File No. 33-65654
File No. 811-7624
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATIONSTATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
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Post-Effective Amendment No. 6 [ ]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 8 [ ]
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(Check appropriate box or boxes)
PARKSTONE VARIABLE ANNUITY ACCOUNT
(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:
(785) 431-3000
Copies to:
Amy J. Lee
Vice President and Associate General Counsel Jeffrey S. Puretz, Esq.
Security Benefit Group Dechert, Price & Rhoads
700 Harrison Street, Topeka, KS 66636-0001 1775 Eye Street, N.W.
(Name and address of Agent for Service) Washington, DC 20006
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 30, 1998, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on April 30, 1998, pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on April 30, 1998, 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.
Title of Securities Being Registered: Interests in a separate account under
individual flexible premium deferred variable annuity contracts.
<PAGE>
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
PART A
PROSPECTUS CAPTION
ITEM OF FORM N-4
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.................Condensed Financial Information
(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; Year
2000 Compliance
(b)Registrant..............................Separate Account; Information
about Security Benefit, the
Separate Account, and The
Mutual Funds
(c)Portfolio Company.......................Information about Security
Benefit, the Separate Account,
and The Mutual Funds; The
Mutual Funds; Parkstone Bond
Fund; Parkstone Mid
Capitalization Fund; Parkstone
International Discovery Fund;
Parkstone Small Capitalization
Fund; Colonial U.S. Stock Fund,
Variable Series; Colonial
Strategic Income Fund, Variable
Series; Newport Tiger Fund,
Variable Series; Money Market
Series; Global Aggressive Bond
Series; Equity Income Series;
Social Awareness Series; The
Investment Advisers
(d)Fund Prospectus.........................The Mutual Funds
(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; 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
8. Annuity Period.............................Annuity Period; General Annuity
Options; Option 1; Option 2;
Option 3; Option 4; Option 5;
Option 6; Option 7; Option 8;
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
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
STATEMENT OF ADDITIONAL
ITEM OF FORM N-4 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
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
<PAGE>
PARKSTONE ADVANTAGE VARIABLE ANNUITY
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY: MAILING ADDRESS:
SECURITY BENEFIT LIFE INSURANCE COMPANY PARKSTONE ADVANTAGE CUSTOMER SERVICE
700 SW HARRISON STREET 157 S. KALAMAZOO MALL
TOPEKA, KANSAS 66636-0001 P.O. BOX 50551
1-800-355-4555 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 are listed below.
Parkstone Bond Subaccount
Parkstone Mid Capitalization Subaccount
Parkstone Small Capitalization Subaccount
Parkstone International Discovery Subaccount
Colonial U.S. Stock Subaccount
Colonial Strategic Income Subaccount
Newport Tiger Subaccount
SBL Money Market Subaccount
Lexington Global Aggressive Bond Subaccount
T. Rowe Price Equity Income Subaccount
SBL Social Awareness Subaccount
The Contract Value in the Fixed Account will accrue interest at rates that are
paid by Security Benefit as described in "The Fixed Account,".
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,").
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 May 1, 1998, 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 in
this Prospectus.
The SEC maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference and
other information regarding companies that file electronically with the SEC.
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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 PROSPECTUSES FOR THE PARKSTONE
ADVANTAGE FUND, KEYPORT VARIABLE INVESTMENT TRUST AND SBL FUND. ALL 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: MAY 1, 1998
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
DEFINITIONS............................................................................................ 5
SUMMARY................................................................................................ 6
Purpose of the Contract.............................................................................. 6
The Separate Account and the Mutual Funds............................................................ 6
Fixed Account........................................................................................ 6
Purchase Payments.................................................................................... 6
Contract Benefits.................................................................................... 6
Free-Look Right...................................................................................... 7
Charges and Deductions............................................................................... 7
Contingent Deferred Sales Charge................................................................... 7
Mortality and Expense Risk Charge.................................................................. 7
Administrative Charge.............................................................................. 7
Premium Tax Charge................................................................................. 7
Other Expenses..................................................................................... 8
Contacting Security Benefit.......................................................................... 8
EXPENSE TABLE.......................................................................................... 8
Contractual Expenses................................................................................. 8
Separate Account Annual Expenses..................................................................... 8
Annual Mutual Fund Expenses After Expense Limitation................................................. 8
CONDENSED FINANCIAL INFORMATION........................................................................ 11
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND THE MUTUAL FUNDS......................... 13
Security Benefit Life Insurance Company.............................................................. 14
Year 2000 Compliance................................................................................. 14
Separate Account..................................................................................... 14
The Mutual Funds..................................................................................... 15
Parkstone Bond Fund................................................................................ 15
Parkstone Mid Capitalization Fund.................................................................. 15
Parkstone International Discovery Fund............................................................. 15
Parkstone Small Capitalization Fund................................................................ 15
Colonial U.S. Stock Fund, Variable Series.......................................................... 15
Colonial Strategic Income Fund, Variable Series.................................................... 16
Newport Tiger Fund, Variable Series................................................................ 16
Money Market Series (Series C)..................................................................... 16
Global Aggressive Bond Series (Series K)........................................................... 16
Equity Income Series (Series O).................................................................... 16
Social Awareness Series (Series S)................................................................. 16
The Investment Advisers.............................................................................. 16
THE CONTRACT........................................................................................... 16
General.............................................................................................. 16
Application for a Contract........................................................................... 17
Purchase Payments.................................................................................... 17
Allocation of Purchase Payments...................................................................... 17
Dollar Cost Averaging Option......................................................................... 17
Asset Rebalancing Option............................................................................. 18
Transfers of Contract Value.......................................................................... 19
Contract Value....................................................................................... 19
Determination of Contract Value...................................................................... 19
Full and Partial Withdrawals......................................................................... 19
Systematic Withdrawals............................................................................... 20
Free-Look Right...................................................................................... 21
Death Benefit........................................................................................ 21
CHARGES AND DEDUCTIONS................................................................................. 21
Contingent Deferred Sales Charge..................................................................... 21
Hospital/Nursing Home Waiver....................................................................... 22
Mortality and Expense Risk Charge.................................................................... 23
Administrative Charge................................................................................ 23
Premium Tax Charge................................................................................... 23
Other Charges........................................................................................ 23
Variations in Charges................................................................................ 23
Guarantee of Certain Charges......................................................................... 23
Mutual Fund Expenses................................................................................. 24
ANNUITY PERIOD......................................................................................... 24
General.............................................................................................. 24
Annuity Options...................................................................................... 24
Option 1--Life Income............................................................................... 24
Option 2--Life Income with Guaranteed Payments of 5, 10, 15 or 20 Years............................. 25
Option 3--Life with Installment Refund Option....................................................... 25
Option 4--Joint and Last Survivor................................................................... 25
Option 5--Payments for a Specified Period........................................................... 25
Option 6--Payments of a Specified Amount............................................................ 25
Option 7--Period Certain............................................................................ 25
Option 8--Joint and Contingent Survivor Option...................................................... 25
Value of Variable Annuity Payments: Assumed Interest Rate......................................... 25
Selection of an Option............................................................................... 25
THE FIXED ACCOUNT...................................................................................... 26
Interest............................................................................................. 26
Death Benefit........................................................................................ 26
Contract Charges..................................................................................... 26
Transfers and Withdrawals............................................................................ 26
Payments from the Fixed Account...................................................................... 27
MORE ABOUT THE CONTRACT................................................................................ 27
Ownership............................................................................................ 27
Joint Owners....................................................................................... 27
Designation and Change of Beneficiary................................................................ 27
Participating........................................................................................ 27
Payments from the Separate Account................................................................... 27
Proof of Age and Survival............................................................................ 27
Misstatements........................................................................................ 27
Loans................................................................................................ 28
Restrictions on Withdrawals from Qualified Plans..................................................... 28
Restrictions on Withdrawals from 403(b) Programs..................................................... 29
FEDERAL TAX MATTERS.................................................................................... 29
Introduction......................................................................................... 29
Tax Status of Security Benefit and the Separate Account.............................................. 29
General............................................................................................ 29
Charge for Security Benefit Taxes.................................................................. 30
Diversification Standards.......................................................................... 30
Taxation of Annuities in General - Non-Qualified Plans............................................... 30
Surrenders or Withdrawals Prior to the Annuity Start Date.......................................... 30
Surrenders or Withdrawals on or after Annuity Start Date........................................... 30
Penalty Tax on Certain Surrenders and Withdrawals.................................................. 31
Additional Considerations............................................................................ 31
Distribution-at-Death Rules........................................................................ 31
Gift of Annuity Contracts.......................................................................... 31
Contracts Owned by Non-Natural Persons............................................................. 31
Multiple Contract Rule............................................................................. 31
Possible Tax Changes............................................................................... 32
Qualified Plans...................................................................................... 32
Section 401........................................................................................ 32
Section 403(b)..................................................................................... 33
Section 408........................................................................................ 33
Section 457........................................................................................ 34
Tax Penalties...................................................................................... 34
Withholding........................................................................................ 34
OTHER INFORMATION...................................................................................... 35
Voting of Mutual Fund Shares......................................................................... 35
Substitution of Investments.......................................................................... 35
Changes to Comply with Law and Amendments............................................................ 36
Reports to Owners.................................................................................... 36
Telephone Transfer Privileges........................................................................ 36
Legal Proceedings.................................................................................... 36
Legal Matters........................................................................................ 36
PERFORMANCE INFORMATION................................................................................ 36
ADDITIONAL INFORMATION................................................................................. 37
Registration Statement............................................................................... 37
Financial Statements................................................................................. 37
STATEMENT OF ADDITIONAL INFORMATION.................................................................... 37
</TABLE>
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 PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION OF THE MUTUAL FUND, OR ANY SUPPLEMENT THERETO.
<PAGE>
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. It is
also used to calculate variable annuity payments for Annuity Options 5 and 6.
ANNUITANT -- The person or persons on whose life annuity payments depend or
designated to receive annuity payments. If Joint Annuitants are named in the
Contract, "Annuitant" means both Annuitants unless otherwise stated.
