributed at least as rapidly as under the method of
distribution being used as of the date of the Owner's death.
If the Owner is a Nonnatural Person, the distribution rules set forth
above apply in the event of the death of or a change in the Annuitant.
This Contract is deemed to incorporate any provision of Section 72(s)
of the Internal Revenue Code of 1986, as amended (the "Code"), or any
successor provision, as interpreted by the Company and deemed necessary
to qualify this Contract as an annuity.
The foregoing distribution requirements do not apply to qualified plans
as defined in Section 401(a) of the Code.
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS
- --------------------------------------------------------------------------------
ANNUITY START DATE
The Annuity Start Date may be chosen by the Owner at the time of
application. For Annuity Options 1 through 4, this date must be at
least 3 years after the Contract Date. For Annuity Options 5 and 6,
this date must be after the Free Systematic Withdrawal Availability
Date. When the Annuity Start Date occurs while the Contract Value is
subject to a Withdrawal Charge the Annuity Payment period must be at
least 7 years. The Annuity Start Date must be prior to the later of:
(1) the oldest Annuitant's eighty-fifth birthday; or (2) the tenth
Contract Anniversary.
The Annuity Start Date is the date the first payment will be made to
the Annuitant under Annuity Options 1 through 6.
CHANGE OF ANNUITY START DATE
The Owner may change the Annuity Start Date. A request for the change
must be made in writing. The written request must be Received by the
Company at least 30 days prior to the new Annuity Start Date as well as
30 days prior to the previous Annuity Start Date.
ANNUITY START AMOUNT
The Annuity Start Amount is applied to one of the Annuity Options
listed on page 17. The Annuity Start Amount is used with the annuity
rates to determine the Annuity Payments. The Annuity Start Amount is:
(1) the entire Contract Value on the Annuity Start Date; less (2) any
applicable Premium Tax.
- 14 -
15-60200-06
V 6020 G (3-93) BP 602071
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (Continued)
- --------------------------------------------------------------------------------
ANNUITY PAYMENT GUARANTEES
The Annuity Payments made under each Annuity Option will reflect
current annuity rates in effect on the Annuity Start Date. The current
annuity rates will not be less than the guaranteed Annuity Option
rates. The guaranteed Annuity Option rates are guaranteed for the life
of the Contract. The guaranteed rates are based on interest credited at
3 1/2% per year and the 1983 Table A individual annuity mortality table
updated for 45 years with factors from Projection Scale G. Tables A and
B illustrate some of these guaranteed rates per $1,000. Rates not shown
will be provided upon request.
ANNUITY PAYMENTS
The Owner may select any form of Annuity Payments that is satisfactory
to the Company. Several guaranteed Annuity Options are listed on page
17. No Annuity Option can be selected that requires the Company to make
periodic payments of less than $50.00. The standard Annuity Option is
Option 2 with 10 years of payments certain. This Annuity Option will
automatically be used if no Annuity Option is elected prior to the
Annuity Start Date. Each Annuity Option allows for making payments
annually, semiannually, quarterly or monthly.
CHANGE OF ANNUITY PAYMENTS
Prior to the Annuity Start Date, the Owner may change the Annuity
Option selected. The change must be made in writing. The written
request must be received by the Company at least 30 days prior to the
Annuity Start Date.
After the Annuity Start Date, the Owner may change the Annuity Option
if payments are being made under Annuity Options 5 or 6. The change
must be requested in writing.
After the change is recorded by the Company, it will be effective as of
the date it was requested. A change will not apply to any payment made
or action taken by the Company prior to the time it was recorded.
FIXED ANNUITY PAYMENTS
Fixed Annuity Payments provide a minimum interest rate which is
guaranteed by the Company during the Annuity Payment period for Annuity
Options 1 through 4. On the Annuity Start Date, the Annuity Start
Amount will be applied to the applicable Annuity Table.
VARIABLE ANNUITY PAYMENTS
For Annuity Options 1 through 4, Variable Annuity Payments are payments
which: (1) are not predetermined or guaranteed as to dollar amount; and
(2) vary in amount with the investment experience of the Sub-Account.
FIRST VARIABLE ANNUITY PAYMENT
On the Annuity Start Date, the Annuity Start Amount will be applied to
the applicable Annuity Table for Annuity Options 1 through 4. This will
be done in accordance with the Annuity Option selected.
ANNUITY UNIT VALUE
An Annuity Unit is used to calculate the value of Annuity Payments. The
value of an Annuity Unit for each Sub-Account was originally set at $1.
The value for any later Valuation Period is found as follows:
1. For each Sub-Account the Annuity Unit Value for the prior
Valuation Period is multiplied by the Net Investment Factor for
the second Valuation Period preceding the current one.
2. The result is multiplied by an interest factor. This is done to
neutralize the assumed investment rate of 3.5% per year, which is
built into the Annuity Tables.
- 15 -
15-60200-06
BP 602071
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (Continued)
- --------------------------------------------------------------------------------
NET INVESTMENT FACTOR
The Net Investment Factor is an index used to update the investment
performance of a Sub-Account from one Valuation Period to the next. The
Net Investment Factor may be more than or less than one; therefore, the
value of an Annuity Unit may increase or decrease.
The Net Investment Factor for any Sub-Account in any Valuation Period
is determined by dividing (1) by (2) and subtracting (3) from the
result, where:
1. is the net result of:
a. the Net Asset Value Per Share of the mutual fund held in the
Sub-Account, determined at the end of the current Valuation
Period; plus
b. the per share amount of any dividend or capital gain
distributions made by the Sub-Account's underlying the mutual
fund that is not included in the Net Asset Value Per Share;
plus or minus
c. a per share charge or credit for any taxes reserved for, which
is determined by the Company to have resulted from the
investment operations of the Sub-Account.
2. is the net result of:
a. the Net Asset Value per share of the Sub-Account's underlying
the mutual fund as determined at the end of the prior
Valuation Period; plus or minus
b. the per share charge or credit for any taxes reserved for the
prior valuation Period.
3. is a factor representing the Mortality and Expense Risk Charge and
the Administration Charge deducted from the Variable Account.
For underlying mutual funds that credit dividends on a daily basis and
pay such dividends once a month, the Net Investment Factor allows for
the monthly reinvestment of these daily dividends. As described above,
the gains and losses from each Sub-Account is credited or charged
against the Sub-Account without regard to the gains or losses in the
Company or other Sub-Accounts.
NET ASSET VALUE PER SHARE
The Net Asset Value Per Share is found by dividing the Net Asset Value
by the number of outstanding shares.
SUBSEQUENT VARIABLE ANNUITY PAYMENTS
After the first Variable Annuity Payment the payments vary in amount.
The amount of each payment changes with the investment performance of
the Sub-Accounts. The dollar amount of such payments is determined as
follows:
1. The dollar amount of the first Variable Annuity Payment is divided
by the Annuity Unit Value on the Annuity Start Date. The result
establishes the fixed number of Annuity Units for each subsequent
payment. This number of Units remains fixed during the Annuity
Payment period.
2. The fixed number of Annuity Units is multiplied by the Annuity
Unit Value for the Valuation Period for which the payment is due.
This result establishes the dollar amount of the payment.
After the first payment the Company guarantees that the dollar amount
of each payment will not be affected by variations in expenses or
mortality experience.
- 16 -
15-60200-07
V 6020 H (3-93) BP 602081
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (Continued)
- --------------------------------------------------------------------------------
ANNUITY OPTIONS
OPTION 1
LIFE OPTION: This option provides payments for the lifetime of the
Annuitant. Table A illustrates some of the guaranteed rates for this
option.
OPTION 2
LIFE WITH FIXED PERIOD OPTION: This option provides payments for the
lifetime of the Annuitant. A fixed period of 5, 10, 15 or 20 years may
be chosen. Payments will continue to the end of this period even if the
Annuitant dies prior to the end of the period. If the Annuitant dies
before receiving all the payments during the fixed period, the
remaining payments will be made to the Designated Beneficiary. Table A
illustrates some of the guaranteed rates for this option.
OPTION 3
LIFE WITH INSTALLMENT REFUND OPTION: This option provides payments for
the lifetime of the Annuitant. A fixed number of payments will be
determined by dividing the benefit amount by the payment amount. A
fixed number of payments will be made even if the Annuitant dies. If
the Annuitant dies before receiving the fixed number of payments, any
remaining payments will be made to the Designated Beneficiary. Table A
illustrates some of the guaranteed rates for this option.
OPTION 4
JOINT AND LAST SURVIVOR OPTION: This option provides payments for the
lifetime of the Annuitant and Joint Annuitant. Payments will continue
as long as either is living. Table B illustrates some of the guaranteed
rates for this option.
OPTION 5
FIXED PERIOD OPTION: This option provides payments for a fixed number
of years between 5 and 20. If the Contract Value is held in the Fixed
Account, then the amount of the payments will vary as a result of the
interest rate (as adjusted periodically) credited on the Fixed Account.
If the Contract Value is held in the Variable Account, then the amount
of the payments will vary as a result of the investment performance of
the specific Sub-Accounts chosen. If all the Annuitants dies before
receiving the fixed number of payments, any remaining payments will be
made to the Designated Beneficiary.
OPTION 6
FIXED PAYMENT OPTION: This option provides a fixed payment amount. This
amount is paid until the initial amount applied, including daily
interest adjustments, is paid. If the Contract Value is held in the
Fixed Account, then the number of payments will vary as a result of the
interest rate (as adjusted periodically) credited on the Fixed Account.
If the Contract Value is held in the Variable Account, then the number
of payments will vary as a result of the investment performance of the
specific Sub-Accounts chosen. If all the Annuitants dies before
receiving all the payments, any remaining payments will be made to the
Designated Beneficiary.
- 17 -
15-60200-07
BP 602081
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY OPTION RATES
- --------------------------------------------------------------------------------
SINGLE LIFE INCOME OPTIONS
Table A - Monthly
Payments for a fixed term and
afterwards as long as the Annuitant lives
per $1,000 of benefit amount
GUARANTEED MONTHLY PAYMENTS
- --------------------------------------------------------------------------------
Age of Payee 0 60 120 180 240 Unit Refund
MALE
- --------------------------------------------------------------------------------
55 4.45 4.44 4.41 4.37 4.30 4.31
56 4.52 4.51 4.48 4.43 4.36 4.37
57 4.60 4.59 4.56 4.50 4.42 4.44
58 4.68 4.67 4.64 4.57 4.47 4.51
59 4.77 4.76 4.72 4.65 4.53 4.58
60 4.87 4.85 4.81 4.72 4.60 4.65
61 4.97 4.95 4.90 4.80 4.66 4.73
62 5.07 5.05 5.00 4.89 4.72 4.82
63 5.19 5.17 5.10 4.97 4.79 4.90
64 5.31 5.29 5.20 5.06 4.85 5.00
65 5.44 5.41 5.32 5.15 4.92 5.09
66 5.58 5.55 5.44 5.24 4.98 5.20
67 5.73 5.69 5.56 5.34 5.05 5.30
68 5.89 5.84 5.69 5.44 5.11 5.41
69 6.06 6.00 5.82 5.54 5.17 5.53
70 6.24 6.17 5.97 5.64 5.23 5.66
FEMALE
55 4.11 4.11 4.10 4.08 4.05 4.05
56 4.17 4.17 4.16 4.14 4.10 4.10
57 4.23 4.23 4.22 4.19 4.15 4.15
58 4.30 4.29 4.28 4.25 4.21 4.21
59 4.37 4.36 4.35 4.32 4.27 4.27
60 4.44 4.44 4.42 4.38 4.33 4.34
61 4.52 4.51 4.49 4.45 4.39 4.40
62 4.60 4.59 4.57 4.52 4.45 4.47
63 4.69 4.68 4.65 4.60 4.52 4.55
64 4.78 4.77 4.74 4.68 4.58 4.63
65 4.88 4.87 4.84 4.76 4.65 4.71
66 4.99 4.98 4.93 4.85 4.72 4.80
67 5.10 5.09 5.04 4.94 4.79 4.89
68 5.23 5.21 5.15 5.04 4.86 4.99
69 5.36 5.34 5.27 5.14 4.94 5.09
70 5.50 5.48 5.39 5.24 5.01 5.20
Rates not shown will be provided on request.
- --------------------------------------------------------------------------------
JOINT & LAST
SURVIVOR
TABLE B - MONTHLY FEMALE MALE AGE
INSTALLMENTS AGE 55 60 62 65 70
- --------------------------------------------------------------------------------
Until last Death 55 3.85 3.93 3.95 3.99 4.03
of Two Payees 60 3.98 4.10 4.15 4.21 4.29
per $1,000 of 62 4.03 4.18 4.23 4.30 4.40
benefit amount 65 4.11 4.28 4.35 4.45 4.59
70 4.21 4.45 4.54 4.69 4.92
Option 1, 2, 3, or 4 available at ages 40 through 80.
Annual, semiannual, or quarterly payments can be determined from Table A or B by
multiplying the monthly payments by 11.812854, 5.9572233, and 2.9914201,
respectively.
- 18 -
15-60200-08
V 6020 I (3-93) BP 60209
<PAGE>
PARKSTONE
VARIABLE ANNUITY
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
* Purchase Payments may be made until the earlier of the Annuity Start Date or
termination of the Contract.
* A Death Benefit may be paid prior to the Annuity Start Date according to the
contract provisions.
* Annuity Payments begin on the Annuity Start Date using the method as
specified in this Contract.
* This is a participating Contract.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT, ARE VARIABLE AND THESE DOLLAR AMOUNTS ARE
NOT GUARANTEED. (SEE "CONTRACT VALUE AND EXPENSE PROVISIONS" AND "ANNUITY
PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGO]
Security Benefit Life Insurance Company
A Member of The Security Benefit Group of Companies
700 Harrison, Topeka, KS 66636-0001
1-800-355-4555
15-60200-49
BP 602004
<PAGE>
ENDORSEMENT FOR ANNUITY POLICY LOAN PROVISION
INTRODUCTION AND REQUIREMENTS FOR A LOAN:
This endorsement is attached to and made part of your Contract/Policy
(referred to herein as the "Policy"). Notwithstanding any other provision of the
Policy to the contrary, the following provisions shall apply. The Owner of the
Policy is herein called "the Borrower", "you", or "your". Security Benefit Life
Insurance Company is herein called "SBL". The General or Fixed Account of your
policy is herein referred to a the "Fixed Account".
Prior to the start of retirement annuity installments (the "maturity date")
SBL will lend an amount applied for to the Borrower subject to the limitations,
interest rates, and repayment procedures set out in this endorsement and in the
loan agreement between the Borrower and SBL. Any loan applied for must be for a
minimum of $1,000. All annuity policy loans must be repaid before the maturity
date. Only two new loans will be permitted per policy year.
The maximum loan amount for all policies combined, is generally equal to
the lesser of: (1) $50,000 reduced by the excess of: (a) the highest outstanding
loan balance within the preceding 12-month period ending on the day before the
date the loan is made; over (b) the outstanding loan balance on the date the
loan is made; or (2) 50% of your account value or $10,000, whichever is greater.
However, you may not borrow an amount which exceeds your total annuity account
value minus the amount needed as security described below.
When your loan is approved, SBL will transfer to an account within the
Fixed Account, referred to as the Loan Account, an amount equal to the amount of
your loan. In addition, 10% of the loaned amount will be held in the Fixed
Account as security for the loan.