ANNUITY -- A series of periodic annuity 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 bank account on a specified day
of the month, on a monthly, quarterly, semiannual or annual basis, 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 Owner; Joint Owner; Primary Beneficiary; Contingent Beneficiary;
Annuitant; or if none of the above are alive, the Owner's Estate. For a Contract
issued prior to December 1, 1997, the Designated Beneficiary is the first person
on the following list who is alive on the date of the Owner's death: the Primary
Beneficiary; Contingent Beneficiary; Owner; Joint Owner; 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 3.0 percent
or for Contracts issued prior to December 1, 1997, 3.5 percent) declared by
Security Benefit periodically at its discretion.
FULL WITHDRAWAL VALUE -- The amount a Contractowner may receive upon full
withdrawal of the Contract, which is equal to Contract Value less any applicable
contingent deferred sales charge, any premium taxes and any Contract Debt.
GENERAL ACCOUNT -- All assets of Security Benefit other than those allocated
to the Separate Account or to any other separate account of Security Benefit.
HOME OFFICE -- The Annuity Administration Department at Security Benefit's
office at 700 Harrison Street, Topeka, Kansas 66636.
HOSPITAL -- An institution that is licensed as such by the Joint Commission
of Accreditation of Hospitals, or any lawfully operated institution that
provides in-patient treatment of sick and injured persons through medical,
diagnostic and surgical facilities directed by physicians and 24 hour nursing
services.
MUTUAL FUNDS -- The Parkstone Advantage Fund, Liberty Variable Investment
Trust and SBL Fund. Each 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.
QUALIFIED SKILLED NURSING FACILITY -- A facility licensed by the state to
provide on a daily basis convalescent or chronic care for in-patients who, by
reason of infirmity or illness, are not able to care for themselves.
SEPARATE ACCOUNT -- 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 Series of one of the Mutual
Funds.
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, eleven 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 and Security
Benefit's Home Office are open for trading. The New York Stock Exchange and the
Home Office are closed on weekends and on the following holidays: New Year's
Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
VALUATION PERIOD -- A period used in measuring the investment experience of
each Subaccount of the Separate Account. A Valuation Period begins at the close
of one Valuation Date and ends at the close of the next succeeding Valuation
Date.
<PAGE>
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," and
in the Contract.
PURPOSE OF THE CONTRACT
The individual flexible purchase payment deferred variable annuity contract
("the 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,".
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 FUNDS
Purchase payments designated to accumulate on a variable basis are allocated
to the Separate Account. See "Separate Account,". The Separate Account is
currently divided into eleven accounts referred to as Subaccounts. Each
Subaccount invests exclusively in shares of a corresponding portfolio ("Series")
of one of the Parkstone Advantage Fund, Liberty Variable Investment Trust and
SBL Fund (the "Mutual Funds"). The Series of the Mutual Funds, each of which
Series has a different investment objective or objectives, are listed under the
respective Mutual Funds below.
PARKSTONE ADVANTAGE FUND
Parkstone Bond Fund
Parkstone Mid Capitalization Fund (formerly Equity)
Parkstone Small Capitalization Fund
Parkstone International Discovery Fund
LIBERTY VARIABLE INVESTMENT TRUST
Colonial U.S. Stock Fund, Variable Series
Colonial Strategic Income Fund, Variable Series
Newport Tiger Fund, Variable Series
SBL FUND
Money Market Series (Series C)
Global Aggressive Bond Series (Series K)
Equity Income Series (Series O)
Social Awareness Series (Series S)
See "The Mutual Funds,". Amounts held in a Subaccount will increase or decrease
in dollar value depending on the investment performance of the corresponding
Series 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 3.0 percent (3.5 percent for Contracts issued prior to
December 1, 1997). See "The Fixed Account".
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". At any time before the Annuity Start Date, a Contract may be
surrendered for its Full Withdrawal Value, and partial withdrawals, including
systematic withdrawals, may be taken from the Contract Value. Full and partial
withdrawals, including systematic withdrawals, from Individual Contracts may
result in the deduction of a contingent deferred sales charge. See "Full and
Partial Withdrawals" and "Systematic Withdrawals" 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" for more
information. The Contract provides for several Annuity Options on either a
variable basis, a fixed basis, or both. Payments under the fixed Annuity Options
will be guaranteed by Security Benefit. See "Annuity Period".
FREE-LOOK RIGHT
An Owner may return a Contract to Security Benefit within the Free-Look
Period, which is generally a ten-day period beginning when the Owner receives
the Contract. In this event, Security Benefit will refund to the Owner purchase
payments allocated to the Fixed Account plus the Contract Value in the
Subaccounts. 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 Contract Value. Certain charges will be
deducted in connection with the Contract.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (which also may 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. 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 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 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:
For Contracts
Issued Prior to
Age of Purchase ithdrawal December 1, 1997
Payment in Years W Charge Withdrawal Charge
- ----------------- ------------ ------------------
1 7% 5%
2 6% 5%
3 5% 5%
4 4% 5%
5 3% 4%
6 2% 3%
7 1% 2%
8 0% 0%
In no event will the amount of any withdrawal charge, when added to any such
charge previously assessed against any amount withdrawn from the Contract,
exceed 7 percent (for Contracts issued prior to December 1, 1997, 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".
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 (1.2
percent during Annuity Options 1 through 4, 7 and 8) of each Subaccount's
average daily net assets that fund the Individual Contracts and .65 percent of
each Subaccount's average daily net assets that fund the Trust Contracts. See
"Mortality and Expense Risk Charge".
ADMINISTRATIVE CHARGE
Security Benefit deducts a daily administrative charge equal to an annual
rate of .15 percent (0 percent during Annuity Options 1 through 4, 7 and 8) of
each Subaccount's average daily net assets that fund the Individual Contracts
and .05 percent of each Subaccount's average daily net assets that fund the
Trust Contracts. See "Administrative Charge".
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".
OTHER EXPENSES
The operating expenses of the Separate Account are paid by Security Benefit.
Investment advisory fees and operating expenses of the Mutual Funds are paid by
the Mutual Funds. For a description of these charges and expenses, see the
Prospectuses for the Mutual Funds.
CONTACTING SECURITY BENEFIT
All written requests, notices, and forms required by the Contract, and any
questions or inquiries should be directed to Parkstone Advantage Customer
Service, 157 S. Kalamazoo Mall, P.O. Box 50551, Kalamazoo, Michigan 49005-0551.
<PAGE>
EXPENSE TABLE
The purpose of this table is to assist investors in understanding the
various costs and expenses borne directly and indirectly by Owners of the
Contracts with Contract Value allocated to the Subaccounts. The table reflects
contractual charges, expenses of the Separate Account, and charges and expenses
of the Mutual Funds. The table does not reflect premium taxes that may be
imposed by various jurisdictions. See "Premium Tax Charge". The information
contained in the table is not generally applicable to amounts allocated to the
Fixed Account (although the contractual charges also apply to the Fixed
Account).
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions". For a more complete description of each Mutual Fund's costs and
expenses, see the Mutual Fund Prospectuses, which accompany this Prospectus.
CONTRACTUAL EXPENSES
Sales load on purchase payments....................................... None
Contingent deferred sales charge (as a percentage of amounts withdrawn
attributable to purchase payments).................................... 7% (1)
Transfer Fee (per transfer)........................................... None (2)
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 (AS A PERCENTAGE OF EACH FUND'S AVERAGE DAILY
NET ASSETS)
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL MUTUAL
ADVISORY FEE (AFTER EXPENSE REIMBURSEMENT)4 FUND EXPENSES
<S> <C> <C> <C>
Parkstone Bond................................. 0.74% 0.62% 1.36%
Parkstone Mid Capitalization................... 1.00% 0.53% 1.53%
Parkstone Small Capitalization................. 1.00% 0.55% 1.55%
Parkstone International Discovery.............. 1.25% 0.65% 1.90%
Colonial U.S. Stock............................ 0.80% 0.14% 0.94%
Colonial Strategic Income...................... 0.65% 0.15% 0.80%
Newport Tiger.................................. 0.90% 0.35% 1.25%
Money Market Series (Series C)................. 0.50% 0.08% 0.58%
Global Aggressive Bond Series (Series K)3...... 0.75% 0.64% 1.39%
Equity Income Series (Series O)................ 1.00% 0.09% 1.09%
Social Awareness Series (Series S)............. 0.75% 0.08% 0.83%
</TABLE>
1. The amount of the contingent deferred sales
charge is based upon the number of years that a
purchase payment has remained credited under the
Contract, as follows:
FOR CONTRACTS
ISSUED PRIOR TO
AGE OF PURCHASE DECEMBER 1, 1997
PAYMENT IN YEARS WITHDRAWAL CHARGE WITHDRAWAL CHARGE
---------------- ----------------- -----------------
1 7% 5%
2 6% 5%
3 5% 5%
4 4% 5%
5 3% 4%
6 2% 3%
7 1% 2%
8 0% 0%
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 on the date of the withdrawal. The withdrawal charge also
will be waived on systematic withdrawals that do not in any Contract Year
exceed 10 percent of the Contract Value 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 7 percent (5
percent for contracts issued prior to December 1, 1997) of total purchase
payments.
2. The first twelve transfers in a Contract Year are without charge; for any
additional transfers in a Contract Year, a charge of $25 is imposed.
3. During the fiscal year ended December 31, 1997, the Investment Manager
waived the advisory fees of Global Aggressive Bond (Series K) and will
continue such waiver through April 30, 1998. Expense information for Global
Aggressive Bond has been restated to reflect the fees that would have been
applicable had there been no fee waiver.
4. During the fiscal year ending December 31, 1997, the investment adviser
waived other expenses of the Colonial Strategic Income Series; absent such
waiver, "other expenses" would have been .21 percent and the Series' total
expenses would have been .86 percent.