REPAYMENT PROCEDURES:
All loans under this and prior loan endorsements must be repaid as
specified in the loan agreement and endorsement. Except for cases that qualify
under the Internal Revenue Code as determined by SBL, all loans must be repaid
within 5 years of approval. All loan repayments must be scheduled to be paid in
equal amounts on the same day of each calendar month or calendar quarter. For
monthly repayments the first scheduled repayment may not be later than 30 days
after the date of approval of the loan application by SBL. For quarterly
repayments, the first scheduled repayment may not be later than 90 days after
the date of approval of the loan application by SBL. Before a loan is permitted
a written application and loan agreement must be received by SBL. The written
application and loan agreement must be completed on a form acceptable to SBL.
SBL may postpone final approval or disapproval of a loan for up to six months
after the application for a loan is received.
Each loan payment must be labeled as such. Any payment not labeled as a
loan payment will be treated as a purchase payment. Each loan payment will
reduce the Loan Account by the amount the payment reduces the outstanding loan
balance. The amount held as security will also be reduced by each loan payment
so that the security is equal to 10% of the outstanding loan balance immediately
after the loan payment is made. Amounts which are no longer needed in the Loan
Account will be allocated in accordance with current purchase payment allocation
instructions. However, amounts which are no longer needed as security will NOT
automatically be allocated in accordance with purchase payment allocation
instructions. The loan may be repaid in full at any time. When repaid in full,
the Loan Account and the amount held as security will be reduced to $0.
FAILURE TO MAKE PAYMENTS:
If any required loan payment is not paid, within 30 days of the due date
for loans with a month repayment schedule or within 90 days of the due date for
loans with a quarterly repayment schedule, the TOTAL OUTSTANDING LOAN BALANCE
will be deemed to be in default. The entire loan balance, with any accrued
interest, will be reported to the Internal Revenue Service ("IRS") on Form
1099-R for the year the default occurred. Once a loan has gone into default,
regularly scheduled payments will not be accepted. However, the principal plus
accrued interest may be paid in full at any time. Notwithstanding any other
provision of the Policy or this endorsement to the contrary, no new loans will
be allowed when there is a loan in default.
Interest will continue to accrue on a loan in default. You may pay accrued
interest each year when notified by SBL. If such interest is not paid by
December 31st of each year, it will be added to the outstanding balance of the
loan and will be reported to the IRS on Form 1099-R. Account value equal to the
amount of the accrued interest will be transferred to the Loan Account. Account
value held in the Fixed Account as security for the loan will also be increased
so that the security is again equal to 10% of the outstanding loan. If a loan
continues to be in default when you attain age 59 1/2, the total outstanding
balance will be deducted from your account value. The Policy will be
automatically terminated if the outstanding loan balance on a loan in default
equals or exceeds the amount for which the Policy may be surrendered. The
proceeds from the Policy will be used to repay the debt and any applicable
surrender or withdrawal charges.
V6047 L-3 (1-97) NON-ERISA SP 6047B1
<PAGE>
INTERNAL REVENUE CODE:
SBL makes no representations or guarantees as to the tax effect a loan may
have on the Borrower. SBL suggests that the Borrower consult independent tax
counsel for specific advice.
INTEREST RATES:
The loan rate of interest is 2% more than the minimum interest rate
guaranteed in the Policy. Account value securing the loan will be credited with
the current interest rate. Amounts allocated to the Loan Account will be
credited with the minimum guaranteed rate specified in the Policy. Interest will
be charged each day that the debt (i.e. principal of loan outstanding plus
interest) is not repaid. Account value securing the loan will also be credited
with interest each day that the debt remains unrepaid.
OTHER EFFECTS ON POLICY PROVISIONS:
Partial withdrawals, surrenders or transfers will not be allowed on amounts
held in the Loan Account or on amounts held as security for the loan.
If the Policy is surrendered, or if a death benefit becomes payable, the
amount otherwise receivable will be reduced by the amount of the outstanding
loan, plus any accrued interest.
SECURITY BENEFIT LIFE INSRUANCE COMPANY
ROGER K. VIOLA
Secretary
- -----------------------------------------
Endorsement Effective Date, if other than
Date of Issue of Policy
<PAGE>
ENDORSEMENT FOR ANNUITY CONTRACT LOAN PROVISION
INTRODUCTION AND GENERAL INFORMATION
This endorsement is attached to and made part of this Contract as of the
Contract Date or as of the date shown below. If attached after the date of
issue, any new loans permitted on or after the date shown below will be governed
by this endorsement, not by any loan endorsement with an earlier effective date.
The Owner of the Contract is herein called "the Borrower", "you", or "your".
Security Benefit Life Insurance Company is herein called the "Company", "we", or
"our". Regardless of any other provision of the Contract to the contrary, the
following provisions shall apply.
Prior to the Annuity Start Date, the Company shall lend an amount applied
for to the Borrower subject to the limits, interest rates, and repayment
procedures set forth in this endorsement and in the loan agreement between the
Borrower and the Company. Any loan applied for must be for a minimum of $1,000
and a maximum of $50,000. Only two loans shall be allowed per Contract Year. All
loans under this and prior loan endorsements must be repaid as specified in the
loan agreement and this endorsement. All loans must be repaid before the Annuity
Start Date. The Annuity Start Date may not be changed so that annuity payments
begin before any outstanding loan balance is repaid in full. Except for cases
that qualify under the Internal Revenue Code as determined by the Company, all
loans must be repaid within five years of approval. All loan repayments must be
scheduled to be paid in equal amounts on the same day of each month or quarter.
For monthly repayments the first scheduled repayment may not be later than 30
days after the date the loan application is approved by the Company. For
quarterly repayments the first scheduled repayment may not be later than 90 days
after the date the loan application is approved by the Company. Before a loan is
allowed, a written application adn loan agreement on a form acceptable to the
Company must be received by the Company. The Company may postpone final approval
or disapproval of a loan for up to six months after the application for a loan
is received.
INTERNAL REVENUE CODE:
The Company makes no representations or guarantees as to the tax
consequences of a loan to the Borrower. The Company suggests that the Borrower
consult independent tax counsel for specific advice.
SECURITY FOR THE LOAN INTEREST RATE AND LOAN PAYMENTS:
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% 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%
of the Contract Value.
When your loan is approved we will transfer Contract Value from the
Subaccounts to the Fixed Account in an amount equal to the loan amount into an
account called the Loan Account. Amounts allocated to the Loan Account earn the
Minimum Guaranteed Interest Rate as specified in your Contract. In addition,
after your loan is approved, a certain amount of Contract Value will be
transferred to the Fixed Account as security for the loan. The amount of
security required depends on your Contract Value. If your Contract Value is
$20,000 or less, upon approval of a loan, we will transfer Contract Value from
the Subaccounts to the Fixed Account in an amount equal to one-third of: (i) the
amount of the current loan; and (ii) all previous loans which have not been
repaid. If your Contract Value exceeds $20,000, upon approval of a loan we will
transfer Contract Value from the Subaccounts to the Fixed Account in an amount
equal to: (i) the current loan; and (ii) all previous loans which have not been
repaid. This Contract Value allocated to the Fixed Account earns the current
renewal rate of interest and is the security for the loan.
The Borrower may transfer or withdraw amounts from the Fixed Account only
to the extent that after such a transfer or partial withdrawal, including any
withdrawal charges resulting from such withdrawal, the value of the Contract in
the Fixed Account is sufficient to meet the security requirements outlined above
for the then outstanding debt.
Interest shall be charged for the loan and shall accrue on the loan balance
from the effective date of any loan. The loan interest rate shall be the minimum
rate of interest guaranteed under the Contract, plus 2%.
Each loan payment must be labeled as such. Upon receipt of a loan payment,
we will transfer Contract Value from the Loan Account to the Fixed Account
and/or the Subaccounts according to the Borrower's current allocation
instructions with respect to the purchase payments. The amount of Contract Value
transferred from the Loan Account shall be equal to the amount by which the
payment reduces the outstanding loan balance. The loan may be repaid in full at
any time, in which event, the Loan Account shall be reduced to $0. After a loan
is repaid, the Contract Value in the Fixed Account which served as security for
the loan will not automatically be reallocated to the Subaccounts. Such
reallocation, if desired, must be requested by the Borrower.
15-68400-01
V6840 A (3-94) SP 684021
<PAGE>
FAILURE TO MAKE PAYMENTS:
If a loan payment is not made as specified and scheduled herein and in the
loan agreement, the Company shall withdraw the amount of Contract Value from the
Contract required to make the payment, including interest accrued thereon. Any
withdrawal charges which apply on such withdrawal shall be imposed in addition
to the loan payment and interest. If the Contract provides for a free withdrawal
percentage, the withdrawal charges shall be calculated assuming a free
withdrawal percentage of 0%. The amount of Contract Value withdrawn to make a
payment, including interest, will be withdrawn first from the value of the
Contract in the Fixed Account serving as security for the loan and if
insufficient, then from other Contract Value. Any withdrawal charges resulting
from amounts withdrawn to make a payment will be deducted first from the value
of the Contract in the Fixed Account other than that serving as security for any
loan and then from other Contract Value.
FULL WITHDRAWALS, ANNUITY START AMOUNT, DEATH BENEFIT:
Before calculating the Withdrawal Value for a full withdrawal, the Annuity
Start Amount or the Death Benefit under the Contract, the Company shall withdraw
that amount of Contract Value required to reduce the outstanding loan balance to
$0. As a result, the Contract Value shall be reduced by the amount of the
withdrawal and any withdrawal charges which apply to such withdrawal. If the
Contract provides for a fee withdrawal percentage, the withdrawal charges shall
be calculated assuming a free withdrawal percentage of 0%. The Contract Value
which remains after the withdrawal and deduction of applicable withdrawal
charges shall be used to calculate the Withdrawal Value, Annuity Start Amount or
Death Benefit as set forth in the Contract.
DOLLAR VALUE LIMIT ON DEBT:
The total outstanding balance of all loans under this Contract may not exceed:
1. If the Contract Value is less than or equal to $13,333, 75% of the Contract
Value.
2. If the Contract Value is greater than $13,333.33 but less than or equal to
$20,000, $10,000.
3. If the Contract Value exceeds $20,000, the lesser of: (1) $50,000 reduced
by the excess of (a) the highest outstanding loan balance within the
preceding 12 month period ending on the day before the date the loan is
made over (b) the outstanding loan balance on the date the loan is made; or
(2) 50% of Contract Value.
SECURITY BENEFIT LIFE INSURANCE COMPANY
ROGER K. VIOLA
Secretary
- -------------------------------------
Endorsement Effective Date, if other
than Contract Date
<PAGE>
TAX-SHELTERED ANNUITY
ENDORSEMENT
TAX-SHELTERED ANNUITY ENDORSEMENT
This Contract is established as a Tax-Sheltered Annuity ("TSA") under
Section 403(b) of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor provision, pursuant to the Owner's request in
the application. Accordingly, this Endorsement is attached to and made
part of the Contract as of its issue date or, if later, the date shown
below. If this is a group contract, references to the "Owner" and to
the "Contract" shall, respectively, be deemed to include the
Participant and the Participant's Certificate where appropriate.
TAX-SHELTERED ANNUITY PROVISIONS
To ensure treatment as a TSA, this Contract will be subject to the
requirements of Code Section 403(b), which are briefly summarized
below:
(a) Purchase Payments made on behalf of the Owner pursuant to a
salary reduction agreement when added to "elective deferral"
contributions under all other plans, contracts or arrangements
in which the Owner participates, may not exceed the annual
limitation on such contributions as provided in Code Section
401(a)(30).
(b) Purchase Payments applied to the Contract on behalf of the
Owner which exceed the applicable "exclusion allowance"
(within the meaning of Code Section 403(b)(2)) or the
limitations contained in Code Section 415 shall not be
excludable from gross income.
(c) Purchase Payments that exceed any of the foregoing limitations
may be returned, distributed or otherwise corrected using any
method permissible under the Code.
NONDISCRIMINATION REQUIREMENTS
(a) Except if this Contract is purchased by a "church" (within the
meaning of Code Section 3121(w)), the Plan must satisfy the
nondiscrimination requirements of Code Section 403(b)(12).
(b) Purchase Payments not made pursuant to a salary reduction
agreement will satisfy the nondiscrimination requirements of
Code Section 403(b)(12) provided they satisfy the requirements
of Code Section 401(a)(4) (nondiscrimination in
contributions), Code Section 401(a)(5) (permitted disparity),
Code Section 401(a)(17) (annual limit on compensation), Code
Section 401(m) (average contribution percentage test) and Code
Section 410(b) (coverage).
(c) Purchase Payments made pursuant to a salary reduction
agreement will satisfy the nondiscrimination requirements of
Code Section 403(b)(12) provided that every employee of the
Employer sponsoring the Plan, may elect to make Purchase
Payments of more than $200 pursuant to a salary reduction
agreement.
6832 A (R9-96) -1-
<PAGE>
DISTRIBUTION RESTRICTIONS AND REQUIREMENTS
(a) Distributions attributable to Purchase Payments made pursuant
to a salary reduction agreement may be made only when the
Owner attains age 59 1/2, separates from service, dies,
becomes "disabled" (within the meaning of Code Section
403(b)(11)) or incurs a hardship. A distribution made due to a
hardship may not include income attributable to such Purchase
Payments.
(b) Distributions from this Contract must comply with the minimum
distribution and incidental death benefit requirements of Code
Section 403(b)(10). Accordingly, an Owner's entire interest
under the Contract generally must be distributed (or begin to
be distributed) by April 1 of the calendar year following the
later of (i) the calendar year in which the Owner attains age
70 1/2, or (ii) the calendar year in which the Owner retires
(the "Required Beginning Date").
Distributions commencing not later than the Required Beginning
Date may be made over the life of the Owner or over the lives
of the Owner and his or her Designated Beneficiary (or over a
period not extending beyond the life expectancy of the Owner
or the life expectancy of the Owner and his or her Designated
Beneficiary).
(c) If the Owner dies before distribution of his or her interest
in the Contract has begun in accordance with paragraph (b)
above, the Owner's entire interest must be distributed within
five years, unless: (i) such interest is distributed to a
Designated Beneficiary over his or her life (or over a period
not extending beyond such Designated Beneficiary's life
expectancy); and (ii) such distribution begins not later than
one year after the Owner's death. If the Designated
Beneficiary is the Owner's surviving spouse, the date on which
the distributions are required to begin shall not be earlier
than the date on which the Owner would have attained age 70
1/2.
(d) If the Owner dies after distribution of his or her interest in
this Contract has begun in accordance with paragraph (b) above
but before his or her entire interest has been distributed,
the remaining interest must be distributed at least as rapidly
as under the method of distribution being used prior to the
Owner's death.
(e) All distributions must comply with a method of distribution
offered by the Company under this Contract.
(f) If the Owner receives a distribution from this Contract that
qualifies as an "eligible rollover distribution" (within the
meaning of Code Section 402(f)(2)(A)) and elects to have such
distribution paid directly to an "eligible retirement plan"
(within the meaning of Code Section 402(c)), such distribution
shall be made in the form of a direct transfer to the eligible
retirement plan. The Company may establish reasonable
administrative rules applicable to such direct transfers.
NONFORFEITABILITY
(a) The Owner's rights under this Contract shall be nonforfeitable
except for failure to pay future Premiums.
(b) This Contract may not be transferred, sold, assigned or
pledged as collateral for a loan or as security for the
performance of an obligation or for any other purposes to any
person other than the Company.
<PAGE>
MULTIPLE CONTRACTS
(a) If for any taxable year an Owner is covered by this Contract
and any other TSA, all such contracts shall be treated as a
single contract.
PLAN PROVISIONS
The Plan, including certain Plan provisions required by the Employee
Retirement Income Security Act of 1974 or other applicable law, may
limit the Owner's rights under this Contract. The Plan provisions may:
(a) Limit the Owner's right to make Purchase Payments;
(b) Restrict the time when the Owner may elect to receive payments
under this Contract;
(c) Require the consent of the Owner's spouse before the Owner may
elect to receive payments under this Contract;
(d) Require that all distributions be made in the form of a joint
and survivor annuity for the Owner and the Owner's spouse
unless both consent to a different form of distribution;
(e) Require that the Owner's spouse be the Designated Beneficiary;
(f) Require that the Owner remain employed by the Employer
sponsoring the Plan for a specified period of time before the
Owner's rights under this Contract become fully vested; or
(g) Otherwise restrict the Owner's exercise of rights under the
Contract or give the Employer sponsoring the Plan (or a Plan
representative) the right to exercise certain rights on the
Owner's behalf.
No such Plan provision shall limit an Owner's rights under this
Contract, unless the Employer sponsoring the Plan has provided the
Company with written notification of such provision. In no event shall
any such Plan provision enlarge the Company's obligations under this
Contract.
TAX CONSEQUENCES
(a) The Company will not incur any liability or be responsible for
the timing, purpose or propriety of any contribution or
distribution; any tax or penalty imposed on account of any
such contribution or distribution; or any other failure, in
whole or in part, by the Owner or the Employer to comply with
the provisions set forth in the Code or any other law.
ADMINISTRATION
The Company does not act as the Administrator of the Plan. Accordingly,
the Company will not incur any liability or be responsible for
interpreting the Plan or deciding any question arising thereunder.
SECURITY BENEFIT LIFE INSURANCE COMPANY
ROGER K. VIOLA
Secretary
- ----------------------------
Endorsement Effective Date
(If Other Than Issue Date)
<PAGE>
INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
For the purpose of qualifying the Contract applied for as a retirement annuity
or an annuity under a retirement account, described in Section 408 of the
Internal Revenue Code, notwithstanding any other provision of the Contract to
the contrary, the following provisions shall apply:
1. The Contract is established for the exclusive benefit of the individual or
his or her beneficiaries. The Owner shall e the Annuitant.
2. The Contract shall be nontransferable and the entire interest of the Owner
in the Contract is nonforfeitable.
3. Paragraph I
Notwithstanding any provision of the Contract to the contrary, the
distribution of an individual's interest shall be made in accordance with
the minimum distribution requirements of Section 401(a)(9) of the Internal
Revenue Code and the regulations thereunder, including the incidental death
benefit provisions of Section 1.401(a)(9)-2 of the proposed regulations,
all of which are herein incorporated by reference.
Paragraph II
The Owner's entire interest in the Contract must be distributed, or begin
to be distributed, by the Owner's required beginning date, which is the
April 1 following the calendar year in which the Owner reaches age 70 1/2.
For each succeeding year, a distribution must be made on or before December
31. By the required beginning date, the Owner may elect to have the balance
in the account distributed in one of the following forms:
a. a single sum payment;
b. equal or substantially equal payments over the life of the Owner;
c. equal or substantially equal payments over the lives of the Owner and
his or her designated beneficiary;
d. equal or substantially equal payments over a specified period that may
not be longer than the Owner's life expectancy;
e. equal or substantially equal payments over a specified period that may
not be longer than the joint life and last survivor expectancy of the
Owner and his or her designated beneficiary.
Paragraph III
If the Owner dies before his or her entire interest is distributed, the
entire remaining interest will be distributed as follows:
a. If the Owner dies on or after distributions have begun under Paragraph
II, the entire remaining interest must be distributed at least as
rapidly as provided under Paragraph II.
b. If the Owner dies before distributions have begun under Paragraph II,
the entire remaining interest must be distributed as elected by the
Owner or, if the Owner has not so elected, as elected by the
beneficiary or beneficiaries, as follows:
1) by December 31 of the year containing the fifth anniversary of
the Owner's death; or
2) in equal or substantially equal payments over the life or life
expectancy of the Designated Beneficiary or Beneficiaries
starting by December 31 of the year following the year of the
Owner's death. If, however, the Designated Beneficiary is the
Owner's surviving spouse, then this Distribution is not required
to begin until December 31 of the later of: (1) the calendar year
immediately following the calendar year in which the Owner died;
or (2) the calendar year in which the Owner would have attained
age 70 1/2.
Flexible Payment & Variable Annuities
Form 4453 C-5 (R9-96) SP 445381
<PAGE>
Paragraph IV
An individual may satisfy the minimum distribution requirements under
section 401(a)(9) of the Code by receiving a distribution from one IRA that
is equal to the amount required to satisfy the minimum distribution
requirements for two or more IRAs. For this purpose, the Owner of two or
more IRAs may use the "alternative method" described in Notice 88-38,
1988-1 C.B. 524, to satisfy the minimum distribution requirements described
above.
4. Any refund of premiums (other than those attributable to excess
contributions) will be applied before the close of the calendar year
following the year of the refund toward the payment of future premiums or
the purchase of additional benefits.
5. The Company may at its option either accept additional future payments or
terminate the Contract by payment in cash of the then present value for the
paid-up benefit if no premiums have been received for two full consecutive
policy years and the paid-up annuity benefit at maturity would be less than
$20 per month.
6. The annual premium shall not exceed the lesser of $2,000 or 100 percent of
compensation ($4,000 or 100 percent of compensation for Spousal IRAs
however, no more than $2,000 can be contributed to either spouse's IRA),
except for plans defined in Section 408(K) of the Code, for which annual
premiums shall not exceed $30,000.
7. Rollover contributions from other qualified plans permitted by the Internal
Revenue Code Sections 402(c), 403(a)(4), 403(b)(8)), and 408(d)(3), are
excluded from the limit set forth in item six.
8. Notwithstanding the Contract provisions, no amount may be borrowed under
the Contract and no portion may be used as security for a loan.
9. Notwithstanding the Contract provisions, the Optional Modes or Settlement
described as Deposit Option and Fixed Amount Installment Option are not
available.
10. The premiums under this Contract are not fixed.
11. Annuity payments may not begin before the Annuitant attains the age of 59
1/2 without incurring a penalty tax except in the situations described in
Section 72(t) of the Code.
This Endorsement is attached to and made a part of the Contract as of the
Contract Date.
SECURITY BENEFIT LIFE INSURANCE COMPANY
ROGER K. VIOLA
Secretary
<PAGE>
[PARKSTONE LOGO] APPLICATION
PARKSTONE VARIABLE For Questions, Call Customer Service Department
ANNUITY 1-800-355-4555
1. OWNER INFORMATION
First____________________ Initial____________________ Last______________________
Street______________ Apt. No.______ City__________ State______ Zip Code_________
Sex (M/F)____ Birth Date___/___/___ Tax ID______________ Telephone______________
2. JOINT OWNER INFORMATION - (If applicable)
First____________________ Initial____________________ Last______________________
Street______________ Apt. No.______ City__________ State______ Zip Code_________
Sex (M/F)____ Birth Date___/___/___ Tax ID______________ Telephone______________
Relationship to Owner___________________________________
3. ANNUITANT INFORMATION - (If different than primary owner)
First____________________ Initial____________________ Last______________________
Street______________ Apt. No.______ City__________ State______ Zip Code_________
Sex (M/F)____ Birth Date___/___/___ Tax ID______________ Telephone______________
4. PRIMARY BENEFICIARY INFORMATION
First____________________ Initial____________________ Last______________________
Street______________ Apt. No.______ City__________ State______ Zip Code_________
Sex (M/F)____ Birth Date___/___/___ Relationship to Owner_______ Tax ID_________
5. CONTINGENT BENEFICIARY INFORMATION - (If different than primary beneficiary)
First____________________ Initial____________________ Last______________________
Street______________ Apt. No.______ City__________ State______ Zip Code_________
Sex (M/F)____ Birth Date___/___/___ Relationship to Owner_______ Tax ID_________
6. SOURCE OF ANNUITY BUSINESS
|_| Individual |_| Trust |_| Other ___________________________________________
7. ANNUITY CONTRACT TYPE
|_| Deferred |_| Immediate |_| Deferred With Immediate Systematic Withdrawal
Annuity Start Date _______________________
8. ANNUITY BUSINESS TYPE
|_| Non Tax Qualified |_| IRA Rollover
|_| TSA (403(b), 501(c)(3) Plans) |_| QSP (401(k) Plans)
|_| SEP (408(k) Plans) |_| QPP (401(a) Plans)
|_| IRA (408 Plans) |_| Deferred Compensation (457 Plans)
9. ALLOCATION OF PURCHASE PAYMENTS
|_| International Discovery*__________% |_| Bond* __________%
|_| Small Capitalization* __________% |_| Prime Obligations* __________%
|_| Equity* __________% |_| Fixed Account __________%
Percentages Must Total 100%
|_| Check Box to Elect Telephone Transfer Privilege
[SBL LOGO]
SECURITY BENEFIT LIFE
INSURANCE COMPANY (SBL)
A Member of The Security Benefit
Group of Companies
700 SW Harrison St.,
Topeka, Kansas 66636-0001
<PAGE>
Notice for Florida residents: Any person who knowingly and with intent to
injure, defraud or deceive any insurer files a statement of claim or an
application containing any false, incomplete, or misleading information is
guilty of a felony of the third degree.
Notice for Kentucky and Ohio residents: I also know that any person who
knowingly and with intent to defraud, submits an application containing false or
deceptive statements is guilty of insurance fraud.
10. ANNUITY PURCHASE PAYMENTS
Initial Purchase Payment $_________. Subsequent Purchase Payments of $_________,
to be made _____ times per year, to begin___________________.
|_| Check if Automatic Investment Program
Send Billing Statements to (name and address): _________________________________
If TSA specify Employer Name: _________________________________________________
11. REPLACEMENT INFORMATION
Will this annuity replace or change in whole or in part any life insurance or
annuity now in force? |_| Yes |_| No
If YES Complete: Company:__________ Type: __________ Year Issued: _____________
12. SIGNATURES AND CERTIFICATIONS
All statements made in this application are true to the best of my
knowledge and belief. I know that this application will become part of the
contract.
I acknowledge receipt of a current prospectus which describes the contract
I am applying for. *I KNOW THAT ALL PAYMENTS AND VALUES BASED ON THE VARIABLE
ACCOUNT ARE VARIABLE AND NOT GUARANTEED AS TO DOLLAR AMOUNT.
I understand that the initial purchase payment and this application must be
acceptable to Security Benefit Life (SBL) under its rules and practices. If they
are not acceptable, the liability of SBL will be the return of the initial
purchase payment.
If my annuity contract qualifies under Section 403(b), I declare that I
know: (1) the limits on redemption imposed by Section 403(b)(11) of the IRS
Code; and (2) the investment choices available under my employer's Section
403(b) arrangement to which I may elect to transfer my account balance.
By checking the Telephone Transfer Privilege box in Section 9, I authorize
and direct SBL to make transfers from Sub-Account to Sub-Account and/or change
the allocation of future investments based upon telephone instructions. SBL has
established procedures to confirm that instructions communicated by telephone
are genuine and may be liable for any losses due to fraudulent or unauthorized
instructions if it fails to comply with its procedures. SBL's procedures require
that any person requesting a telephone transfer provide the account number and
the owner's tax identification number and such instructions must be received on
a recorded line. I agree to hold harmless and indemnify SBL, its affiliates and
employees and this account for any claim, loss, liability or expense arising out
of any telephone transfer effected or any failure or overload to the telephone
system provided that SBL complies with its procedures. The policy concerning
telephone transfers may require a contract owner who authorizes telephone
transfers to bear the risk of loss from a fraudulent or unauthorized request.
- --------------------------------------------------------------------------------
TAX IDENTIFICATION NUMBER CERTIFICATION
UNDER PENALTIES OF PERJURY, I CERTIFY: (A) that the number shown on this form is
my correct taxpayer identification number; and (B) that I am not subject to
backup withholding because: 1) I am exempt from backup withholding; or 2) I have
not been notified by the Internal Revenue Service (IRS) that I am subject to
backup withholding as a result of a failure to report all interest or dividends;
or 3) the IRS has notified me that I am no longer subject to backup withholding.
Strike out the language in Clause (B) above if the IRS has notified you that you
ARE subject to backup withholding and you have not since received notice from
the IRS that backup withholding has terminated. THE INTERNAL REVENUE SERVICE
DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE
CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
- --------------------------------------------------------------------------------
Signed at: City_____________________ State_____________ Date___________________
Owner Signature______________________ Joint Owner Signature_____________________
Annuitant Signature (if different than Owner)___________________________________
13. SIGNATURE OF REGISTERED AGENT
Does this annuity contract applied for replace an existing annuity or life
insurance policy? |_| Yes |_| No
If YES attach replacement forms as required. As Registered Agent, I declare that
I witnessed the signature of the applicant and that the information in this
application has been accurately recorded, to the best of my knowledge and
belief.
Signature of Registered Agent_________ Print Name of Registered Agent___________
Bank Code________ Agent Code________ Branch Code________ Agent's Lic. #_________
(FL only)
Name of Broker/Dealer___________________________________ Telephone______________
Branch Office Address___________________________________________________________
Remarks: ______________________________________________________________________
________________________________________________________________________________
|_| Please check this box if you would like a Statement of Additional
Information.
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
SECURITY BENEFIT LIFE INSURANCE COMPANY
(The Corporation was originally incorporated under
the name of "The National Council of The Knights
and Ladies of Security" which was later changed to
"The Security Benefit Association." Its original
Articles of Incorporation were filed with the
Kansas Secretary of State on February 22, 1892.)
FIRST.
The name of this Corporation shall be SECURITY BENEFIT LIFE INSURANCE COMPANY.
SECOND.
The Company is organized not for profit and is formed to make insurance upon the
lives of persons and every insurance appertaining thereto or connected
therewith, and to grant, purchase or dispose of annuities; to make insurance on
the health of individuals, against accidental personal injury, disablement or
death, and against loss, liability or expense on account thereof; and to provide
benefits for its policy holders in the case of illness or injury.
THIRD.
The location of its registered office in the State of Kansas is at 700 Harrison
Street in the City of Topeka, State of Kansas; and the name and address of its
resident agent is Security Benefit Life Insurance Company, 700 Harrison Street,
Topeka, Shawnee County, Kansas 66636.
FOURTH.
The term for which the Company is to exist is perpetual.
FIFTH.
The Board of Directors shall consist of ten persons.
SIXTH.
The Company shall operate on the mutual plan and shall have no capital stock.
<PAGE>
SEVENTH.
The conditions of membership in the company shall be fixed by the Board of
Directors.
EIGHTH.
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
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.
IT IS HEREBY CERTIFIED that the foregoing Restated Articles of
Incorporation only restate and integrate and do not further amend the provisions
of the Corporation's articles of incorporation as theretofore amended or
supplemented, and that there is no discrepancy between those provisions and the
provisions of the restated articles.