<PAGE>
EXAMPLES
Different examples are presented below that show expenses that a
Contractowner would pay at the end of one, three, five or ten years if, at the
end of those time periods, the Contract is surrendered, annuitized, or 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 -- The Owner would pay the expenses shown below on a $1,000 investment,
assuming 5 percent annual return on assets, if an Individual Contract ISSUED
AFTER NOVEMBER 30, 1997, is SURRENDERED at the end of one, three, five or ten
years:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Parkstone Bond Subaccount.............................. $ 98 $135 $178 $313
Parkstone Mid Capitalization Subaccount................ 100 140 186 329
Parkstone Small Capitalization Subaccount.............. 100 140 187 331
Parkstone International Discovery Subaccount........... 104 150 203 363
Colonial U.S. Stock Subaccount......................... 94 123 157 272
Colonial Strategic Income Subaccount................... 93 119 150 257
Newport Tiger Subaccount............................... 97 132 172 302
9
SBL Money Market Subaccount............................ 01 113 139 235
Lexington Global Aggressive Bond Subaccount............ 99 136 179 316
T. Rowe Price Equity Income Subaccount................. 96 127 165 287
SBL Social Awareness Subaccount........................ 93 120 152 261
</TABLE>
Example -- The Owner would pay the expenses shown below on a $1,000 investment,
assuming 5 percent annual return on assets, if an Individual Contract ISSUED
PRIOR TO DECEMBER 1, 1997, is SURRENDERED at the end of one, three, five or ten
years:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Parkstone Bond Subaccount.............................. $78 $135 $188 $313
Parkstone Mid Capitalization Subaccount................ 80 140 196 329
Parkstone Small Capitalization Subaccount.............. 80 140 197 331
Parkstone International Discovery Subaccount........... 84 150 213 363
Colonial U.S. Stock Subaccount......................... 74 123 167 272
Colonial Strategic Income Subaccount................... 73 119 160 257
Newport Tiger Subaccount............................... 77 132 182 302
SBL Money Market Subaccount............................ 71 113 149 235
Lexington Global Aggressive Bond Subaccount............ 79 136 189 316
T. Rowe Price Equity Income Subaccount................. 76 127 175 287
SBL Social Awareness Subaccount........................ 73 120 162 261
</TABLE>
Example -- The Owner would pay the expenses shown below on a $1,000 investment,
assuming 5 percent annual return on assets, if an Individual Contract is
ANNUITIZED OR NOT SURRENDERED OR ANNUITIZED at the end of one, three, five or
ten years:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Parkstone Bond Subaccount.............................. $28 $ 87 $148 $313
Parkstone Mid Capitalization Subaccount................ 30 92 156 329
Parkstone Small Capitalization Subaccount.............. 30 92 157 331
Parkstone International Discovery Subaccount........... 34 103 174 363
Colonial U.S. Stock Subaccount......................... 24 74 127 272
Colonial Strategic Income Subaccount................... 23 70 120 257
Newport Tiger Subaccount............................... 27 84 142 302
SBL Money Market Subaccount............................ 21 63 109 235
Lexington Global Aggressive Bond Subaccount............ 29 88 149 316
T. Rowe Price Equity Income Subaccount................. 26 79 135 287
SBL Social Awareness Subaccount........................ 23 71 122 261
TRUST CONTRACTS
</TABLE>
Example -- The Owner would pay the expenses shown below on a $1,000 investment,
assuming 5 percent annual return on assets, if a Trust Contract is SURRENDERED,
ANNUITIZED OR NOT SURRENDERED OR ANNUITIZED at the end of one, three, five or
ten years:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Parkstone Bond Subaccount.............................. $21 $65 $111 $239
Parkstone Mid Capitalization Subaccount................ 23 70 119 256
Parkstone Small Capitalization Subaccount.............. 23 70 120 258
Parkstone International Discovery Subaccount........... 26 81 138 293
Colonial U.S. Stock Subaccount......................... 17 52 89 194
Colonial Strategic Income Subaccount................... 15 47 82 179
Newport Tiger Subaccount............................... 20 51 105 227
SBL Money Market Subaccount............................ 13 41 70 155
Lexington Global Aggressive Bond Subaccount............ 21 65 112 242
T. Rowe Price Equity Income Subaccount................. 18 56 97 211
SBL Social Awareness Subaccount........................ 16 48 83 182
</TABLE>
CONDENSED FINANCIAL INFORMATION
The following condensed financial information presents accumulation unit values
for each of the years in the four-year period ended December 31, 1997, and the
period of September 24, 1993 to December 31, 1993, as well as ending
accumulation units outstanding under each of the Subaccounts.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INDIVIDUAL CONTRACTS
PARKSTONE BOND SUBACCOUNT
Accumulation unit value:
Beginning of period............................ $10.73 $10.69 $ 9.27 $ 9.93 $10.00
End of period.................................. $11.42 $10.73 $10.69 $ 9.27 $ 9.93
Accumulation units outstanding at the end of
period......................................... 738,886 615,320 369,775 293,001 123,274
PARKSTONE MID CAPITALIZATION SUBACCOUNT(2)
Accumulation unit value:
Beginning of period............................ $13.96 $12.06 $ 9.27 $10.14 $10.00
End of period.................................. $15.51 $13.96 $12.06 $ 9.48 $10.14
Accumulation units outstanding at the end of
period......................................... 1,742,779 1,391,560 991,853 751,223 183,237
PARKSTONE INTERNATIONAL DISCOVERY SUBACCOUNT
Accumulation unit value:
Beginning of period............................ $11.68 $10.26 $ 9.48 $10.31 $10.00
End of period.................................. $11.76 $11.68 $10.26 $ 9.48 $10.31
Accumulation units outstanding at the end of
period......................................... 1,035,408 849,239 600,836 487,311 112,429
PARKSTONE SMALL CAPITALIZATION SUBACCOUNT
Accumulation unit value:
Beginning of period............................ $19.47 $15.23 $11.38 $10.96 $10.00
End of period.................................. $18.15 $19.47 $15.23 $11.38 $10.96
Accumulation units outstanding at the end of
period......................................... 1,230,077 962,144 630,080 438,430 69,447
COLONIAL U.S. STOCK SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $10.18 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 12,046 --- --- --- ---
COLONIAL STRATEGIC INCOME SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $10.08 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 24,738 --- --- --- ---
NEWPORT TIGER SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $ 9.09 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 1,290 --- --- --- ---
SBL MONEY MARKET SUBACCOUNT(1, 4)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $10.02 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 4,451 --- --- --- ---
LEXINGTON GLOBAL AGGRESSIVE BOND SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $10.05 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 1,681 --- --- --- ---
T. ROWE PRICE EQUITY INCOME SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $10.06 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 26,894 --- --- --- ---
SBL SOCIAL AWARENESS SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $ 9.89 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 723 --- --- --- ---
TRUST CONTRACTS
PARKSTONE BOND SUBACCOUNT(3)
Accumulation unit value:
Beginning of period............................ $10.90 $10.92 $ 9.40 $10.00 ---
End of period.................................. $11.66 $10.90 $10.92 $ 9.40 ---
Accumulation units outstanding at the end of
period......................................... 84,703 84,419 55,111 5,230 ---
PARKSTONE MID CAPITALIZATION SUBACCOUNT(2, 3)
Accumulation unit value:
Beginning of period............................ $14.46 $12.32 $ 9.62 $10.00 ---
End of period.................................. $16.05 $14.46 $12.32 $ 9.62 ---
Accumulation units outstanding at the end of
period......................................... 46,087 117,468 42,810 5,247 ---
PARKSTONE INTERNATIONAL DISCOVERY SUBACCOUNT(3)
Accumulation unit value:
Beginning of period............................ $12.11 $10.47 $ 9.61 $10.00 ---
End of period.................................. $12.17 $12.11 $10.47 $ 9.61 ---
Accumulation units outstanding at the end of
period......................................... 29,672 79,831 17,264 9,622 ---
PARKSTONE SMALL CAPITALIZATION SUBACCOUNT(3)
Accumulation unit value:
Beginning of period............................ $20.21 $15.57 $11.55 $10.00 ---
End of period.................................. $18.85 $20.21 $15.57 $11.55 ---
Accumulation units outstanding at the end of
period......................................... 25,898 74,886 24,824 5,066 ---
COLONIAL U.S. STOCK SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $ 9.92 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 0 --- --- --- ----
COLONIAL STRATEGIC INCOME SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $10.10 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 0 --- --- --- ---
NEWPORT TIGER SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $ 9.04 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 0 --- --- --- ---
SBL MONEY MARKET SUBACCOUNT(1, 4)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $10.03 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 0 --- --- --- ---
LEXINGTON GLOBAL AGGRESSIVE BOND SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $10.04 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 0 --- --- --- ---
T. ROWE PRICE EQUITY INCOME SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $10.07 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 1,574 --- --- --- ---
SBL SOCIAL AWARENESS SUBACCOUNT(1)
Accumulation unit value:
Beginning of period............................ $10.00 --- --- --- ---
End of period.................................. $ 9.90 --- --- --- ---
Accumulation units outstanding at the end of
period......................................... 0 --- --- --- ---
</TABLE>
1. Colonial U.S. Stock Subaccount, Colonial Strategic Income Subaccount,
Newport Tiger Subaccount, SBL Money Market Subaccount, Lexington Global
Aggressive Bond Subaccount, T. Rowe Price Equity Income Subaccount and SBL
Social Awareness Subaccount were not made available under the Contract until
November 30, 1997.
2. Prior to November 30, 1997, the Mid Capitalization Subaccount was designated
the Equity Subaccount.
3. The International Discovery Subaccount under the Trust Contracts did not
begin operations until May 17, 1994; the Bond, Mid Capitalization and Small
Capitalization Subaccounts under the Trust Contracts did not begin
operations until August 18, 1994.
4. Effective March 6, 1998, shares of SBL Money Market Subaccount (Series C)
were substituted for shares of Parkstone Prime
Obligations Subaccount.
<PAGE>
INFORMATION ABOUT SECURITY BENEFIT,
THE SEPARATE ACCOUNT, AND THE MUTUAL
FUNDS
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 variable life insurance policies and variable
annuity contracts, as well as financial and retirement services. It is admitted
to do business in the District of Columbia, and all states except New York. As
of the end of 1997, Security Benefit had total assets of approximately $6.8
billion. Together with its subsidiaries, Security Benefit has total funds under
management of over $7.5 billion.
The Board of Directors of Security Benefit has approved a Plan of Conversion
("Plan") under which Security Benefit would convert from a mutual life insurance
company to a stock life insurance company ultimately controlled by a
newly-formed mutual holding company to be named Security Benefit Mutual Holding
Company. Under the Plan, membership interests of current Security Benefit
policyholders would become membership interests in Security Benefit Mutual
Holding Company upon conversion. After the conversion, persons who acquire
policies from Security Benefit would automatically be members in the mutual
holding company. The conversion will not increase premiums or reduce policy
benefits, values, guarantees or other policy obligations to policyholders. The
Plan is subject to approval by the Insurance Commissioner of the State of Kansas
and Security Benefit policyholders, among other approvals and conditions. If the
necessary approvals are obtained and conditions met, the conversion could occur
in the second quarter of 1998.
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.
YEAR 2000 COMPLIANCE
Like other insurance companies, as
well as other financial and business organizations around the world, Security
Benefit could be adversely affected if the computer systems used by Security
Benefit in performing its administrative functions do not properly process and
calculate date-related information and data before, during and after January 1,
2000. Some computer software and hardware systems currently cannot distinguish
between the year 2000 and the year 1900 or some other date because of the way
date fields were encoded. This is commonly known as the "Year 2000 Problem." If
not addressed, the Year 2000 Problem could impact (i) the administrative
services provided by Security Benefit with respect to the Contract, and (ii) the
management services provided to the Funds by the Investment Advisers, as well as
transfer agency, accounting, custody, distribution and other services provided
to the Funds.
Security Benefit has adopted a plan to be "Year 2000 Compliant" with respect
to both its internally built systems as well as systems provided by external
vendors. "Year 2000 Compliant" means that systems and programs which require
modification will have the date fields expanded to include the century
information and that for interfaces to external organizations as well as new
systems development, the year portion of the date field will be expanded to four
digits using the format YYYYMMDD. Security Benefit's overall approach to
addressing the Year 2000 issue is as follows: (1) to inventory its internal and
external hardware, software, telecommunications and data transmissions to
customers and conduct a risk assessment with respect to the impact that a
failure on any such system would have on its business operations; (2) to modify
or replace its internal systems and obtain vendor certifications of Year 2000
compliance for systems provided by vendors or replace such systems that are not
Year 2000 Compliant; and (3) to implement and test its systems for Year 2000
compliance. Security Benefit has completed the inventory of its internal and
external systems and has made substantial progress toward completing the
modification/replacement of its internal systems as well as towards obtaining
Year 2000 Compliant certifications from its external vendors. Overall systems
testing is scheduled to commence in December 1998 and extend into the first six
months of 1999.
Although Security Benefit has taken steps to ensure that its systems will
function properly before, during and after the Year 2000, its key operating
systems and information sources are provided by or through external vendors
which creates uncertainty to the extent Security Benefit is relying on the
assurance of such vendors as to whether its systems will be Year 2000 Compliant.
The costs or consequences of incomplete or untimely resolution of the Year 2000
issue are unknown to Security Benefit at this time but could have a material
adverse impact on the operations of the Separate Account and administration of
the Contract.
The Year 2000 Problem is also expected to impact companies, which may
include issuers of portfolio securities held by the Funds, to varying degrees
based upon various factors, including, but not limited to, the company's
industry sector and degree of technological sophistication. Security Benefit is
unable to predict what impact, if any, the Year 2000 Problem will have on
issuers of the portfolio securities held by the Funds.
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 eleven Subaccounts. Each
Subaccount invests exclusively in shares of a specific Series of one of the
Mutual Funds. Security Benefit may in the future establish additional
Subaccounts of the Separate Account, which may invest in other Series of the
Mutual Funds 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 MUTUAL FUNDS
Each of the Parkstone Advantage Fund, Liberty Variable Investment Trust, and
SBL Fund is a diversified, open-end management investment company of the series
type. Each 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 policies of the Mutual Funds. Each Subaccount invests in a
corresponding Series of the Mutual Funds, each of which has different investment
objectives and policies. Each Series is listed under its respective Mutual Fund
below.
PARKSTONE ADVANTAGE FUND
Parkstone Bond Fund
Parkstone Mid Capitalization Fund (formerly Equity)
Parkstone Small Capitalization Fund
Parkstone International Discovery Fund
LIBERTY VARIABLE INVESTMENT TRUST
Colonial U.S. Stock Fund, Variable Series
Colonial Strategic Income Fund, Variable Series
Newport Tiger Fund, Variable Series
SBL FUND
Money Market Series (Series C)
Global Aggressive Bond Series (Series K)
Equity Income Series (Series O)
Social Awareness Series (Series S)
A summary of the investment objective of each Series of the Mutual Funds is
described below. There can be no assurance that any Series will achieve its
objective. More detailed information is contained in the accompanying
prospectuses of the Mutual Funds, including information on the risks associated
with the investments and investment techniques of each Series.
THE MUTUAL FUND PROSPECTUSES ACCOMPANY
THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
PARKSTONE 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.
PARKSTONE MID CAPITALIZATION FUND
The investment objective of the Mid Capitalization Fund (formerly known as
the Equity Fund) is to seek growth of capital by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stocks. Under normal market conditions, the Mid Capitalization Fund will invest
at least 65 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 have a market capitalization of between $1 and $5 billion.
PARKSTONE INTERNATIONAL DISCOVERY FUND
The investment objective of the International Discovery Fund is to seek
long-term growth of capital. The International Discovery Fund seeks to achieve
this objective primarily through investment in an internationally diversified
portfolio of equity securities.
PARKSTONE 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. Under normal market conditions, the Small Capitalization Fund will
invest at least 65 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 have a market capitalization of less than $1 billion.
COLONIAL U.S. STOCK FUND, VARIABLE SERIES
The investment objective of the Colonial U.S. Stock Fund is to seek
long-term growth by investing primarily in large capitalization equity
securities. The Fund normally invests at least 65 percent of its total assets in
the common stock of U.S. companies with an equity market capitalization at the
time of purchase in excess of $3 billion.
COLONIAL STRATEGIC INCOME FUND, VARIABLE SERIES
The investment objective of the Colonial Strategic Income Fund is to seek a
high level of current income, as is consistent with prudent risk and maximizing
total return, by diversifying investments primarily in U.S. and foreign
government securities and high yield, high risk corporate debt securities.
NEWPORT TIGER FUND, VARIABLE SERIES
The investment objective of the Newport Tiger Fund is to seek long-term
capital growth. The Fund invests primarily in equity securities of companies
located in the nine Tigers of East Asia (Hong Kong, Singapore, South Korea,
Taiwan, Malaysia, Thailand, Indonesia, China and the Philippines).
MONEY MARKET SERIES (SERIES C)
The investment objective of the Money Market Series is to provide as high a
level of current income as is consistent with preserving capital. The Series
invests in high quality money market instruments with maturities of not longer
than 13 months.
GLOBAL AGGRESSIVE BOND SERIES (SERIES K)
The investment objective of Global Aggressive Bond Series is to seek high
current income and, as a secondary objective, capital appreciation by investing
in a combination of foreign and domestic high yield, lower rated debt securities
(commonly referred to as "junk bonds").
EQUITY INCOME SERIES (SERIES O)
The investment objective of Equity Income Series is to seek to provide
substantial dividend income and also capital appreciation by investing primarily
in dividend-paying common stocks of established companies.
SOCIAL AWARENESS SERIES (SERIES S)
The investment objective of Social Awareness Series is to seek capital
appreciation by investing in various types of securities which meet certain
social criteria established for the Series.
THE INVESTMENT ADVISERS
First of America Investment Corporation ("First of America"), 303 North Rose
Street, Suite 500, Kalamazoo, Michigan 49007, serves as Investment Adviser of
the Parkstone Advantage Fund. First of America is responsible for the day-to-day
decisions to buy and sell securities for the Series of Parkstone Advantage Fund,
except the International Discovery Fund. For the International Discovery Fund,
First of America 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. First of America holds a 72
percent interest in Gulfstream.
Liberty Advisory Services Corp. ("Liberty"), 125 High Street, Boston,
Massachusetts 02110, serves as investment adviser of the Liberty Variable
Investment Trust. Liberty has engaged Colonial Management Associates, Inc.
("Colonial"), One Financial Center, Boston, Massachusetts 02111 to serve as
sub-adviser to the Colonial U.S. Stock and Colonial Strategic Income Funds, and
Newport Fund Management, Inc. ("Newport"), 580 California Street, Suite 1960,
San Francisco, California 94104 to serve as sub-adviser to the Newport Tiger
Fund. Colonial and Newport, respectively, are responsible for the day-to-day
decisions to buy and sell securities for the Colonial U.S. Stock and Colonial
Strategic Income Funds and Newport Tiger Fund.
Security Management Company, LLC ("SMC"), 700 SW Harrison Street, Topeka,
Kansas 66636-0001, a wholly-owned subsidiary of Security Benefit, serves as
investment adviser of the SBL Fund. SMC is responsible for the day-to-day
decisions to buy and sell securities for the Money Market Series and Social
Awareness Series. SMC has engaged Lexington Management Corporation
("Lexington"), Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663 to serve
as sub-adviser to the Global Aggressive Bond Series and Lexington has entered
into a sub-advisory agreement with MFR Advisors, Inc., One Liberty Plaza, New
York, New York 10006 to provide investment and economic research services to the
Series. Lexington is responsible for the day-to-day decisions to buy and sell
securities for the Global Aggressive Bond Series. SMC has engaged T. Rowe Price
Associates, Inc. ("T. Rowe Price"), 100 East Pratt Street, Baltimore, Maryland
21202 to serve as sub-adviser of the Equity Income Series, and T. Rowe Price is
responsible for the day-to-day decisions to buy and sell securities for the
Equity Income Series.