IT IS FURTHER CERTIFIED that the Restated Articles of Incorporation were
duly set forth, proposed, approved, and declared advisable by a resolution duly
adopted by the Board of Directors of the Corporation at a regular meeting held
on September 23/24, 1996, in accordance with the provisions of K.S.A. 17-6605
and amendments thereto, and the General Corporation Code of the State of Kansas,
and that these Restated Articles of Incorporation constitute all of the Articles
of Incorporation of the Corporation and do hereby supersede the Corporation's
Articles of Incorporation originally filed as formerly supplemented or amended.
<PAGE>
IN WITNESS WHEREOF, I have hereunto subscribed my name at Topeka, Kansas,
on this 31st day of October, 1996.
HOWARD R. FRICKE
--------------------------------------------
Howard R. Fricke, President
ATTEST:
ROGER K. VIOLA
- -----------------------------------
Roger K. Viola, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
The foregoing instrument was acknowledged before me this 31st day of
October, 1996, by Howard R. Fricke and Roger K. Viola, president and secretary,
respectively, of Security Benefit Life Insurance Company, a Kansas corporation,
on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal at Topeka, Kansas, on this 31st day of October, 1996.
L. CHARMAINE LUCAS
--------------------------------------------
Notary Public
My Appointment Expires: 04/01/98
Approved for filing.
KATHLEEN SEBELIUS
- -----------------------------------
Kathleen Sebelius
Commissioner of Insurance
Date: 11-12-96
-------------------------
<PAGE>
FUND PARTICIPATION AND VARIABLE CONTRACT MARKETING AGREEMENT
Among
SECURITY BENEFIT LIFE INSURANCE COMPANY,
on its behalf and on behalf of
THE PARKSTONE VARIABLE ANNUITY ACCOUNT,
THE PARKSTONE ADVANTAGE FUND,
FIRST OF AMERICA INVESTMENT CORPORATION,
SECURITY MANAGEMENT COMPANY,
SECURITY DISTRIBUTORS, INC,
FIRST OF AMERICA BROKERAGE SERVICE, INC,
and
FIRST OF AMERICA BANK CORPORATION
Dated as of
September 10, 1993
<PAGE>
TABLE OF CONTENTS
ARTICLE I. OFFER OF VARIABLE CONTRACTS .................................. 2
1.1 Form of Contracts .......................................... 2
1.2 Acceptance of Applications ................................. 2
1.3 Related Agreements ......................................... 2
ARTICLE II. PURCHASE AND SALE OF FUND SHARES ............................ 2
2.1 Agreements to Purchase and Sell ............................ 2
2.2 Diversification ............................................ 3
2.3 Mixed and Shared Funding ................................... 3
2.4 Redemption ................................................. 3
2.5 Settlement upon Sales ...................................... 4
2.6 Book Entry ................................................. 4
2.7 Dividends .................................................. 4
2.8 Net Asset Value ............................................ 4
ARTICLE III. REPRESENTATIONS AND WARRANTIES ............................. 4
A. Insurer ......................................................... 4
3.1 The Insurance Company ...................................... 4
3.2 Separate Account ........................................... 4
3.3 Variable Contracts ......................................... 4
3.4 Separate Account ........................................... 5
3.5 Annuity Contracts .......................................... 5
B. The Fund and Administrator ...................................... 5
3.6 Organization ............................................... 5
3.7 Shares ..................................................... 5
C. The Fund, Investment Adviser and Administrator .................. 5
3.8 Regulated Investment Company ............................... 5
D. The Investment Adviser .......................................... 5
3.9 Investment Adviser ......................................... 5
E. Distributor ..................................................... 5
3.10 Broker-Dealer .............................................. 5
F. The Servicing Agent ............................................. 6
3.11 Broker-Dealer .............................................. 6
ARTICLE IV. GENERAL DUTIES .............................................. 6
A. The Fund and/or the Administrator ............................... 6
4.1 Registration of Fund Shares ................................ 6
4.2 Organizational Expenses .................................... 6
4.3 Statutory Seed Money ....................................... 6
B. The Fund and the Investment Adviser ............................. 6
4.4 Subchapter M ............................................... 6
4.5 Diversification ............................................ 7
4.6 Other Requirements ......................................... 7
<PAGE>
C. The Insurer ..................................................... 7
4.7 Organizational Expenses for Separate Account ............... 7
4.8 Registration of Separate Account ........................... 7
4.9 Annuities .................................................. 7
4.10 Compliance ................................................. 7
D. The Distributor ................................................. 7
4.11 Compliance ................................................. 8
E. All Parties ..................................................... 8
4.12 Cooperation ............................................... 8
4.13 Compliance Responsibilities ............................... 8
ARTICLE V. PROSPECTUSES AND PROXY STATEMENTS; VOTING .................... 8
5.1 Fund Documents ............................................ 8
5.2 Fund Prospectus ........................................... 8
5.3 Fund SAI .................................................. 8
5.4 Proxy Statements and Periodic Reports ..................... 9
5.5 Separate Account Documents ................................ 9
5.6 Separate Account Prospectus and SAI ....................... 9
5.7 Voting .................................................... 9
ARTICLE VI. MARKETING AND PROMOTION ..................................... 10
6.1 [Reserved.] ............................................... 10
6.2 Insurer's, Administrator's and Distributor's
Sales Literature .......................................... 10
6.3 Representations about Fund ................................ 10
6.4 Servicing Agent's, Investment Adviser's and
Holding Company's Sales Literature ........................ 10
6.5 Representations about Insurer ............................. 10
6.6 Fund SEC Filings .......................................... 11
6.7 Separate Account SEC Filings .............................. 11
6.8 Sales Literature .......................................... 11
6.9 Confidentiality ........................................... 11
ARTICLE VII. INDEMNIFICATION ............................................ 11
7.1 Indemnification by the Insurer ............................ 11
7.2 Indemnification by the Administrator ...................... 13
7.3 Indemnification by the Investment Adviser ................. 13
7.4 Indemnification by the Servicing Agent .................... 14
7.5 Indemnification by Distributor ............................ 16
7.6 Indemnification Not Applicable ............................ 16
7.7 Notification .............................................. 16
7.8 Notice .................................................... 17
ARTICLE VIII. EXCLUSIVITY ............................................... 17
8.1 The Fund .................................................. 17
8.2 The Separate Account ...................................... 17
<PAGE>
ARTICLE IX. APPLICABLE LAW .............................................. 17
9.1 Kansas Law ................................................ 17
9.2 Securities Acts ........................................... 17
ARTICLE X. REINSURANCE OF VARIABLE CONTRACTS ............................ 17
10.1 Change in Law ............................................. 18
10.2 Change in Rating of Insurer ............................... 18
ARTICLE XI. SUBSTITUTION AND TERMINATION ................................ 18
11.1 Substitution .............................................. 18
11.2 Grounds for Termination ................................... 18
11.3 Notice .................................................... 20
11.4 Effect of Termination ..................................... 20
ARTICLE XII. NOTICES .................................................... 20
ARTICLE XIV. MISCELLANEOUS .............................................. 21
14.1 Trustees and Shareholders not Liable ...................... 21
14.2 Rights of Trustees and Shareholders ....................... 22
14.3 "Parkstone" Name .......................................... 22
14.4 Protection of Name ........................................ 22
14.5 Consultation .............................................. 22
14.6 Captions .................................................. 22
14.7 Execution in Counterpart .................................. 22
14.8 Invalidity of a Provision ................................. 23
14.9 Assignment ................................................ 23
<PAGE>
FUND PARTICIPATION AND VARIABLE CONTRACT MARKETING AGREEMENT
This AGREEMENT is made as of the 10th day of September, 1993, by and
among Security Benefit Life Insurance Company ("Insurer"), a Kansas mutual life
insurance corporation, on its and on behalf of The Parkstone Variable Annuity
Account (the "Separate Account"), a segregated asset account of the Insurer; the
Parkstone Advantage Fund (the "Fund"), a Massachusetts business trust; First of
America Investment Corporation ("Investment Adviser"), a Michigan corporation;
Security Management Company ("Administrator"), a Kansas corporation; Security
Distributors, Inc., ("Distributor"), a Kansas corporation and a subsidiary of
Insurer; First of America Brokerage Service, Inc. ("Servicing Agent"), a
Michigan corporation and an affiliate of Investment Adviser; and First of
America Bank Corporation ("Holding Company"), a Michigan corporation and the
parent of Investment Adviser and Servicing Agent.
WHEREAS, the Fund is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act"), and the Fund is
authorized to issue separate series of shares of beneficial interest ("shares"),
each representing an interest in a separate portfolio of assets ("series"), and
each series has its own investment objective or objectives, policies, and
limitations; and
WHEREAS, the Fund is currently comprised of five separate series, and
other series may be established in the future; and
WHEREAS, the Separate Account is registered with the SEC as a unit
investment trust under the 1940 Act; and
WHEREAS, pursuant to Investment Advisory Agreements, the Investment
Adviser serves as investment adviser to the Fund and its series; and
WHEREAS, pursuant to an Administration Agreement, the Administrator is
promoter of the Fund, and provides administrative services to the Fund; and
WHEREAS, pursuant to a Distribution Agreement, the Distributor is
distributor of the Fund's shares; and
WHEREAS, shares of one or more of the Fund's series are or will be
available to be offered to the Separate Account to serve as an investment medium
for variable annuity contracts to be issued by the Insurer ("Variable
Contracts"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurer wishes to purchase shares of one or more of the Fund's
series on behalf of the Separate Account to serve as an investment medium for
Variable Contracts funded by the Separate Account; and
<PAGE>
WHEREAS, pursuant to an Application and Service Agreement, the
Servicing Agent has agreed to assist Distributor and First Advantage Insurance
Agency, Inc. in accepting applications for Variable Contracts; and
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants hereinafter set forth; the parties hereby agree as
follows:
ARTICLE I. OFFER OF VARIABLE CONTRACTS
1.1 Form of Contracts. The Variable Contracts funded or to be funded by
the Separate Account shall be substantially similar to the form of the variable
annuity contracts attached hereto as Exhibits A and B, although the Insurer may
make such immaterial changes to the form of the contracts in Exhibits A and B as
deemed appropriate by the Insurer. The Insurer shall notify Holding Company and
Servicing Agent prior to making any such changes.
1.2 Acceptance of Applications. The Insurer shall appoint Distributor
as the exclusive principal underwriter for the sale of the Variable Contracts,
and shall direct that; subject to agreement among Distributor and the Servicing
Agent, Distributor shall enter into an agreement, substantially in the form
attached hereto as Exhibit C, with the Servicing Agent under which the Servicing
Agent, or such affiliates of Insurer, Distributor or Servicing Agent as shall be
or become parties to such agreement pursuant to Section 1.3 hereof, will be
authorized to accept applications and render related services for the Variable
Contracts ("Application and Service Agreement"), for which the Servicing Agent
shall be the broker/dealer of record.
1.3 Related Agreements. In those states that do not permit the
necessary licensing of Servicing Agent or as to which Insurer or Distributor and
Servicing Agent otherwise agree, Insurer shall establish, or cause Distributor
to establish, appropriately licensed insurance agencies ("Other Agencies") and
shall cause each of such Other Agencies to accept applications for the Variable
Contracts in accordance with the terms of the Application and Service Agreement.
Insurer and Distributor, as appropriate, shall cause each of the Other Agencies
to enter into agreements, substantially in the form attached hereto as Exhibit
D, with registered representatives of and designated by Servicing Agent under
which such registered representatives shall be appointed agents of Insurer and
authorized by the Other Agency to accept, on behalf of the Other Agency,
customer applications for the Variable Contracts (each a "Dual Service
Agreement"). Insurer, and Distributor, as appropriate, shall enter into, and
shall cause the Other Agencies to enter into, agreements, substantially in the
form attached hereto as Exhibit E, with Servicing Agent or an affiliate of
Servicing Agent under which Insurer and the Other Agency grant Servicing Agent
or its affiliate an option to purchase all of the assets and to assume the
liabilities of the Other Agencies (each an "Option Agreement").
2
<PAGE>
ARTICLE II. PURCHASE AND SALE OF FUND SHARES
2.1 Agreements to Purchase and Sell. The Fund agrees to offer and make
available and Distributor agrees to sell to the Separate Account and on behalf
of the Separate Account, Insurer agrees to purchase from Distributor and the
Fund shares of the series offered and made available as the investment medium
for the Variable Contracts and identified on Schedule A, as such may be amended
from time to time, ("Series"). Distributor and the Fund agree to make such
shares available to the Insurer and Separate Account and to execute such orders
on each day on which the Fund calculates its net asset value pursuant to rules
of the SEC ("business day") at the net asset value next computed after receipt
and acceptance by the Fund or its agent of the order for the shares of the Fund,
without the imposition of any sales load; provided, however, that the Board of
Trustees of the Fund may refuse to sell shares of any Series to any person, or
suspend or terminate the offering of shares of any Series, if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Trustees, acting in good faith and in light of the
Trustees' fiduciary duties under applicable law, necessary in the best interests
of the shareholders of any Series.
2.2 Diversification. The Fund and Distributor agree that shares of the
Series of the Fund will be sold only to the Insurer on behalf of the Separate
Account and other persons consistent with each Series being adequately
diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code") and the regulations thereunder. No shares of any Series will be
sold directly to the general public to the extent prohibited by Section 817(h)
and the regulations thereunder.
2.3 Mixed and Shared Funding. Subject to the provisions of Articles
VIII and X of this Agreement, the Fund and Distributor will not sell shares of
the Fund to any insurance company or separate account to serve as an investment
vehicle for variable life insurance policies unless the Fund has first obtained
an appropriate exemptive order from the SEC if required by the 1940 Act and the
rules thereunder, such as an order to permit "mixed funding" or "shared funding"
if the Fund offers its shares to a variable life separate account of the Insurer
or of an unaffiliated life insurer. In such event, all parties to this Agreement
agree to comply with any applicable conditions imposed under any exemptive order
issued by the SEC, or any applicable conditions specified in Rule 6e-2 or Rule
6e-3(T) under the 1940 Act (or, if permanently adopted, Rule 6e-3), whichever is
applicable. The Fund and Distributor will not sell shares of the Series to any
insurance company or separate account other than the Insurer, and the Separate
Account unless there is in effect an agreement containing provisions necessary
to comply with any applicable conditions of an SEC exemptive order, Rule 6e-2 or
6e-3(T) (or, if permanently adopted, Rule 6e-3), whichever is applicable.
2.4 Redemption. Upon receipt of a request for redemption in proper form
from the Insurer, the Fund agrees to redeem any full or fractional shares of the
Series held by the Insurer, including shares held on behalf of the Separate
Account, ordinarily executing such requests on each business day at the net
asset value next computed after receipt and acceptance by the Fund or its agent
of the request for redemption, except that the Fund reserves the right to
suspend the right of redemption, consistent. with Section 22(e) of the 1940 Act
and any rules thereunder. Such redemption ordinarily shall be paid not later
than one business day following receipt by the Fund or its agent of the request
for redemption, although the Fund reserves the right to delay payment upon
redemption, consistent with Section 22(e) of the 1940 Act and any rules
thereunder.