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 90 (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 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 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
specifying the dollar amount or whole percentage to be allocated, 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 eleven 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
and the Fixed Account in the manner described in "Transfers of Contract Value".
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 transfers are to be made on the basis
of a specific dollar amount, earnings only, or over a fixed period, 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 Owner's Contract Value must
be at least $10,000. The Dollar Cost Averaging Request form will not be
considered complete until the Owner's Contract Value 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 included in the twelve transfers per Contract Year that are
allowed free of charge as discussed below.
A Contractowner may instruct Security Benefit at any time to terminate the
option by written request to Security Benefit's Home Office. In that event, the
Contract Value in the Subaccount from which transfers were being made that has
not been transferred will remain in that Subaccount unless the Contractowner
instructs otherwise. If a Contractowner wishes to continue transferring on a
dollar cost averaging basis after the expiration of the applicable period, the
total amount elected has been transferred, or the Subaccount has been depleted,
or after the Dollar Cost Averaging Option has been canceled, a new Dollar Cost
Averaging Request must be completed and sent to Security Benefit's Home Office
and the Contract must meet the $10,000 minimum amount of Contract Value at that
time. 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 transfers from the Fixed Account do not violate the
restrictions on transfers as described in "The Fixed Account" and "Loans".
ASSET REBALANCING 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
Rebalancing automatically reallocates the Contract Value in the Subaccounts each
quarter to the allocation selected by the Contractowner. Asset Rebalancing 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 Rebalancing Option, the Contract Value in the Contract
must be at least $10,000 and an Asset Rebalancing Request in proper form must be
received by Security Benefit at its Home Office. An Asset Rebalancing 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 Rebalancing Program"). If the Asset
Rebalancing Option is elected, all Contract Value invested in the Subaccounts
must be included in the Asset Rebalancing 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
Rebalancing 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 included in the twelve transfers per Contract 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
Rebalancing after it has been canceled, a new Asset Rebalancing 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 Rebalancing Option at any time.
Contract Value invested in the Fixed Account may be included in the Asset
Rebalancing Program, provided that transfers from the Fixed Account do not
violate the restrictions on transfers from the Fixed Account as described in
"The Fixed Account" and "Loans".
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 Rebalancing 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 twelve transfers in any Contract Year
are without charge; for any additional transfers in a Contract Year, a charge of
$25 is imposed. The charge will be deducted from the Contract Value being
transferred. The minimum transfer amount is $500 ($25 under the Dollar Cost
Averaging and Asset Rebalancing 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" and "Loans".
Security Benefit reserves the right at a future date to limit the number of
transfers to twelve, the size of transfers, and to suspend transfers. It also
reserves the right to discontinue telephone transfers.
CONTRACT VALUE
The Contract Value is the sum of the amounts under the Contract held in each
Subaccount of the Separate Account and in the Fixed Account. On each Valuation
Date, the portion of the Contract Value allocated to any particular Subaccount
will be adjusted to reflect the investment experience of that Subaccount. See
"Determination of Contract Value," below. No minimum amount of Contract Value is
guaranteed. A Contractowner bears the entire investment risk relating to the
investment performance of Contract Value allocated to the Subaccounts.
DETERMINATION OF CONTRACT VALUE
The Contract Value will vary to a
degree that depends upon several factors, including investment performance of
the Subaccounts to which Contract Value has been allocated, payment of purchase
payments, the amount of any outstanding Contract Debt, partial withdrawals, and
the charges assessed in connection with the Contract. The amounts allocated to
the Subaccounts will be invested in shares of the corresponding Series of the
Mutual Funds. The investment performance of the Subaccounts will reflect
increases or decreases in the net asset value per share of the corresponding
Series and any dividends or distributions declared by the Series. Any dividends
or distributions from any Series will be automatically reinvested in shares of
the same Series, unless Security Benefit, on behalf of the Separate Account,
elects otherwise.
Assets in the Subaccounts are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's
interest in a Subaccount. When 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
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 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 Series of the Mutual Funds, (2) any dividends or distributions
paid by the corresponding Series, (3) the charges, if any, that may be assessed
by Security Benefit for taxes attributable to the operation of the Subaccount,
(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 applicable contingent
deferred sales charge, any premium taxes, 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 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: SBL Money Market
Subaccount, Parkstone Bond Subaccount, Colonial U.S. Stock Subaccount, T. Rowe
Price Equity Income Subaccount, SBL Social Awareness Subaccount, Parkstone Mid
Capitalization Subaccount, Colonial Strategic Income Subaccount, Parkstone Small
Capitalization Subaccount, Lexington Global Aggressive Bond Subaccount,
Parkstone International Discovery Subaccount and Newport Tiger Subaccount and
then 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".
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".
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". 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".
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. 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, over a fixed
period of time, 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. 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 to Security Benefit within the Free-Look
Period, which is generally a ten-day period beginning when the Owner receives
the Contract. The returned Contract will then be deemed void and Security
Benefit will refund any purchase payments allocated to the Fixed Account plus
the Contract Value in the Subaccounts plus any charges deducted from the
Subaccounts and premium taxes, if any. Security Benefit will refund purchase
payments allocated to the Subaccounts rather than Contract Value in those states
that require it to do so.
DEATH BENEFIT
If the Owner dies during the Accumulation Period, Security Benefit will pay
the death benefit proceeds to the Designated Beneficiary upon receipt, within
six months of the date of the Owner's death, of due proof of death and
instructions regarding payment to the Designated Beneficiary. If there are Joint
Owners, the death benefit proceeds will be payable upon receipt of due proof of
death of either Owner during the Accumulation Period and instructions regarding
payment. If the Owner is not a natural person, the death benefit proceeds will
be payable upon receipt of due proof of death of the Annuitant during the
Accumulation Period and instructions regarding payment. If the death of the
Owner occurs on or after the Annuity Start Date, no death benefit proceeds will
be payable under the Contract, except that any guaranteed payments remaining
unpaid will continue to be paid to the Annuitant pursuant to the Annuity Option
in force at the date of death.
If the age of each Owner was 75 or younger on the date the Contract was
issued, the death benefit will be the greater of (a) the aggregate purchase
payments, less any reductions caused by previous withdrawals and any premium
tax, (b) the Contract Value on the date due proof of death is received by
Security Benefit at its Home Office, less any premium tax, or (c) the stepped-up
death benefit. The stepped-up death benefit is: (a) the largest death benefit on
any Contract anniversary that is both an exact multiple of five and occurs prior
to the oldest Owner attaining age 76, plus (b) any purchase payments made since
the applicable fifth Contract anniversary, and (c) less any reductions caused by
withdrawals since the applicable fifth Contract 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 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" 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, including
systematic withdrawals, from an Individual Contract, to the extent the amount
withdrawn is attributable to purchase payments made. The amount of the
withdrawal charge depends upon the amount of time such withdrawal amounts have
been held under the Individual Contract. A withdrawal charge will not be
assessed upon the FIRST withdrawal in a Contract Year of up to 10 percent of the
Contract Value as of the date of the withdrawal (the "Free Withdrawal Amount").
If a full or partial withdrawal in excess of the Free Withdrawal Amount is made,
a withdrawal charge may be assessed on the amount withdrawn in excess of the
Free Withdrawal Amount to the extent the amount withdrawn is attributable to
purchase payments. If a second or subsequent withdrawal, including a systematic
withdrawal, is made in the same Contract Year, any withdrawal charge will be
assessed on purchase payments 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:
For Contracts
Issued Prior to
Age of Purchase ithdrawal December 1, 1997
Payment in Years W Charge Withdrawal Charge
- ----------------- ------------ ------------------
1 7% 5%
2 6% 5%
3 5% 5%
4 4% 5%
5 3% 4%
6 2% 3%
7 1% 2%
8 0% 0%
For purposes of determining the age of the purchase payment, the purchase
payment is considered age 1 in the year beginning on the date the purchase
payment is received by Security Benefit and increases in age each year
thereafter. In no event will the amount of any withdrawal charge, when added to
any such charge previously assessed against any amount withdrawn from the
Contract, exceed 7 percent (for Contracts issued prior to December 1, 1997, 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 withdrawals that qualify for the hospital/nursing
home waiver described below. 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 the Free Withdrawal Amount. 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.
HOSPITAL/NURSING HOME WAIVER
Security Benefit will waive the withdrawal charge on any full or partial
withdrawal upon the Contractowner's request for such a waiver, provided that the
Contractowner: (1) has been confined to a "hospital" or "qualified skilled
nursing facility" for at least 30 consecutive days prior to the date of the
withdrawal; (2) is so confined when Security Benefit receives the withdrawal
request; and (3) became so confined after the date the Contract was issued. (See
"Definitions"). Any request for the hospital/nursing home waiver must be
accompanied by a properly completed claim form which may be obtained from
Security Benefit and a written physician's statement acceptable to Security
Benefit certifying that such confinement is a medical necessity and is due to
illness or infirmity. Security Benefit reserves the right to have the
Contractowner examined by a physician of Security Benefit's choice and at
Security Benefit's expense to determine if the Contractowner is eligible for the
hospital/nursing home waiver. The hospital/nursing home waiver is not available
in certain states pending department of insurance approval. If the waiver is
later approved by the insurance department of a state, Security Benefit intends
to make the waiver available to all Contractowners in that state at that time,
but there can be no assurance that the waiver will be approved. Prospective
Contractowners should contact their agent concerning availability of the waiver
in their state.
MORTALITY AND EXPENSE RISK CHARGE
Security Benefit deducts a daily charge from the assets of each Subaccount
for mortality and expense risks assumed by Security Benefit under the Contracts.
The charge under the Individual Contracts is equal to an annual rate of 1.25
percent (1.2 percent during Annuity Options 1 through 4, 7 and 8) 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 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 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 (0 percent during Annuity Options 1 through 4, 7 and 8) 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.
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
governmental entities.
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 operation of the Separate Account or the Subaccounts, or to the
operations of Security Benefit with respect to the Contracts, or that are
attributable to payment of premiums or acquisition costs under the Contracts. No
such charge is currently assessed. See "Tax Status of Security Benefit and the
Separate Account" and "Charge for Security Benefit Taxes".
VARIATIONS IN CHARGES
Security Benefit may reduce or waive the amount of the contingent deferred
sales charge and administrative charge for a Contract where the expenses
associated with the sale of the Contract or the administrative and maintenance
costs associated with the Contract are reduced for reasons such as the amount of
the initial purchase payment, the amounts of projected purchase payments, or
that the Contract is sold in connection with a group or sponsored arrangement.
Security Benefit also may reduce or waive the contingent deferred sales charge
and administrative charge 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 Funds. 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, 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 Series of one of the Mutual Funds. Each Series' net
asset value reflects the investment advisory fee and other expenses that are
deducted from the assets of the Series. The advisory fees and other expenses are
more fully described in the respective Mutual Fund prospectuses.
ANNUITY PERIOD
GENERAL
The Contractowner selects the Annuity Start Date at the time of application.
If one of Annuity Options 1 through 4, 7 or 8 is elected, the Annuity Start Date
may not be prior to the third annual Contract anniversary. The Annuity Start
Date may not be deferred beyond the later of the Annuitant's 85th birthday or
the tenth annual Contract anniversary (in no event later than the Annuitant's
95th birthday), 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 later of the Annuitant's 70th birthday or
10th annual Contract Anniversary. For Contracts issued prior to December 1,
1997, if the Owner does not select an Annuity Start Date, the date will be the
Annuitant's 65th birthday. See "Selection of an Option". 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, and any outstanding Contract Debt.
Contracts issued after November 30, 1997, provide for eight optional annuity
forms. Contracts issued prior to December 1, 1997 provide for the first six
Annuity Options and Security Benefit makes Annuity Options 7 and 8 available
under such Contracts. 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 through 4
and 8, 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
through 7 as described below, age and sex are not considerations. The annuity
rates are based upon an assumed interest rate of 3.5 percent, compounded
annually. If no Annuity Option has been selected, annuity payments will be made
to the Annuitant under an automatic option which shall be an annuity payable
during the lifetime of the Annuitant with payments guaranteed to be made for 120
months under Option 2.
Annuity Options 1 through 4 and 8 provide for payments to be made during the
lifetime of the Annuitant. Annuity payments under such options cease in the
event of the Annuitant's death, unless the option provides for a guaranteed
minimum number of payments, for example a life income with guaranteed payments
of 5, 10, 15 or 20 years. The level of annuity payments will be greater for
shorter guaranteed periods and less for longer guaranteed periods. Similarly,
payments will be greater for life annuities than for joint and survivor
annuities, because payments for life annuities are expected to be made for a
shorter period. The Annuitant's age and sex (unless unisex rates apply) will
also affect the level of annuity payments as life expectancy and gender are used
to predict the period of time over which payments will be made.
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 under Options 1 through 4 and 8, an
Annuitant or Owner cannot change the Annuity Option and cannot surrender his or
her annuity and receive a lump-sum settlement in lieu thereof. Under Annuity
Options 5 through 7, full or partial withdrawals may be made after the Annuity
Start Date, subject to any applicable withdrawal charge. The Contract contains
annuity tables for Annuity Options 1 through 4, 7 and 8 described below. The
tables contain the guaranteed minimum dollar amount (per $1,000 applied) of the
FIRST annuity payment for a variable annuity and each annuity payment for a
fixed annuity.
ANNUITY OPTIONS
OPTION 1 - LIFE INCOME
Periodic annuity payments will be made during the lifetime of the Annuitant.
It is possible under this Option for any Annuitant to receive only one annuity
payment if the Annuitant's death occurred prior to the due date of the second
annuity payment, two if death occurred prior to the 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. The
amount of each payment is determined by dividing the amount of Contract Value on
the payment date by the number of payments remaining.
OPTION 6 - PAYMENTS OF A SPECIFIED AMOUNT
Periodic payments of the amount elected will be made until Contract Value is
exhausted, with the guarantee that, if, at the death of all Annuitants, all
guaranteed payments have not yet been made, the remaining unpaid payments will
be paid to the Designated Beneficiary.
OPTION 7 - PERIOD CERTAIN
Periodic annuity payments will be made for a stated period which may be 5,
10, 15 or 20 years, as elected. If the Annuitant dies prior to the end of the
period, the remaining payments will be made to the Designated Beneficiary. The
amount of each FIXED annuity payment is determined by reference to the Annuity
Tables in the Contract. The amount of the FIRST VARIABLE annuity payment is also
determined by reference to the Annuity Tables. All subsequent payments are
determined on the basis of a number of annuity units found by dividing the
amount of the first variable annuity payment by the annuity unit value on that
date. That number of annuity units is multiplied by the annuity unit value on
the date of each subsequent payment to determine the amount of each such
payment.
OPTION 8 - JOINT AND CONTINGENT SURVIVOR OPTION
Periodic annuity payments will be made during the life of the primary
Annuitant. Upon the death of the primary Annuitant, payments will be made to the
contingent Annuitant during his or her life. If the contingent Annuitant is not
living upon the death of the primary Annuitant, no further payments will be
made. It is possible under this Option for only one annuity payment to be made
if both Annuitants died prior to the second annuity payment due date, two if
both died prior to the third annuity payment due date, etc. AS IN THE CASE OF
OPTIONS 1 AND 4, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS
OPTION. PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT REGARDLESS
OF THE NUMBER OF PAYMENTS RECEIVED.
VALUE OF VARIABLE ANNUITY PAYMENTS:
ASSUMED INTEREST RATE
The annuity tables in the Contract which are used to calculate variable
annuity payments for Annuity Options 1 through 4, 7 and 8 are based on an
"assumed interest rate" of 3.5 percent. If the actual investment performance of
the Subaccount selected is such that the net investment return is 3.5 percent
per annum, payments under one of those options will remain constant. If the net
investment return exceeds 3.5 percent, the payments will increase and if the
return is less than 3.5 percent, the payments will decline. Use of a higher
assumed interest rate would mean a higher initial payment but a more slowly
rising series of subsequent payments in a rising market (or a more rapidly
falling series of subsequent payments in a declining market). A lower assumption
would have the opposite effect.
SELECTION OF AN OPTION
Contractowners should carefully review the Annuity Options with their
financial or tax adviser, 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 (but in no event later than the oldest Annuitant's 95th birthday).
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".
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 percent (3.5 percent for Contracts issued prior to December
1, 1997) 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.
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".
CONTRACT CHARGES
The contingent deferred sales charge 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 Funds will not be paid directly or indirectly by
Contractowners to the extent the Contract Value is allocated to the Fixed
Account; however, such Contractowners will not participate in the investment
experience of the Subaccounts.
TRANSFERS AND WITHDRAWALS
Amounts may be transferred from the Subaccounts to the Fixed Account and
from the Fixed Account to the Subaccounts, subject to the following limitations.
During the Accumulation Period, a Contractowner may transfer from the Fixed
Account to the Subaccounts in any Contract Year not more than the greatest of
(1) $5,000, (2) one third of the amount invested in the Fixed Account at the
time of the first transfer in the Contract Year, or (3) 120 percent of the
amount transferred from the Fixed Account during the previous Contract Year.
Security Benefit reserves the right for a period of time to allow transfers from
the Fixed Account in amounts that exceed the limits set forth above ("Waiver
Period"). In any Contract Year following such a Waiver Period, the total dollar
amount that may be transferred from the Fixed Account is the greatest of: (1)
above; (2) above; or (3) 120 percent of the lesser of: (i) the dollar amount
transferred from the Fixed Account in the previous Contract Year; or (ii) the
maximum dollar amount that would have been allowed in the previous Contract year
under the transfer provisions above absent the Waiver Period.
The first twelve transfers in any Contract 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, and amount of transfers in the future
and the right to suspend transfers.
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". In addition, to the same extent as
Contractowners with Contract Value in the Subaccounts, the Owner of a Contract
used in connection with a retirement plan qualified under Section 403(b) of the
Internal Revenue Code may obtain a loan if so permitted under the terms of such
plan. See "Loans".
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 reduced by the excess of: (a) the
highest outstanding loan balance within the preceding twelve-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 percent (3.5 percent for Contracts
issued prior to December 1, 1997), 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 percent
(5.5 percent for Contracts issued prior to December 1, 1997). 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".
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 restrictions on certain distributions from tax-sheltered annuity
contracts meeting the requirements of Section 403(b).
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 charge to the Separate Account, the Subaccounts or the
Contracts for Security Benefit's federal taxes periodically. Charges may become
necessary if, among other reasons, the tax treatment of Security Benefit or of
income and expenses under the Contracts is ultimately determined to be other
than what Security Benefit currently believes it to be, if there are changes
made in the federal income tax treatment of variable annuities at the insurance
company level, or if there is a change in Security Benefit's tax status.
Under current laws, Security Benefit may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, Security Benefit reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS
Each Series of the Mutual Funds 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" 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 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 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.
5. Possible Tax Changes
In recent years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities, and President Clinton's
fiscal year 1999 budget proposal includes a provision that, if adopted, would
impose new taxes on owners of variable annuities. There is always the
possibility that the tax treatment of annuities could change by legislation or
other means (such as IRS regulations, revenue rulings, and judicial decisions).
Moreover, although unlikely, it is also possible that any legislative change
could be retroactive (that is, effective prior to the date of such change).
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 will be taxable. If the employee
should die prior to recovering his or her entire investment, the unrecovered
investment will be allowed as a deduction on the employee's final return. If the
employee made no contributions that were taxable when made, the full amount of
each annuity payment is taxable to him or her as ordinary income.
A "lump-sum" distribution from a retirement plan qualified under Code
Section 401 is eligible for favorable tax treatment. A "lump-sum" distribution
means the distribution within one taxable year of the balance to the credit of
the employee which becomes payable: (i) on account of the employee's death, (ii)
after the employee attains age 59 1/2, (iii) on account of the employee's
termination or employment (in the case of a common law employee only) or (iv)
after the employee has become disabled (in the case of a self-employed person
only).