3
<PAGE>
2.5 Settlement upon Sales. The Insurer shall pay for shares of the
Series not later than one business day after it places an order to purchase
shares of the Series. Payment shall be in federal funds transmitted by wire.
2.6 Book Entry. Issuance and transfer of shares of the Series will be
by book entry only unless otherwise agreed by the Fund. Stock certificates will
not be issued to the Insurer or the Separate Account unless otherwise agreed by
the Fund. Shares ordered from the Fund will be recorded in an appropriate title
for the Separate Account or the appropriate subaccounts of the Separate Account.
2.7 Dividends. The Fund shall promptly furnish notice (by wire or
telephone, followed by written confirmation) to the Insurer of any dividends or
capital gain distributions payable on the shares of the Series. The Insurer
hereby elects to reinvest in the Series all such dividends and distributions as
are payable on a Series' shares and to receive such dividends and distributions
in additional shares of that Series. The Insurer reserves the right to revoke
this election in writing, giving at least five days prior notice, and to receive
all such dividends and distributions in cash. The Fund shall notify the Insurer
of the number of shares so issued as payment of such dividends and
distributions.
2.8 Net Asset Value. The Fund shall instruct its recordkeeping agent to
advise the Insurer on each business day of the net asset value per share for
each Series by 5:00 p.m. New York City time, or, if not possible by 5:00 p.m.,
as soon as reasonably practical after the net asset value per share is
calculated.
ARTICLE III. REPRESENTANONS AND WARRANTIES
A. Insurer.
3.1 The Insurance Company. The Insurer represents and warrants that it
is a life insurance company duly organized and in good standing under Kansas
law, that the Insurer is authorized to offer the Variable Contracts in those
states set forth in Schedule B and that it is taxed as an insurance company
under Subchapter L of the Code.
3.2 Separate Account. The Insurer represents and warrants that it has
legally and validly established the Separate Account as a segregated asset
account under the insurance laws and regulations of the state of Kansas, and
that the Separate Account is a validly existing segregated asset account under
applicable federal and state law.
3.3 Variable Contracts. The Insurer represents and warrants that the
Variable Contracts to be issued by the Insurer or interests in the Separate
Account under such Variable Contracts are or, prior to issuance, will be
registered as securities under the Securities Act of 1933 ("1933 Act").
4
<PAGE>
3.4 Separate Account. The Insurer represents and warrants that the
Separate Account is or, prior to issuance, will be registered as a unit
investment trust in accordance with the provisions of the 1940 Act.
3.5 Annuity Contracts. The Insurer represents that it believes, in good
faith and in accordance with current law, that the Variable Contracts, when
issued, will be treated as annuity contracts under applicable provisions of the
Code.
B. The Fund and Administrator
3.6 Organization. The Fund and Administrator represent and warrant that
the Fund is duly organized as a business trust under the laws of the
Commonwealth of Massachusetts, and is in good standing under applicable law.
3.7 Shares. The Fund and Administrator represent and warrant that the
shares of the Series are duly authorized for issuance in accordance with
applicable law, that the shares of the Series are or, prior to issuance, will be
registered as, securities under the 1933 Act, and that the Fund is registered as
an open-end management investment company under the 1940 Act.
C. The Fund, Investment Adviser and Administrator
3.8 Regulated Investment Company. The Fund and the- Investment Adviser
and Administrator represent and warrant that they believe that each Series of
the Fund shall be eligible to qualify as a regulated investment company under
Subchapter M of the Code, and each has no reason to believe that any Series will
not so qualify, and has no reason to believe that any Series will not be able to
meet the diversification requirements of Section 817(h) of the Code and the
regulations thereunder.
D. The Investment Adviser
3.9 Investment Adviser. The Investment Adviser represents and warrants
that it is registered as an investment adviser with the SEC and with each state
in which it is required to be registered in connection with its responsibilities
to the Fund pursuant to the Investment Advisory Agreements.
E. Distributor
3.10 Broker-Dealer. Distributor represents and warrants that it is a
member in good standing of the NASD and is registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934 ("1934 Act") and with each
state in which it is required to be registered in connection with its
responsibilities to the Fund pursuant to the Distribution Agreement.
5
<PAGE>
F. The Servicing Agent
3.11 Broker-Dealer. The Servicing Agent represents and warrants that it
is a member in good standing of the NASD and is registered as a broker-dealer
with the SEC under the 1934 Act and with each state in which it is required to
be registered in connection with its responsibilities pursuant to the
Application and Service Agreement.
ARTICLE IV. GENERAL DUTIES
A. The Fund and/or the Administrator
4.1 Registration of Fund Shares. The Fund and the Administrator shall
take all such actions as are necessary to permit the sale of the shares of each
Series to the Separate Account, including, but not limited to, maintaining the
Fund's registration as an investment company under the 1940 Act and registering
the shares of the Series sold to the Separate Account under the 1933 Act for so
long as required by applicable law. The Fund and the Administrator shall amend
the Registration Statement of the Fund filed with the SEC under the 1933 Act and
the 1940 Act from time to time as required in order to effect the continuous
offering of the shares of the Series. The Fund and Administrator shall register
and qualify the shares of the Fund for sale in accordance with the laws of the
various states to the extent required by applicable law.
4.2 Organizational Expenses. The Administrator will pay, on behalf of
the Fund and subject to recovery from the Fund, all expenses of the Fund
incurred on or prior to the commencement of operations of the Fund, including,
but not limited to, legal fees, auditing fees, SEC registration fees, and
organizational fees that are determined to be "organizational costs" of the
Fund.
4.3 Statutory Seed Money. The Administrator agrees that prior to the
effective date of the Registration Statement for the Fund, the Administrator
shall invest $100,000 in the Fund to the extent required by Section 14(a) of the
1940 Act, subject to the understanding that at the time of investment, the
Administrator has no current intention of reselling the shares so acquired, and
that all redemptions by the Administrator of any part of its investment in the
Fund will be effected in accordance with any applicable legal standards,
including restrictions on the amount that may be redeemed.
B. The Fund and the Investment Adviser
4.4 Subchapter M. The Fund and Investment Adviser shall take all
necessary steps to ensure that each Series qualifies and to maintain each
Series" qualification as a Regulated Investment Company under Subchapter M of
the Code (or any successor or provision), and shall notify the Insurer
immediately upon having a reasonable basis for believing that a Series has
ceased to so qualify or that it might not so qualify in the future.
6
<PAGE>
4.5 Diversification. The Fund and Investment Adviser shall take all
necessary steps to ensure that each Series complies and maintains compliance
with the diversification provisions of Section 817(h) of the Code and the
regulations issued thereunder relating to the diversification requirements for
variable annuity contracts and any prospective amendments or other modifications
to Section 817 or regulations thereunder, and shall notify the Insurer
immediately upon having a reasonable basis for believing that any Series has
ceased to comply.
4.6 Other Requirements. The Fund and Investment Adviser shall take all
steps necessary to adhere to any requirements under tax or insurance law or
otherwise that pertain to the Fund by virtue of serving as an investment vehicle
for the Variable Contracts and for which notice is provided, pursuant to Section
4.13, to the Fund, Investment Adviser or Administrator by the Insurer.
C. The Insurer
4.7 Organizational Expenses for Separate Account. The Insurer will pay
all expenses in connection with organization of the Separate Account incurred on
or prior to its commencement of operations, including, but not limited to, legal
fees, auditing fees, SEC registration fees for the Separate Account, the cost of
any necessary applications for exemptive relief from the provisions of the 1940
Act in connection with the offering of the Variable Contracts, and any other
expenses that arise in connection with the organization of the Separate Account,
and will pay the expense of filing or obtaining approval for the Variable
Contracts with the insurance commissioners or other applicable authorities in
the states indicated on Schedule B.
4.8 Registration of Separate Account. The Insurer shall take all such
actions as are necessary under applicable federal and state law to permit the
sale of the Variable Contracts issued by the Insurer, including registering the
Separate Account as an investment company under the 1940 Act, and registering
the Variable Contracts or interest in the Separate Account under the Variable
Contracts under the 1933 Act, and obtaining all necessary approvals to offer the
Variable Contracts from state insurance commissioners or other insurance
authorities in the states indicated on Schedule B.
4.9 Annuities. The Insurer shall, to the extent consistent with
applicable law, take all reasonable steps necessary to maintain the treatment of
the Variable Contracts issued by the Insurer as annuity contracts under
applicable provisions of the Code, and shall notify the other parties to this
Agreement immediately upon having a reasonable basis for believing that such
Variable Contracts have ceased to be so treated or that they might not be so in
the future.
4.10 Compliance. The Insurer shall offer the Variable Contracts issued
by the Insurer in accordance with applicable provisions of the 1933 Act, the
1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law
respecting the offering of variable annuity contracts.
7
<PAGE>
D. The Distributor
4.11 Compliance. Distributor shall sell and distribute the shares of
the Series of the Fund in accordance with the applicable provisions of the 1933
Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
E. All Parties
4.12 Cooperation. Each party hereto shall cooperate with each other
party and all appropriate governmental authorities having jurisdiction
(including, without limitation, the SEC, the NASD, and state insurance
regulators) and shall permit such authorities reasonable access to its books and
records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
4.13 Compliance Responsibilities. Each party hereto shall take all
reasonable steps necessary to comply with any requirements under applicable law,
including without limitation those respecting securities, insurance, banking or
variable annuity contracts, that relate to the responsibilities of such party
under this Agreement or under the Application and Service Agreement. The
Insurer, the Administrator and/or the Distributor shall notify the Investment
Adviser, Servicing Agent, Holding Company and the Fund of changes subsequent to
the date hereof in applicable insurance law, regulation or interpretations
thereof affecting the responsibilities of any such party under this Agreement or
the Application and Service Agreement. The Holding Company, Investment Adviser
and/or Servicing Agent shall notify the Insurer, the Administrator, the
Distributor and the Fund of changes subsequent to the date hereof in applicable
banking law, regulation or interpretations thereof affecting the
responsibilities of any such party under this Agreement or the Application and
Service Agreement.
ARTICLE V. PROSPECTUSES AND PROXY STATEMENTS; VOTING
5.1 Fund Documents. The Distributor shall provide and the Servicing
Agent shall deliver such prospectuses, statements of additional information
("SAIs"), proxy statements, and periodic reports of the Fund to the owners of
Variable Contracts as are required to be distributed to such Variable Contract
Owners under applicable federal or state law.
5.2 Fund Prospectus. The Distributor shall provide the Servicing Agent
with as many copies of the current prospectus of the Fund as the Servicing Agent
may reasonably request. If requested by the Servicing Agent in lieu thereof, the
Distributor shall provide such documentation (including a final copy of the
Fund's prospectus as set in type or in camera-ready copy) and other assistance
as is reasonably necessary in order for the Servicing Agent to print together in
one document the current prospectus for the Variable Contracts issued by the
Insurer and the current prospectus for the Fund. The Fund shall bear the expense
of printing copies of its current prospectus that will be distributed to
existing Variable Contract Owners, and the Distributor shall bear the expense of
printing copies of the Fund's prospectus that are used in connection with
accepting applications for the Variable Contracts.
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5.3 Fund SAI. The Fund and the Distributor shall provide (1) at the
Fund's expense, such copies of the Fund's current SAI to the Servicing Agent as
the Servicing Agent may reasonably request for purposes of delivering the SAI to
any owner of a Variable Contract who requests such SAI, (2) at the Distributor's
expense, such additional copies of the Fund's current SAI as the Servicing Agent
shall reasonably request and that shall be required in accordance with
applicable law in connection with accepting applications for the Variable
Contracts.
5.4 Proxy Statements and Periodic Reports. The Fund and the
Administrator shall provide to the Servicing Agent, at the Fund's expense,
copies of the Fund's proxy material, periodic reports to shareholders and other
communications to shareholders in such quantity as the Servicing Agent shall
reasonably require for purposes of delivering to owners of Variable Contracts.
The Fund and the Administrator shall provide to the Servicing Agent, at the
Administrator's expense, copies of the Fund's periodic reports to shareholders
and other communications to shareholders in such quantity as the Servicing Agent
shall reasonably request for use in connection with accepting applications for
the Variable Contracts. If requested by the Servicing Agent in lieu thereof, the
Fund and Administrator shall provide such documentation (including a final copy
of the Fund's proxy materials, periodic reports to shareholders and other
communications to shareholders, as set in type or in camera-ready copy) and
other assistance as reasonably necessary in order for the Servicing Agent to
print such shareholder communications for distribution to owners of the Variable
Contracts.
5.5 Separate Account Documents. The Insurer and the Distributor shall
provide and the Servicing Agent shall deliver such prospectuses, SAIs, and
periodic reports of the Separate Account to the Owners of the Variable Contracts
as are required to be delivered to such Variable Contract Owners under
applicable federal or state law.
5.6 Separate Account Prospectus and SAI. The Insurer and the
Distributor, at their expense, shall provide the Servicing Agent with as many
copies of the current prospectus and SAI of the Separate Account and any
periodic reports of the Separate Account as the Servicing Agent may reasonably
request. If requested by the Servicing Agent in lieu thereof, the Insurer and
the Distributor shall provide such documentation (including a final copy of any
of such documents as set in type or in camera-ready copy) and other assistance
as is reasonably necessary in order for the Servicing Agent to print together in
one document the current prospectus and/or SAI for the Separate Account and the
current prospectus and/or SAI for the Fund or the periodic reports for the
Separate Account and the Fund.
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5.7 Voting. For so long as the SEC interprets the 1940 Act to require
that owners of variable contracts funded by a registered separate account be
given "pass through" voting rights in connection with meetings of shareholders
of an underlying fund in which the separate account invests, the Insurer shall
vote shares of each Series of the Fund held in the Separate Account or a
subaccount thereof at regular and special meetings of the Fund in accordance
with instructions timely received by the Insurer (or its designated agent for
these purposes, which may be the Servicing Agent) from owners of Variable
Contracts funded by the Separate Account or subaccount thereof having a voting
interest in the Series. The Insurer shall vote shares of a Series of the Fund
held in the Separate Account or a subaccount thereof that are attributable to
the Variable Contracts as to which no timely instructions are received, as well
as shares held in the Separate Account or subaccount thereof that are not
attributable to the Variable Contracts and are owned beneficially by the Insurer
(resulting from charges against the Variable Contracts or otherwise), in the
same proportion as the votes cast by owners of the Variable Contracts funded by
the Separate Account or subaccount thereof having a voting interest in the
Series from whom instructions have been timely received. The Insurer shall vote
shares of each Series of the Fund held in its general account, if any, in the
same proportion as the votes cast with respect to shares of the Series held in
all separate accounts of the Insurer or subaccounts thereof that invest in the
Fund, in the aggregate.
ARTICLE VI. MARKETING AND PROMOTION
6.1 [Reserved.]
6.2 Insurer's, Administrator's and Distributor's Sales Literature. The
Insurer, the Administrator and the Distributor shall each furnish, or shall
cause to be furnished, to the Servicing Agent, each piece of sales literature or
other promotional material that it generates in which the Fund (or any Series
thereof), the Variable Contracts, the Investment Adviser, the Servicing Agent,
Holding Company or any of their affiliates is named, and no such sales
literature or other promotional material shall be used without the approval of
the Servicing Agent or its designee.
6.3 Representations about Fund. The Insurer and Distributor each agree
that each and the affiliates of each shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Registration Statement
or prospectus for the Fund shares, as such registration statement and prospectus
may be amended or supplemented from time to time, or in periodic reports or
proxy statements for the Fund, or in sales literature or other promotional
material approved by the Servicing Agent or its designee, except with the
permission of the Servicing Agent; provided, however, that Administrator shall
not be prohibited by this provision from providing any information necessary in
connection with its duties under the Administration Agreement.
6.4 Servicing Agent's, Investment Adviser's and Holding Company's Sales
Literature. The Servicing Agent, the Investment Adviser and the Holding Company
shall each furnish, or shall cause to be furnished, to the Insurer or its
designee and to the Administrator or its designee, each piece of sales
literature or other promotional material that it generates in which the Insurer,
its Separate Account, the Administrator, or either of the Variable Contracts is
named, and no such material shall be used without the approval of the Insurer or
its designee and the Administrator or its designee.
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6.5 Representations about Insurer. The Fund and the Servicing Agent
each agree that each and the affiliates of each shall not give any information
or make any representations on behalf of the Insurer or concerning the Insurer,
the Separate Account, or the Variable Contracts, other than the information or
representations contained in a registration statement or prospectus for such
Separate Account, as such registration statement and prospectus may be amended
or supplemented from time to time, or in periodic reports for the Separate
Account, or in sales literature or other promotional material approved by the
Insurer or its designee, except with the permission of the Insurer, provided,
however, that Investment Adviser shall not be prohibited by this provision from
providing any information necessary in connection with its duties under the
Investment Advisory Agreements.
6.6 Fund SEC Filings. The Fund and the Administrator will provide to
the Insurer and Investment Adviser at least one complete copy of all
prospectuses, Statements of Additional Information, reports, proxy statements
and other voting solicitation materials, and all amendments and supplements to
any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the SEC or other regulatory authorities.
6.7 Separate Account SEC Filings. The Insurer will provide to the
Administrator and Investment Adviser at least one complete copy of all
prospectuses, Statements of Additional Information, reports, solicitations for
voting instructions, and all amendments or supplements to any of the above, that
relate to the Variable Contracts issued by the Company or the Separate Account
promptly after the filing of such document with the SEC or other regulatory
authority.
6.8 Sales Literature. For purposes of this Article VI, the phrase
"sales literature or other promotional material" includes, but is not limited
to, advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, computerized
media, or other public media), sales literature (i.e., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees.
6.9 Confidentially. Each of the parties hereto shall keep information
about the other parties' business, finances, operations, and customers
confidential; provided, however, that this Section 6.9 shall not prevent
Servicing Agent and its affiliates from marketing products and services other
than the Variable Contracts to the owners of the Variable Contracts.
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ARTICLE VII. INDEMNIFICATION
7.1 Indemnification by the Insurer. Except as provided in Sections 7.6
or 7.7 of this Agreement, the Insurer agrees to indemnify and hold harmless the
Fund, the Investment Adviser, and the Servicing Agent, each of their directors,
trustees, and officers, and each person, if any, who controls the Investment
Adviser and the Servicing Agent within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 7.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurer) or litigation expenses
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or litigation expenses are
related to the sale or acquisition of the Fund's shares or the Variable
Contracts or to the acceptance of applications for the Variable Contracts or to
the operation of the Separate Account or the Fund, and, in any such case:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement material fact contained in the registration
statement or prospectus for the Separate Account or sales
literature for the Variable Contracts or the Fund generated by
the Insurer (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
the Insurer, directly or indirectly, by or on behalf of any
Indemnified Party for use in the registration statement or
prospectus for the Separate Account or sales literature (or any
amendment or supplement thereto) or otherwise for use in
connection with the sale of such Variable Contracts or Fund
shares or the acceptance of applications for the Variable
Contracts;
(ii) arise out of or as a result of any statement or representation
(other than statements or representations contained in the
registration statement or prospectus of the Fund or in sales
literature that were not supplied by the Insurer) or wrongful
conduct of the Insurer or any of its affiliates, employees or
agents (but not including agents that are Indemnified Parties or
employees or agents of Indemnified Parties) with respect to the
sale or distribution of the Variable Contracts or Fund shares or
the acceptance of applications for the Variable Contracts;
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement or prospectus of the Fund or any amendment thereof or
supplement thereto or in sales literature, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished to an Indemnified Party by or on
behalf of the Insurer; or
(iv) arise as a result of a failure by the Insurer to meet its
responsibilities under Section 4.9 of this Agreement.
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7.2 Indemnification by the Administrator. Except as provided in Section
7.6 and 7.7 of this Agreement, the Administrator and Insurer agree, jointly and
severally, to indemnify and hold harmless the Fund, the Investment Adviser, the
Servicing Agent, and Holding Company, each of their directors, trustees, and
officers, and each person, if any, who controls the Fund, the Investment
Adviser, the Servicing Agent or Holding Company within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 7.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Insurer and
Administrator) or litigation expenses (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or litigation expenses are related to the sale or acquisition of the Fund's
shares or the Variable Contracts or to the operation of the Fund, and, in any
such case:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus for the Fund or sales
literature for the Variable Contracts or the Fund generated by
the Distributor (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
the Administrator directly or indirectly, by or on behalf of any
Indemnified Party for use in the registration statement or
prospectus for the Fund or sales literature (or any amendment or
supplement thereto) or otherwise for use in connection with the
sale of such Variable Contracts or Fund shares or the acceptance
of applications for the Variable Contracts;
(ii) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement or prospectus of the Fund or any amendment thereof or
supplement thereto or in sales literature, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished to an Indemnified Party by or on
behalf of the Administrator, or
(iii) arise as a result of a failure by the Administrator to meet its
responsibilities under Section 4.1 through 4.3 and 4.6 of this
Agreement.
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7.3 Indemnification by the Investment Adviser. Except as provided in
Sections 7.6 or 7.7 of this Agreement, the Investment Adviser and Holding
Company agree, jointly and severally, to indemnify and hold harmless the
Insurer, the Administrator, Distributor, and the Fund, and each of their
directors, trustees, and officers, and each person, if any, who controls the
Insurer, Administrator, or Distributor within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
7.3) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Investment Adviser and
Holding Company) or litigation expenses (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or litigation expenses are related to the sale or acquisition of the Fund's
shares or the Variable Contracts or to the acceptance of applications for the
Variable Contracts or to the operation of the Separate Account or the Fund, and,
in any such case:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus for the Fund or sales
literature for the Variable Contracts or the Fund generated by
the Investment Adviser, Holding Company or an affiliate thereof
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Investment
Adviser or the Fund or the designee of either by or on behalf of
the Insurer or Administrator for use in the registration
statement or prospectus for the Fund or in sales literature (or
any amendment or supplement thereto) or otherwise for use in
connection with the sale of the Variable Contracts or Fund
shares or the acceptance of applications for the Variable
Contracts;
(ii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement or
prospectus for the Separate Account or any amendment thereof or
supplement thereto, or in sales literature, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished to the Insurer or Administrator by or
on behalf of the Investment Adviser; or
(iii) arise as a result of a failure by the Fund and/or the Investment
Adviser to meet the responsibilities under Section 4.4, 4.5, or
4.6 of this Agreement.
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7.4 Indemnification by the Servicing Agent. Except as provided in
Sections 7.6 or 7.7 of this Agreement, the Servicing Agent and Holding Company
agree, jointly and severally, to indemnify and hold harmless the Insurer, the
Administrator, and the Fund, and each of their directors, trustees, and officers
and each person, if any, who controls the Insurer or Administrator within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 7.4) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Servicing Agent and Holding Company) or litigation expenses (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts issued by the Insurer
or the acceptance of applications for the Variable Contracts, and in any such
case:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in sales
literature for the Variable Contracts or the Fund generated by
the Servicing Agent, or arise out of or are based upon the
omission or alleged omission to state in such sales literature a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Servicing Agent or its designee by
or on behalf of the Insurer or Administrator (which, for these
purposes, shall be deemed to include information furnished
directly by the Insurer or Administrator or persons under the
sole control of the Insurer or Administrator) for use in sales
literature or otherwise for use in connection with the sale of
the Variable Contracts or Fund shares or the acceptance of
applications for the Variable Contracts;
(ii) arise out of or as a result of any statement or representation
(other than statements or representations contained in the
registration statement or prospectus for the Separate Account or
the Fund not supplied by the Servicing Agent or the Investment
Adviser), any unauthorized use of any sales materials related to
the Variable Contracts, or wrongful conduct of the Servicing
Agent, or the affiliates, employees, or agents of the Servicing
Agent with respect to the sale or distribution of the Variable
Contracts or Fund shares or the acceptance of applications for
the Variable Contracts, including but not limited to any verbal
or written misrepresentations, unlawful sales practices, and
failure to deliver the Separate Account or Fund prospectus; or
(iii) arise as a result of a failure by the Servicing Agent to meet
its responsibilities under Section 2.3 of the Application and
Service Agreement.
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7.5 Indemnification by Distributor. Except as provided in Section 7.6
and 7.7 of this Agreement, Distributor and the Insurer agree, jointly and
severally, to indemnify and hold harmless the Fund, the Investment Adviser, the
Servicing Agent and Holding Company, each of their directors, trustees, and
officers, and each person, if any, who controls the Fund, the Investment
Adviser, the Servicing Agent or Holding Company within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 7.5) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of Insurer and Distributor)
or litigation expenses (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
litigation expenses are related to the sale or acquisition of the Fund's shares
or the Variable Contracts or to the operation of the Fund, and, in any such
case:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in sales
literature for the Fund generated by Distributor, or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to Distributor directly or
indirectly, by or on behalf of any Indemnified Party (which for
these purposes shall be deemed to include information furnished
by any Indemnified Party and persons under the sole control of
an Indemnified Party) for use in the sales literature or
otherwise for use in connection with the sale of such Fund
shares; or
(ii) arise out of or as a result of any unauthorized use of any sales
materials related to the Fund, or wrongful conduct of
Distributor, or the affiliates, employees, or agents of
Distributor with respect to the sale or distribution of the Fund
shares, including but not limited to any verbal or written
misrepresentations, and unlawful sales practices.
7.6 Indemnification Not Applicable. No person required to provide
indemnification under the terms of Sections 7.1, 7.2, 7.3, 7.4, or 7.5 of this
Agreement shall be liable under any such section with respect to any losses,
claims, damages, liabilities or litigation expenses to which an Indemnified
Party under any such section would otherwise be subject by reason of willful
misfeasance or bad faith on the part of such Indemnified Party, or gross
negligence in the performance of such Indemnified Party's duties to the Fund or
the Separate Account, as the case may be, or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund or the Separate Account, as the case may be.
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7.7 Notification. Any person required to provide indemnification under
the terms of Sections 7.1, 7.2, or 7.5 of this Agreement ("Indemnifying Party")
shall not be liable under the indemnification provisions of Section 7.1, 7.2,
7.5 with respect to any claim made against an Indemnified Party under any such
section unless such Indemnified Party shall have notified the Indemnifying Party
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Party shall have received notice of
such service on any designated agent), but failure to notify the Indemnifying
Party of any such claim shall not relieve the Indemnifying Party from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of the above-designated indemnification
provisions. In case any such action is brought against an Indemnified Party, the
Indemnifying Party shall be entitled to participate, at its own expense, in the
defense of such action, and counsel selected by any Indemnified Party must be
satisfactory to the Indemnifying Party.
7.8 Notice. Each party to this Agreement shall promptly notify the
other parties to the Agreement of the commencement of any litigation or
proceedings against it or any of its officers or directors or affiliated persons
in connection with the issuance or sale of the Variable Contracts or the Fund's
shares, or with the acceptance of applications for the Variable Contracts, or
with the operation of the Variable Contracts, the Separate Account, or the Fund.
ARTICLE VIII. EXCLUSIVITY
8.1 The Fund. Other than shares sold in connection with seeding the
Fund and the purchase of shares of the Series by the First of America Bank
Corporation Employees Retirement Plan, the Fund shall offer and sell the shares
of the Series exclusively to the Separate Account and other separate accounts of
the Insurer for the term of this Agreement, except that the Fund with the
written consent of the Insurer and Investment Adviser, may offer and sell the
shares of the Series to any insurance company or separate account in accordance
with Section 2.3 of this Agreement. Such written consent shall not be
unreasonably withheld.
8.2 The Separate Account. The Separate Account shall invest exclusively
in the Series of the Fund for the term of this Agreement, unless otherwise
agreed to in writing by the Insurer, the Servicing Agent, and the Investment
Adviser.
ARTICLE IX. APPLICABLE LAW
9.1 Kansas Law. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of Kansas.
9.2 Securities Acts. This Agreement shall be subject to the provisions
of the 1933, 1934, and 1940 Acts, and the rules and regulations and rulings
thereunder, and the terms of this Agreement shall be interpreted and construed
in accordance therewith. The world "affiliate" or "affiliated" shall have the
meaning as defined in Section 2(a)(3) of the 1940 Act.
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ARTICLE X. REINSURANCE OF VARIABLE CONTRACTS
10.1 Change in Law. In the event of a change in applicable law such
that the Servicing Agent, Holding Company or any of their affiliates are
permitted to engage in insurance underwriting and other insurance-related
activities, the Servicing Agent, or such affiliate ("transferee") shall have the
right subject to conformance with applicable law and to the reasonable
determination by the Insurer that the transferee is suitable and creditworthy,
to require the Insurer to transfer all or part of the assets of the Separate
Account invested in the Fund to the transferee, provided that such transferee is
duly licensed as a life insurance company under the laws of each state in which
owners of the Variable Contracts reside and is authorized to issue variable
annuity contracts in all such states, and to cause the Variable Contracts to be
reinsured by such transferee and further provided that, in the event Holding
Company elects to require the Insurer to transfer only part of the assets of the
Separate Account invested in the Fund to the transferee, the amount of such
assets remaining after the transfer is at least $50 million. The terms of
reinsurance shall be negotiated in good faith by the Servicing Agent, Holding
Company or other transferee and the Insurer and shall provide for the Insurer to
receive from the transferee the fair market value of the Variable Contracts to
be reinsured. The transferee shall bear the costs associated with the transfer
of the Separate Account assets, including but not limited to obtaining any
approvals required from the SEC, state insurance departments or Contract Owners.
10.2 Change in Rating of Insurer. In the event that the rating of the
claims-paying ability of the Insurer by Standard & Poor's Corporation ("S&P")
falls below BBB, the Insurer shall, at the option of the Holding Company, cause
the Variable Contracts to be reinsured by a life insurance company that is
acceptable to Holding Company, the claims-paying ability of which is rated BBB
or better by S&P, that is duly licensed as a life insurance company under the
laws of each state in which owners of the Variable Contracts reside, and is
authorized to issue variable contracts in all such states. The terms of
reinsurance shall be negotiated in good faith by the Insurer, in consultation
with Holding Company, and the reinsuring life insurance company, and the Insurer
shall be free to seek from the reinsuring life insurance company the fair market
value of the Variable Contracts to be reinsured.
ARTICLE XI. SUBSTITUTION AND TERMINATION
11.1 Substitution. All parties agree that the Variable Contracts will
provide that the Insurer reserves the right to substitute the shares of another
investment company or series thereof for the shares of the Fund or a Series
thereof if, shares of any or all of the Series of the Fund are no longer
available for investment, or if, in the judgment of the Insurer's management,
further investment in the shares of the Fund or any or all Series of the Fund
would be inappropriate in view of the purposes of the Variable Contracts.