As a general rule, a lump-sum distribution is fully taxable as ordinary
income except for an amount equal to the employee's investment, if any, which is
recovered tax-free. However, special five-year averaging may be available,
provided the employee has reached age 59 1/2 and has not previously elected to
use income averaging. (Special five-year averaging has been repealed for
distributions after 1999.) Special ten-year averaging and capital-gains
treatment may be available to an employee who reached age 50 before 1986.
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".
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 ("traditional IRAs"). The Contract may be
purchased as an IRA. The IRAs described in this paragraph are called
"traditional IRAs" to distinguish them from the new "Roth IRAs" which became
available in 1998.
IRAs are subject to limitations on the amount that may be contributed, the
persons who may be eligible and on the time when distributions must commence.
Depending upon the circumstances of the individual, contributions to a
traditional IRA may be made on a deductible or non-deductible basis. IRAs may
not be transferred, sold, assigned, discounted or pledged as collateral for a
loan or other obligation. The annual premium for an IRA may not be fixed and may
not exceed $2,000. 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, traditional IRAs are subject to minimum distribution
requirements similar to those applicable to retirement plans qualified under
Section 401 of the Code; however, the required beginning date for traditional
IRAs is generally the date that the Contractowner reaches age 70 1/2 -- the
Contractowner's retirement date, if any, will not affect his or her required
beginning date. See "Section 401". Distributions from IRAs are generally taxed
under Code Section 72. Under these rules, a portion of each distribution may be
excludable from income. The amount excludable from the individual's income is
the amount of the distribution which bears the same ratio as the individual's
nondeductible contributions bears to the expected return under the IRA.
Distributions from a traditional IRA may be eligible for a tax-free rollover
to another traditional IRA. In certain cases, a distribution from a traditional
IRA may be eligible to be rolled over to a retirement plan qualified under Code
Section 401(a) or a Section 403(b) annuity contract. See "Rollovers" below.
The Internal Revenue Service has not reviewed the Contract for qualification
as an IRA, and has not addressed in a ruling of general applicability whether a
death benefit provision such as the provision in the Contract comports with IRA
qualification requirements.
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 retirement plans qualified under Section 401 of
the Code. See "Section 401". Since under a Section 457 plan, contributions are
generally excludable from the taxable income of the employee, the full amount
received will usually be taxable as ordinary income when annuity payments
commence or other distributions are made.
5. Tax Penalties
PREMATURE DISTRIBUTION TAX. Distributions from a Qualified Plan before the
participant reaches age 59 1/2 are generally subject to an additional tax equal
to 10 percent of the taxable portion of the distribution. The 10 percent penalty
tax does not apply to distributions: (i) made on or after the death of the
employee; (ii) attributable to the employee's disability; (iii) which are part
of a series of substantially equal periodic payments made (at least annually)
for the life (or life expectancy) of the employee or the joint lives (or joint
life expectancies) of the employee and a designated beneficiary and which begin
after the employee terminates employment; (iv) made to an employee after
termination of employment after reaching age 55; (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. Starting
January 1, 1998, there are two additional exceptions to the 10% penalty tax on
withdrawals from IRAs before 59 1/2: withdrawals made to pay "qualified" higher
education expenses and withdrawals made to pay certain "eligible first-time home
buyer expenses."
MINIMUM DISTRIBUTION TAX. If the amount distributed from a Qualified Plan is
less than the minimum required distribution for the year, the participant is
subject to a 50 percent tax on the amount that was not properly distributed.
EXCESS DISTRIBUTION/ACCUMULATION TAX. The penalty tax of 15 percent which
was imposed (in addition to any ordinary income tax) on large plan distributions
and the "excess retirement accumulations" of an individual has been repealed,
effective January 1, 1997.
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 Funds 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 Series of the Mutual Funds held in the
Subaccounts at any regular and special meetings of the shareholders of the
Mutual Funds 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 Funds in its own right, it may elect to do so.
The person having the voting interest under a Contract is the Owner. Unless
otherwise required by applicable law, the number of shares of a particular
Series as to which voting instructions may be given to 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 Series as of the same
date. Fractional votes will be counted. The number of votes as to which voting
instructions may be given will be determined as of the date coincident with the
date established by the Mutual Fund for determining shareholders eligible to
vote at the meeting of the Mutual Fund. If required by the SEC, Security Benefit
reserves the right to determine in a different fashion the voting rights
attributable to the shares of the Mutual Funds. Voting instructions may be cast
in person or by proxy.
Trust Contracts may be purchased through the trust department of First of
America Bank, 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 Parkstone Advantage Fund's investment
adviser, is a wholly-owned subsidiary of the Bank. In the event of a vote of the
Parkstone Advantage 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 Series of the Mutual Funds held in
its General Account, if any, in the same proportion as votes cast with respect
to shares of the Series of the Mutual Funds 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 Series of the Mutual Funds 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 Series of the Mutual Funds
should become inappropriate in view of the purposes of the Contract, Security
Benefit may substitute shares of another Series of one of the Mutual Funds or of
a different fund for shares already purchased, or to be purchased in the future
under the Contract. Security Benefit may also purchase, through the Subaccount,
other securities for other classes or contracts, or permit a conversion between
classes of contracts on the basis of requests made by Owners.
In connection with a substitution of any shares attributable to an Owner's
interest in a Subaccount or the Separate Account, Security Benefit will, to the
extent required under applicable law, provide notice, seek Owner approval, seek
prior approval of the SEC, and comply with the filing or other procedures
established by applicable state insurance regulators.
Security Benefit also reserves the right to establish additional Subaccounts
of the Separate Account that would invest in a new Series of one of the Mutual
Funds 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, and full and partial
withdrawals. Certain transactions will be confirmed on a quarterly basis,
including purchases under an Automatic Investment Program, transfers under the
Dollar Cost Averaging and Asset Rebalancing Options, systematic withdrawals,
annuity payments and loan repayments.
Each Contractowner will also receive an annual and semiannual report
containing financial statements for the Mutual Funds, which will include a list
of the portfolio securities of the Mutual Funds, 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 telephone 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 Money
Market Series ("SBL Money Market Subaccount"), the yield of the remaining
Subaccounts, and the total return of all Subaccounts may appear in
advertisements, reports, and promotional literature to current or prospective
Owners.
Current yield for the SBL Money Market Subaccount will be based on income
received by a hypothetical investment over a given 7-day period (less expenses
accrued during the period), and then "annualized" (i.e., assuming that the 7-day
yield would be received for 52 weeks, stated in terms of an annual percentage
return on the investment). "Effective yield" for the SBL Money Market Subaccount
is calculated in a manner similar to that used to calculate yield, but reflects
the compounding effect of earnings.
For the remaining Subaccounts, quotations of yield will be based on all
investment income per Accumulation Unit earned during a given 30-day period,
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of an Accumulation Unit
on the last day of the period. Quotations of average annual total return for any
Subaccount will be expressed in terms of the average annual compounded rate of
return on a hypothetical investment in a Contract over a period of one, five,
and ten years (or, if less, up to the life of the Subaccount), and will reflect
the deduction of the 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 and the administrative charge and may simultaneously be shown for other
periods. Where the Mutual Fund Series in which a Subaccount invests was
established prior to inception of the Subaccount, quotations of total return may
include quotations for periods beginning prior to the Subaccount's date of
inception. Such quotations of total return are based upon the performance of the
Subaccount's corresponding Series adjusted to reflect deduction of the mortality
and expense risk charge and will be accompanied by the average annual total
return figures discussed above.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donaghue Money Market
Institutional Averages, the Lehman Brothers Government Corporate Index, the
Morgan Stanley Capital International's EAFE Index or other indices measuring
performance of a pertinent group of securities so that investors may compare a
Subaccount's results with those of a group of securities widely regarded by
investors as representative of the securities markets in general or
representative of a particular type of security; (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
Performance information for any Subaccount reflects only the performance of
a hypothetical Contract under which Contract Value is allocated to a Subaccount
during a particular time period on which the calculations are based. Performance
information should be considered in light of the investment objectives and
policies, characteristics, and quality of the Series in which the Subaccount
invests, and the market conditions during the given time period, and should not
be considered as a representation of what may be achieved in the future. For a
description of the methods used to determine yield and total return for the
Subaccounts, see the Statement of Additional Information.
Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on overall
performance or other criteria, (ii) the effect of tax-deferred compounding on a
Subaccount's investment returns, or returns in general, which may be illustrated
by graphs, charts, or otherwise, and which may include a comparison, at various
points in time, of the return from an investment in a Contract (or returns in
general) on a tax-deferred basis (assuming one or more tax rates) with the
return on a taxable basis, and (iii) Security Benefit's rating or a rating of
Security Benefit's claims-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, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997, and the
financial statements of the Separate Account for the two years in the period
ended December 31, 1997, 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 and the Separate Account.
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 PAID UNDER TAX- QUALIFIED
RETIREMENT PLANS........................... 1
EXPERTS........................................ 3
PERFORMANCE INFORMATION........................ 3
FINANCIAL STATEMENTS........................... 6
<PAGE>
PARKSTONE ADVANTAGE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: MAY 1, 1998
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:
PARKSTONE ADVANTAGE CUSTOMER SERVICE
157 S. KALAMAZOO MALL
P.O. BOX 50551
KALAMAZOO, MICHIGAN 49005-0551
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the current Prospectus for Parkstone Advantage
Variable Annuity dated May 1, 1998 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................................................................... 3
PERFORMANCE INFORMATION................................................... 3
FINANCIAL STATEMENTS...................................................... 5
<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 Series of the Mutual
Funds 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 6.5% of purchase payments. 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.
Section 402(g) generally limits an employee's salary reduction
contributions to a 403(b) annuity to $10,000 a year. The $10,000 limit will be
reduced by salary reduction contributions to other types of retirement plans. An
employee with at least 15 years of service for a "qualified employer" (i.e., an
educational organization, hospital, home health service agency, health and
welfare service agency, church or convention or association of churches)
generally may exceed the $10,000 limit by $3,000 per year, subject to an
aggregate limit of $15,000 for all years.