11.2 Grounds for Termination. This Agreement shall terminate:
(a) at the option of the Fund, the Investment Adviser, the Servicing
Agent, the Administrator, Distributor, or the Insurer, and upon
90 days advance written notice, at any time after three years
from the commencement of operations of the Separate Account; or
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(b) at the option of the Fund, the Investment Adviser, or the
Servicing Agent, upon institution of formal proceedings against
the Insurer, the Administrator, or Distributor by the NASD, the
SEC, or any state securities or insurance department or any
other regulatory body that relate to or are likely to affect the
Insurer's, the Administrator's, or Distributor's duties under
this Agreement, the sale or acceptance of applications for the
Variable Contracts, the operation of the Separate Account, or
the purchase of the Fund's shares; or
(c) at the option of the Insurer, Administrator, or Distributor,
upon institution of formal proceedings against the Fund, the
Investment Adviser, the Servicing Agent, or any affiliate
thereof by the NASD, the SEC, banking authorities, or any state
securities or insurance department or any other regulatory body
that relate to or are likely to affect the duties of any of such
persons under this Agreement, the sale or acceptance of
applications for the Variable Contracts, the operation of the
Fund, or the purchase of the Fund's shares; or
(d) at the option of the Insurer, Administrator, or Distributor,
upon the commencement of bankruptcy, liquidation or similar
proceedings respecting the Investment Adviser, or Servicing
Agent; and at the option of the Investment Adviser, Fund, or
Servicing Agent, upon the commencement of bankruptcy,
liquidation or similar proceedings respecting the Insurer, the
Administrator, or Distributor; or
(e) upon the substitution by the Insurer of the shares of another
investment company or series thereof for the corresponding
shares of the Fund or a Series thereof in accordance with the
terms of the Variable Contracts; or
(f) at the option of any party in the event of a material breach in
performing the duties specified under this Agreement by any
other unaffiliated party or in the event of a material breach of
any representation or warranty made in this Agreement by any
other unaffiliated party; or
(g) at the option of any party in the event that such party
reasonably determines that performance of the duties under this
Agreement by any other unaffiliated party to this Agreement
would likely result in a violation of applicable law, and for
these purposes, such a determination shall be deemed reasonable
if supported by an opinion of qualified outside counsel; or
(h) at the option of the Fund, the Investment Adviser, or the
Servicing Agent in the event that any such party reasonably
determines that the Variable Contracts will not be treated as
annuity contracts under applicable provisions of the Code, and
for these purposes, such a determination shall be deemed
reasonable if supported by an opinion of qualified outside
counsel; or
19
<PAGE>
(i) at the option of any party upon a merger of the Fund or any of its
Series, or the sale of substantially all of the assets of the Fund or a Series
thereof, or a change in the investment adviser to the Fund; or
(j) upon termination of the Application and Service Agreement
between Distributor and the Servicing Agent; or
(k) upon the mutual agreement of all parties to this Agreement.
11.3 Notice. Each party to this Agreement shall promptly notify the
other parties to the Agreement of the institution against such party of any such
formal proceedings as described in Sections 11.2 (b), (c), or (d) hereof.
11.4 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund, the Administrator, and Distributor shall at the option of
the Insurer, continue to make available additional shares of the Fund pursuant
to the terms and conditions of this Agreement, for all Variable Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, based
upon instructions from the owners of the Existing Contracts, the Separate
Account shall be permitted to reallocate investments in the series of the Fund
and redeem investments in the series, and shall be permitted to invest in the
series in the event that owners of the Existing Contracts make additional
purchase payments under the Existing Contracts. If this Agreement terminates,
the parties agree that Article VII, and Sections 4.12, 14.1, 14.2, 14.3 and
14.5, and, to the extent that all or a portion of the assets of the Separate
Account continue to be invested in the Fund or any Series of the Fund, Article
II and Sections 4.1, 4.4, 4.5, 4.6, 4.8, 4.9, 4.10, and 5.7 will remain in
effect after termination.
20
<PAGE>
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
The Parkstone Advantage Fund
Attn: Amy J. Lee, Vice President and Assistant Secretary
700 S.W. Harrison Street
Topeka, Kansas 66636
If to the Administrator.
Security Management Company
Attn: James R. Schmank, Senior Vice President
700 S.W. Harrison Street
Topeka, Kansas 66636
If to the Distributor:
Security Distributors, Inc.
Attn: Amy J. Lee, Secretary
700 S.W. Harrison Street
Topeka, Kansas 66636
If to the Investment Adviser:
First of America Investment Corporation
Attn: Richard A. Wolf, President and Chief Executive Officer
303 North Rose Street
Kalamazoo, Michigan 49007
If to the Servicing Agent:
First of America Brokerage Service, Inc.
Attn: Susan L. Currier, President and Chief Executive Officer
157 South Kalamazoo Mall
Kalamazoo, Michigan 49007
If to Holding Company:
First of America Bank Corporation
Attn: John B. Rapp, Executive Vice President
211 South Rose Street
Kalamazoo, Michigan 49007
If to the Insurer:
Security Benefit Life Insurance Company
Attn: Amy J. Lee, Assistant Counsel
700 S.W. Harrison Street
Topeka, Kansas 66636
21
<PAGE>
ARTICLE XIV. MISCELLANEOUS
14.1 Trustees and Shareholders not Liable. A copy of the Fund's
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts and notice is hereby given that such Declaration of Trust has been
executed on behalf of the Fund by a Trustee of the Fund in his or her capacity
as Trustee and not individually. The obligations of this Agreement shall only be
binding upon the assets and property of the Fund and shall not be binding upon
any Trustee, officer or shareholder of the Fund individually.
14.2 Rights of Trustees and Shareholders. Nothing in this Agreement
shall impede the Fund's Trustees or shareholders of the shares of the Fund's
Series from exercising any of the rights provided to such Trustees or
shareholders in the Fund's Declaration of Trust, as amended, a copy of which
will be provided to the Insurer upon request.
14.3 "Parkstone" Name. It is understood that the name "Parkstone" or
any derivative thereof or logo associated with that name is a registered
trademark and the valuable property of The Parkstone Group of Funds, a
Massachusetts business trust, and an open-end management investment company
registered under the 1940 Act.
14.4 Protection of Name. It is understood that the name "Security
Benefit", "SBL" or any derivative thereof or logo associated with that name is
the valuable property of the Insurer and its affiliates, and that the Insurer
and other parties to this Agreement have the right to use such name (or
derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement all parties other than the Insurer shall forthwith
cease to use such name (or derivative or logo).
14.5 Consultation. In the event Insurer or a subsidiary of Insurer has,
as a result of actions not within the control of Insurer or its subsidiaries or
Holding Company or its subsidiaries, failed to be reimbursed for amounts
intended by the Insurer and the Holding Company or any of its subsidiaries to be
reimbursable and expended by it in connection with a business relationship
involving Holding Company or its subsidiaries and other than those to which this
Agreement relates, then Holding Company or a subsidiary shall pay to the Insurer
a consultation fee in advance in an amount at least equal to unreimbursed amount
expended, and the Insurer shall provide to the Holding Company or its
subsidiaries for a period of one-year consultation service with respect to
insurance and annuity marketing, mutual fund management, administration,
shareholder servicing, transfer agency, and fund accounting, or any combination
of the foregoing, as Insurer and Holding Company shall agree. Such consultation
service will relate only to matters within the expertise and knowledge of
Insurer or its subsidiaries and will not require more than 500 hours of employee
time for the one-year period.
14.6 Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
14.7 Execution in Counterpart. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
22
<PAGE>
14.8 Invalidity of a Provision. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of the Agreement shall not be affected thereby.
14.9 Assignment. This Agreement may not be assigned by any party to the
Agreement except with the written consent of the other parties to the Agreement,
which may not be unreasonably withheld. For purposes of this Section,
"assignment" shall have the meaning as defined in Section 2(a)(4) of the 1940
Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SECURITY BENEFIT LIFE INSURANCE COMPANY
ATTEST: AMY J. LEE By: GARY L. EISENBARTH
--------------------- -------------------------------------------
Name: Name: Gary L. Eisenbarth
Title: Executive Vice President
THE PARKSTONE ADVANTAGE FUND
ATTEST: AMY J. LEE By: LARRY J. BRUNING
--------------------- -------------------------------------------
Name: Name: Larry J. Bruning
Title: President
FIRST OF AMERICA INVESTMENT CORPORATION
ATTEST: R. WILLIAM SHAUMAN By: RICHARD A. WOLF
--------------------- -------------------------------------------
Name: Name: Richard A. Wolf
Title: President and Chief Executive Officer
FIRST OF AMERICA BROKERAGE SERVICE, INC.
ATTEST: R. WILLIAM SHAUMAN By: SUSAN L. CURRIER
--------------------- -------------------------------------------
Name: Name: Susan L. Currier
Title: President and Chief Executive Officer
23
<PAGE>
FIRST OF AMERICA BANK CORPORATION
ATTEST: R. WILLIAM SHAUMAN By: JOHN B. RAPP
--------------------- -------------------------------------------
Name: Name: John B. Rapp
Title: Executive Vice President
SECURITY MANAGEMENT COMPANY
ATTEST: AMY J. LEE By: JAMES R. SCHMANK
--------------------- -------------------------------------------
Name: Name: James R. Schmank
Title: Senior Vice President - Chief Financial
Officer and Treasurer
SECURITY DISTRIBUTORS, INC.
ATTEST: JAMES R. SCHMANK By: AMY J. LEE
--------------------- -------------------------------------------
Name: Name: Amy J. Lee
Title: Secretary
24
<PAGE>
THE PARKSTONE ADVANTAGE FUND
FIRST AMENDMENT TO FUND PARTICIPATION AND
VARIABLE CONTRACT MAR.KETING AGREEMENT
This FIRST AMENDMENT TO FUND PARTICIPATION AND VARIABLE CONTRACT
MARKETING AGREEMENT (this "First Amendment") dated as of May 19, 1994 by and
among Security Benefit Life Insurance Company ("Insurer"), a Kansas mutual life
insurance corporation, on its behalf and on behalf of the Parkstone Variable
Annuity Account (the "Separate Account"), a segregated asset account of the
Insurer, The Parkstone Advantage Fund (the "Fund"), a Massachusetts business
trust; First of America Investment Corporation ("Investment Adviser"), a
Michigan corporation; Security Management Company ("Administrator"), a Kansas
corporation; Security Distributors, Inc. ("Distributor"), a Kansas corporation
and a subsidiary of Insurer; First of America Brokerage Service, Inc.
("Servicing Agent"), a Michigan corporation and an affiliate of Investment
Adviser; and First of America Bank Corporation ("Holding Company"), a Michigan
corporation and the parent of Investment Adviser and Servicing Agent.
WITNESSETH
WHEREAS, the parties hereto entered into that certain Fund
Participation and Variable Contract Marketing Agreement as of the 10th day of
September, 1993 (the "Fund Participation Agreement"); and
WHEREAS, the parties hereto wish to amend the Fund Participation
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS.
Unless otherwise defined herein, all capitalized terms used in this
First Amendment shall have their respective defined meanings ascribed
to them in the Fund Participation Agreement.
2. AMENDMENTS. Section 6.1 is hereby added to read as follows:
6.1 EXPENDITURES. Distributor shall make available for expenditure
in connection with marketing and promotion of the Variable Contracts as
directed by Servicing Agent and agreed to by Distributor an annual
amount equal to not less than fifteen one hundredths of one percent
(0.15%) of the Contract Assets (as defined in Schedule A of the
Application and Service Agreement) of the outstanding Variable
Contracts of the type identified in Exhibit A less such portion of the
Contract Assets attributable to the Fixed Account (as defined in the
Prospectus for the Separate Account) (the "Reduced Contract Assets").
The amount to be available for expenditure in each calendar quarter
shall be computed by Insurer as of the first day of each calendar
quarter based on the amount of Reduced Contract Assets on the last day
of the preceding calendar quarter. For purposes of this Section 6.1,
marketing and promotion shall include activities associated with the
engagement of a person or persons to render wholesaling activities in
connection with the offering of the Variable Contracts and the
preparation of sales literature (other than the Prospectus for the
Separate Account and the Fund) and other promotional material that
describes the Variable Contracts and/or the Fund, and such other
activities and matters as are agreed upon by the Distributor and the
Servicing Agent. Distributor reserves the right, for cause, including,
under appropriate circumstances, amendment or termination of an
agreement entered into in connection with the Variable Contracts and/or
the Fund by one or more of the parties to this Fund Participation and
Variable Contract Marketing Agreement, to cease making the amount
described above available for marketing and promotion activities at any
time on 90 days' prior written notice to Servicing Agent.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed as of the day and year first above written.
SECURITY BENEFIT LIFE INSURANCE COMPANY
ATTEST: ROGER K. VIOLA By: HOWARD R. FRICKE
--------------------- -------------------------------------------
Howard R. Fricke
President
THE PARKSTONE ADVANTAGE FUND
ATTEST: AMY J. LEE By: JAMES R. SCHMANK
--------------------- -------------------------------------------
James R. Schmank
President
FIRST OF AMERICA INVESTMENT CORPORATION
ATTEST: NANCY FERRILL By: RICHARD A. WOLF
--------------------- -------------------------------------------
Richard A. Wolf
President and Chief Executive Officer
2
<PAGE>
SECURITY MANAGEMENT COMPANY
ATTEST: AMY J. LEE By: JAMES R. SCHMANK
--------------------- -------------------------------------------
James R. Schmank
Senior Vice President - Chief Financial
Officer and Treasurer
SECURITY DISTRIBUTORS, INC.
ATTEST: JAMES R. SCHMANK By: AMY J. LEE
--------------------- -------------------------------------------
Amy J. Lee
Secretary
FIRST OF AMERICA BROKERAGE SERVICE, INC.
ATTEST: KATHY MOROCCO By: NOAH ZECHER
--------------------- -------------------------------------------
Noah Zecher
President and Chief Executive Officer
FIRST OF AMERICA BANK CORPORATION
ATTEST: KATHY MOROCCO By: JOHN B. RAPP
--------------------- -------------------------------------------
John B. Rapp
Executive Vice President
3
<PAGE>
August 5, 1996
First of America Brokerage Service, Inc.
Care of: Jeff Marshall
211 South Rose
Kalamazoo, MI 49007
Subj: Fund Participation Agreement dated as of May 19, 1994, as amended
Dear Mr. Marshall:
I am writing concerning Section 6.1 of the above-referenced agreement pursuant
to which Security Distributors, Inc. makes available to First of America
Brokerage Service, Inc. funds for marketing and promotion of the Parkstone
variable annuity contracts.
As we have discussed, we propose to cease making such funds available for
marketing effective July 1, 1996, and ask that you waive the 90 day notice
requirement set forth in the Agreement. If this is acceptable, please execute
this letter and return it to me. In any event, please consider this letter our
notice that we are exercising our right to cease making available for marketing
and promotion activities the amount described in Section 6.1 of the Fund
Participation Agreement.
If you have any questions concerning this matter, please contact me at (913)
295-3226.
Sincerely,
AMY J. LEE
Amy J. Lee
Secretary
Security Distributors, Inc.
Approved:
First of America Brokerage Service, Inc.
By: Jeff Marshall
Date: February 12, 1997
cc: Dave Riggs, Howard & Howard
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and to the
use of our reports dated February 7, 1997, with respect to the financial
statements of Security Benefit Life Insurance Company and the financial
statements of Parkstone Variable Annuity Account included in the Registration
Statement on Form N-4 and the related Statement of Additional Information
accompanying the Prospectus of Parkstone Variable Annuity.
Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
April 24, 1997
<PAGE>
Item 24(b) Exhibit (13)
EQUITY FUND
Average annual total return as of December 31, 1996
1.00 Year
1000 (1+T) = 1,070.26
(1+T) = 1.0703
T = .0703
3.27 Years (since inception September 24, 1993)
1000 (1+T)3.27 = 1,222.48
((1+T)3.27)1/3.27 = (1.22248)1/3.27
1+T = 1.0633
T = .0633
SMALL CAPITALIZATION FUND
Average annual total return as of December 31, 1996
1.00 Year
1000 (1+T) = 1,185.98
1+T = 1.1860
T = .1860
3.27 Years (since inception September 24, 1993)
1000 (1+T)3.27 = 1,735.59
((1+T)3.27)1/3.27 = (1.73559)1/3.27
1+T = 1.1836
T = .1836
<PAGE>
Item 24(b) Exhibit (13)
BOND FUND
Average annual total return as of December 31, 1996
1.00 Year
1000 (1+T) = 925.05
1+T = .92505
T = -.0750
3.27 Years (since inception September 24, 1993)
1000 (1+T)3.27 = 924.96
((1+T)3.27)1/3.27 = (0.92496)1/3.27
1+T = .9764
T = -.0236
INTERNATIONAL DISCOVERY FUND
Average annual total return as of December 31, 1996
1.00 Year
1000 (1+T) = 1,052.99
1+T = 1.0530
T = .0530
3.27 Years (since inception September 24, 1993)
1000 (1+T)3.27 = 1,012.15
((1+T)3.27)1/3.27 = (1.01215) 1/3.27
1+T = 1.0037
T = .0037
<PAGE>
Item 24(b) Exhibit (13)
PRIME OBLIGATIONS FUND
CALCULATION OF WEEKLY MAINTENANCE FEE FACTOR:
1,224.70 1996 AF
-------------
285,957.23 1996 Average Assets
= .0042828083 x 7/365 = .00008213604
CALCULATION OF CHANGE IN UNIT VALUE:
(Unrounded Unrounded)
( Price Price )
(12-29-XX - 12-22-XX ) = 10.7450923379 - 10.738491091 = .0006147276
----------------------- ----------------------------
( Unrounded Price )
( 12-22-XX ) 10.738491091
ANNUALIZED YIELD:
365/7 (.0006147276 - .00008213604) = 2.78%
EFFECTIVE YIELD:
(1 + .00053259156)365/7 - 1 = 2.82%
<PAGE>
Item 24(b) Exhibit (13)
NONSTANDARDIZED TOTAL RETURN
EQUITY FUND
Average annual total return as of December 31, 1996
(Without Deduction of CDSC and Maintenance Fee)
1.00 Year
1000 (1+T) = 1,156.58
(1+T) = 1.1566
T = .1566
3.27 Years (since inception September 24, 1993)
1000 (1+T)3.27 = 1,396.00
((1+T)3.27)1/3.27 = 1.3960
1+T = 1.1074
T = .1074
SMALL CAPITALIZATION FUND
Average annual total return as of December 31, 1996
(Without Deduction of CDSC and Maintenance Fee)
1.00 Year
1000 (1+T) = 1,278.40
1+T = 1.2784
T = .2784
3.27 Years (since inception September 24, 1993)
1000 (1+T)3.27 = 1,947.00
((1+T)3.27)1/3.27 = 1.9470
1+T = 1.2259
T = .2259
<PAGE>
Item 24(b) Exhibit (13)
BOND FUND
Average annual total return as of December 31,
1996 (Without Deduction of CDSC and Maintenance Fee)
1.00 Year
1000 (1+T) = 1,003.74
1+T = 1.0037
T = .0037
3.27 Years (since inception September 24, 1993)
1000 (1+T)3.27 = 1,073.00
((1+T)3.27)1/3.27 = 1.07300
1+T = 1.0218
T = .0218
INTERNATIONAL DISCOVERY FUND
Average annual total return as of December 31, 1996
(Without Deduction of CDSC and Maintenance Fee)
1.00 Year
1000 (1+T) = 1,138.40
1+T = 1.1384
T = .1384
3.27 Years (since inception September 24, 1993)
1000 (1+T)3.27 = 1,168.00
((1+T)3.27)1/3.27 = 1.1680
1+T = 1.0486
T = .0486
<PAGE>
Item 24(b) Exhibit (13)
NONSTANDARDIZED
EQUITY FUND
Cumulative Total Return as of December 31, 1996
(Without Deduction of CDSC and Maintenance Fee)
EQUITY SERIES
1.00 Year 1,156.59 - 1,000.00 = 156.59
156.59/1,000.00 = 15.66%
3.27 Years (since inception September 24, 1993)
1,396.00 - 1,000.00 = 396.00
396.00/1,000.00 = 39.60%
SMALL CAPITALIZATION FUND
Cumulative Total Return as of December 31, 1996
(Without Deduction of CDSC and Maintenance Fee)
SMALL CAP SERIES
1.00 Year 1,278.40 - 1,000.00 = 278.40
278.40/1,000.00 = 27.84%
3.27 Years (since inception September 24, 1993)
1,947.00 - 1,000.00 = 947.00
947.00/1,000.00 = 94.70%
<PAGE>
BOND FUND
Cumulative Total Return as of December 31, 1996
(Without Deduction of CDSC and Maintenance Fee)
BOND SERIES
1.00 Year 1,003.74 - 1,000.00 = 3.74
3.74/1,000.00 = .37%
3.27 Years (since inception September 24, 1993)
1,073.00 - 1,000.00 = 73.00
73.00/1,000.00 = 7.30%
INTERNATIONAL DISCOVERY FUND
Cumulative Total Return as of December 31, 1996
(Without Deduction of CDSC and Maintenance Fee)
INTERNATIONAL DISCOVERY SERIES
1.00 Year 1,138.40 - 1,000.00 = 138.40
138.40/1,000.00 = 13.84%
3.27 Years (since inception September 24, 1993)
1,168.00 - 1,000.00 = 168.00
168.00/1,000.00 = 16.80%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 001
<NAME> PRIME OBLIGATIONS FUND
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<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<DIVIDEND-INCOME> 43
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<EXPENSES-NET> 15
<NET-INVESTMENT-INCOME> 28
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<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 28
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<DISTRIBUTIONS-OF-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 149
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<SHARES-REINVESTED> 0
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<GROSS-EXPENSE> 15
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<PER-SHARE-NAV-BEGIN> 10.43
<PER-SHARE-NII> .32
<PER-SHARE-GAIN-APPREC> 0
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 002
<NAME> PRIME OBLIGATIONS TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<INVESTMENTS-AT-COST> 298
<INVESTMENTS-AT-VALUE> 298
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<SHARES-COMMON-PRIOR> 13,728
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<NET-CHANGE-FROM-OPS> 39
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 327
<NUMBER-OF-SHARES-REDEEMED> 33
<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
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8
<AVERAGE-NET-ASSETS> 1,389
<PER-SHARE-NAV-BEGIN> 10.17
<PER-SHARE-NII> .34
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.51
<EXPENSE-RATIO> .58
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 003
<NAME> BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 004
<NAME> BOND TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 005
<NAME> EQUITY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 19,425
<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> 256
<NET-INVESTMENT-INCOME> (256)
<REALIZED-GAINS-CURRENT> 474
<APPREC-INCREASE-CURRENT> 2,294
<NET-CHANGE-FROM-OPS> 2,038
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 487
<NUMBER-OF-SHARES-REDEEMED> 87
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 400
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<ACCUMULATED-GAINS-PRIOR> 0
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<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 256
<AVERAGE-NET-ASSETS> 16,176
<PER-SHARE-NAV-BEGIN> 12.06
<PER-SHARE-NII> (.21)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 006
<NAME> EQUITY-TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<SHARES-COMMON-STOCK> 117,468
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<NET-INVESTMENT-INCOME> (7)
<REALIZED-GAINS-CURRENT> 56
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<NET-CHANGE-FROM-OPS> 64
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<NUMBER-OF-SHARES-SOLD> 88
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<NET-CHANGE-IN-ASSETS> 74
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<ACCUMULATED-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7
<AVERAGE-NET-ASSETS> 1,182
<PER-SHARE-NAV-BEGIN> 12.32
<PER-SHARE-NII> (.09)
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<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 14.46
<EXPENSE-RATIO> .59
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 007
<NAME> INTERNATIONAL DISCOVERY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
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<PERIOD-END> DEC-31-1996
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<INVESTMENTS-AT-VALUE> 9,919
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<TOTAL-LIABILITIES> 9,919
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 849,239
<SHARES-COMMON-PRIOR> 600,836
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,035
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<EXPENSES-NET> (116)
<NET-INVESTMENT-INCOME> (86)
<REALIZED-GAINS-CURRENT> 47
<APPREC-INCREASE-CURRENT> 1,082
<NET-CHANGE-FROM-OPS> 996
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<NUMBER-OF-SHARES-SOLD> 299
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 116
<AVERAGE-NET-ASSETS> 7,890
<PER-SHARE-NAV-BEGIN> 10.26
<PER-SHARE-NII> (.12)
<PER-SHARE-GAIN-APPREC> 1.54
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<PER-SHARE-NAV-END> 11.68
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 008
<NAME> INTERNATIONAL DISCOVERY TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 900
<INVESTMENTS-AT-VALUE> 967
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<SHARES-COMMON-STOCK> 79,831
<SHARES-COMMON-PRIOR> 17,264
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 63
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<DIVIDEND-INCOME> 3
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (4)
<NET-INVESTMENT-INCOME> (1)
<REALIZED-GAINS-CURRENT> 2
<APPREC-INCREASE-CURRENT> 65
<NET-CHANGE-FROM-OPS> 64
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<NUMBER-OF-SHARES-SOLD> 64
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4
<AVERAGE-NET-ASSETS> 748
<PER-SHARE-NAV-BEGIN> 10.47
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 1.66
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.11
<EXPENSE-RATIO> .53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 009
<NAME> SMALL CAPITALIZATION FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 15,521
<INVESTMENTS-AT-VALUE> 18,737
<RECEIVABLES> 0
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,737
<PAYABLE-FOR-SECURITIES> 18,737
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 18,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 962,144
<SHARES-COMMON-PRIOR> 630,080
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 824
<NET-ASSETS> 18,737
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (203)
<NET-INVESTMENT-INCOME> (203)
<REALIZED-GAINS-CURRENT> 2,554
<APPREC-INCREASE-CURRENT> 3,378
<NET-CHANGE-FROM-OPS> 3,175
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 390
<NUMBER-OF-SHARES-REDEEMED> 57
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 333
<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> 203
<AVERAGE-NET-ASSETS> 14,224
<PER-SHARE-NAV-BEGIN> 15.23
<PER-SHARE-NII> (.26)
<PER-SHARE-GAIN-APPREC> 4.50
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.47
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 010
<NAME> SMALL CAPITALIZATION TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,589
<INVESTMENTS-AT-VALUE> 1,514
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<TOTAL-ASSETS> 1,514
<PAYABLE-FOR-SECURITIES> 1,514
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 1,514
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 74,886
<SHARES-COMMON-PRIOR> 24,824
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (144)
<NET-ASSETS> 1,514
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (5)
<NET-INVESTMENT-INCOME> (5)
<REALIZED-GAINS-CURRENT> 240
<APPREC-INCREASE-CURRENT> 96
<NET-CHANGE-FROM-OPS> 91
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 59
<NUMBER-OF-SHARES-REDEEMED> 9
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 50
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5
<AVERAGE-NET-ASSETS> 969
<PER-SHARE-NAV-BEGIN> 15.57
<PER-SHARE-NII> (.10)
<PER-SHARE-GAIN-APPREC> 4.74
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.21
<EXPENSE-RATIO> .52
<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 ACCOUNT 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 4th day of March, 1997.
Thomas R. Clevenger
---------------------------------------------------------------
Thomas R. Clevenger
SUBSCRIBED AND SWORN to before me this 4th day of March, 1997.
L. Charmaine Lucas
---------------------------------------------------------------
Notary Public
My Commission Expires:
April 1, 1998
- -------------------------------------
<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
ACCOUNT 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 4th day of March, 1997.
Sister Loretto Marie Colwell
---------------------------------------------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 4th day of March, 1997.
L. Charmaine Lucas
---------------------------------------------------------------
Notary Public
My Commission Expires:
April 1, 1998
- -------------------------------------
<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 ACCOUNT 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 4th day of March, 1997.
John C. Dicus
---------------------------------------------------------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 4th day of March, 1997
L. Charmaine Lucas
---------------------------------------------------------------
Notary Public
My Commission Expires:
April 1, 1998
- -------------------------------------
<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 ACCOUNT 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 4th day of March, 1997.
Melanie S. Fannin
---------------------------------------------------------------
Melanie S. Fannin
SUBSCRIBED AND SWORN to before me this 4th day of March, 1997.
L. Charmaine Lucas
---------------------------------------------------------------
Notary Public
My Commission Expires:
April 1, 1998
- -------------------------------------
<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 ACCOUNT 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 4th day of March, 1997.
Howard R. Fricke
---------------------------------------------------------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 4th day of March, 1997.
L. Charmaine Lucas
---------------------------------------------------------------
Notary Public
My Commission Expires:
April 1, 1998
- -------------------------------------
<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 ACCOUNT 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 4th day of March, 1997.
W. W. Hanna
---------------------------------------------------------------
W. W. Hanna
SUBSCRIBED AND SWORN to before me this 4th day of March, 1997.
L. Charmaine Lucas
---------------------------------------------------------------
Notary Public
My Commission Expires:
April 1, 1998
- -------------------------------------
<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 ACCOUNT 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 4th day of March, 1997.
John E. Hayes, Jr.
---------------------------------------------------------------
John E. Hayes, Jr.
SUBSCRIBED AND SWORN to before me this 4th day of March, 1997.
L. Charmaine Lucas
---------------------------------------------------------------
Notary Public
My Commission Expires:
April 1, 1998
- -------------------------------------
<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 ACCOUNT 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 4th day of March, 1997.
Laird G. Noller
---------------------------------------------------------------
Laird G. Noller
SUBSCRIBED AND SWORN to before me this 4th day of March, 1997.
L. Charmaine Lucas
---------------------------------------------------------------
Notary Public
My Commission Expires:
April 1, 1998
- -------------------------------------
<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 ACCOUNT 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 4th day of March, 1997.
Frank C. Sabatini
---------------------------------------------------------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 4th day of March, 1997.
L. Charmaine Lucas
---------------------------------------------------------------
Notary Public
My Commission Expires:
April 1, 1998
- -------------------------------------
<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 ACCOUNT 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 4th day of March, 1997.
Robert C. Wheeler
---------------------------------------------------------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 4th day of March, 1997.
L. Charmaine Lucas
---------------------------------------------------------------
Notary Public
My Commission Expires:
April 1, 1998
- -------------------------------------