Section 403(b)(2) provides an overall limit on employer and employee
salary reduction contributions that may be made to a 403(b) annuity. Section
403(b)(2) generally provides that the maximum amount of contributions an
employee may exclude from his or her gross income in any taxable year is equal
to the excess, if any, of:
(i) the amount determined by multiplying 20% of the employee's
includable compensation by the number of his or her years of
service with the employer, over
(ii) the total amount contributed to retirement plans sponsored by the
employer, that were excludable from his gross income in prior
years.
Section 415(c) also provides an overall limit on the amount of employer
and employee salary reduction contributions to a Section 403(b) annuity that
will be excludable from an employee's gross income in a given year. The Section
415(c) limit is the lesser of (i) $30,000, or (ii) 25% of the employee's annual
compensation.
SECTION 408
Premiums 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) $8,000 or (ii) 33 1/3% of the employee's includable
compensation. The $8,000 limit is included for inflation (in $500 increments)
for tax years beginning after December 31, 1996, thus the dollar limit is
adjusted only the when sum of inflation equals or exceeds $500.If the employee
participates in more than one Section 457 plan, the $8,000 limit applies to
contributions to all such programs. The $8,000 limit is reduced by the amount of
any salary reduction contribution the employee makes to a 403(b) annuity, an IRA
or a retirement plan qualified under Section 401. The Section 457 limit is
increased during the last three years ending before the employee reaches his
normal retirement age.
EXPERTS
The consolidated financial statements of Security Benefit Life Insurance
Company at December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997, and the financial statements of the Parkstone
Variable Annuity Account for the years ended December 31, 1997 and 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 Money
Market Series ("SBL Money Market 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 SBL Money Market Subaccount will be based on the
change in the value of a hypothetical investment (exclusive of capital changes
and income other than investment income) over a particular 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 SBL Money
Market Subaccount was 3.03% and the effective yield was 3.07%.
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, 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, and may simultaneously be shown for other periods. Where
the Mutual Fund Series in which a Subaccount invests was established prior to
the inception date of the Subaccount, quotations of total return may include
quotations for periods beginning prior to the Subaccount's inception date. Such
quotations of total return are based upon the performance of the Subaccount's
corresponding Mutual Fund Series adjusted to reflect the mortality and expense
risk charge.
For the one-year period ended December 31, 1997, and the period of
September 24, 1993 (date of inception), to December 31, 1997, respectively the
average annual total return was -.45% and -2.26% for the Bond Subaccount, 4.04%
and 10.14% for the Mid Capitalization Subaccount, 5.66% and 3.03% for the
International Discovery Subaccount, and -12.70% and 14.37% for the Small
Capitalization Subaccount. For the one-year period ended December 31, 1997, and
the period of July 5, 1994 (Series date of inception), to December 31, 1997,
respectively, the average annual total return was 23.34% and 22.49% for the
Colonial U.S. Stock Subaccount. For the one-year period ended December 31, 1997,
respectively, the average annual total return was .80% and 8.14% for the
Colonial Strategic Income Subaccount. For the one-year period ended December 31,
1997, and the period of May 1, 1995 (Series date of inception), to December 31,
1997, respectively, the average annual total return was -36.38% and -7.43% for
the Newport Tiger Subaccount. For the one-year period ended December 31, 1997,
and the period of June 1, 1995 (Series date of inception), to December 31, 1997,
respectively, the average annual total return was - 2.72% and 6.99% for the
Global Aggresive Bond Subaccount, and 18.91% and 22.28% for the Equity Income
Subaccount. For the 1- and 5-year periods ended December 31, 1997, and the
period between May 1, 1991 (Series date of inception), to December 31, 1997,
respectively, the average annual total return was 10.04%, 12.07% and 12.15% for
the Social Awareness Subaccount.
For the one-year period ended December 31, 1997, and the peroid of
September 24, 1993 (date of inception), to December 31, 1997, respectively, the
average annual total return was 6.24% and 3.12% for the Bond Subaccount, 11.03%
and 10.81% for the Mid Capitalization Subaccount, .68% and 3.87% for the
International Discovery Subaccount, and 6.83% and 14.97% for the Small
Capitalization Subaccount. For the one-year period ended December 31, 1997, and
the period of July 5, 1997 (Series date of inception), to December 31, 1997,
respectively, the average annual total return without reduction contingent
deferred sales charge was 30.34% and 23.35% for the Colonial U.S. Stock
Subaccount. For the one-year period ended December 31, 1997, and the period of
July 5, 1994 (Series date of inception), to December 31, 1997, respectively, the
average annual total return without deduction of the contingent deferred sales
charge was 7.58% and 9.30% for the Colonial Stategic Income Subaccount. For the
one-year period ended December 31, 1997, and the period of May 1, 1995 (Series
date of inception), to December 31, 1997, respectively, the annual total return
without deduction of the contingent deferred sales charge of the maintenance fee
was -32.11% and -5.82% for the Newport Tiger Subaccount. For the one-year period
inded December 31, 1997, and the period of June 1, 1995 (Series date of
inception), to December 31, 1997, respectively, the annual total return without
deduction of the contingent deferred sales charge or the maintenance fee was
3.82% and 8.71% for the Global Aggressive Bond Subaccount, and 25.91% and 23.68%
for the Equity Income Subaccount. For the 1- and 5-year periods ended December
31, 1997, and the period of May 1, 1991 (Series date of inception), to December
31, 1997, respectively, the average annual total return without deduction of the
contingent deferred sales charge or the maintenance fee was 17.04%, 12.57%, and
12.31% for the Social Awareness 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
quotationsof total return will reflect will reflect the deduction of all
applicable charges to the Contract and the Seperate Account (on an annual basis)
except the applicable contingent deferred sales charge.
For the year ended December 31, 1997, and the period September 24, 1993
(date of inception), to December 31, 1997, respectively, the cumulative total
return was 6.24% and 14.00% for the Bond Subaccount, 11.03% and 55.00% for the
Mid Capitalization Subaccount, .68% and 17.60% for the International Discovery
Subaccount, and -6.83% and 81.40% for the Small Capitalization Subaccount. For
the one-year period ended December 31, 1997, and the period of July 5, 1994
(Series date of inception), to December 31, 1997, respectively, the cumulative
total return was 30.34% and 108.00% for the Colonial U.S. Stock Subaccount.For
the one-year period ended December 31, 1997, and the period of July 5, 1994
(Series date of inception), to December 31, 1997, respectively, the cumulative
total return was 7.58% and 36.40% for the Colonial Strategic Income Subaccount.
For the one-year period ended December 31, 1997, and the period of May 1, 1995
(Series date of inception), to December 31, 1997, respectively, the cumulative
total return was -32.11% and -14.79% for the Newport Tiger Subaccount. For the
one-year period ended December 31, 1997, and the period of June 1, 1995 (Series
date of inception), to December 31, 1997, respectively, the cumulative total
return was 3.82% and 24.07% for the Global Aggressive Bond Subaccount, and
25.91% and 73.15% for the Equity Income Subaccount. For the 1- and 5-year
periods ended December 31, 1997, and the period between May 1, 1991 (Series date
of inception), to December 31, 1997, respectively, the cumulative total return
was 17.04%, 80.80% and 116.89% for the Social Awareness 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 Mutual Fund of the
Series in which the Subaccount invests, and the market conditions during the
given time period, and should not be considered as a representation of what may
be achieved in the future.
Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on overall
performance or other criteria, and (ii) the effect of a tax-deferred compounding
on a Subaccount's investment returns, or returns in general, which may be
illustrated by graphs, charts, or otherwise, and which may include a comparison,
at various points in time, of the return from an investment in a Contract (or
returns in general) on a tax-deferred basis (assuming one or more tax rates)
with the return on a taxable basis.
FINANCIAL STATEMENTS
Security Benefit Life Insurance Company's audited consolidated balance
sheets as of December 31, 1997 and 1996, 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, 1997, and the financial statements of the Parkstone
Variable Annuity Account for the years ended December 31, 1997 and 1996, are set
forth herein, starting on the following page.
The financial statements of Security Benefit Life Insurance Company,
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.
<PAGE>
PARKSTONE VARIABLE ANNUITY ACCOUNT
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
PAGE
Report of Independent Auditors............................................. 8
Audited Financial Statements
Balance Sheet......................................................... 9
Statements of Operations and Changes in Net Assets.................... 11
Notes to Financial Statements......................................... 14
<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 Account) as of December 31, 1997, 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 Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments owned as of December 31, 1997 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, 1997, and the results of its operations and changes in
its net assets for each of the two years in the period then ended in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 6, 1998
<PAGE>
Parkstone Variable Annuity Account
Balance Sheet
December 31, 1997
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments:
Parkstone Advantage Fund:
Prime Obligations Fund - 1,459,520 shares at net asset value of $1.00 per share
(cost, $1,459)............................................................................. $ 1,459
Bond Fund - 880,618 shares at net asset value of $10.70 per share (cost, $9,039)............. 9,422
Mid Capitalization Fund - 1,951,223 shares at net asset value of $14.23 per share
(cost, $25,446)............................................................................ 27,766
International Discovery Fund - 1,007,884 shares at net asset value of $12.44 per share
(cost, $11,666)............................................................................ 12,538
Small Capitalization Fund - 1,332,821 shares at net asset value of $17.12 per share
(cost, $22,035)............................................................................ 22,818
Keyport Variable Investment Trust:
Colonial U.S. Stock Fund - 7,525 shares at net asset value of $16.29 per share (cost, $133).. 123
Colonial Strategic Income Fund - 22,370 shares at net asset value of $11.15 per share
(cost, $267)............................................................................... 249
Newport Tiger Fund - 6,853 shares at net asset value of $1.71 per share (cost, $12).......... 12
SBL Fund:
Money Market Series (Series C) - 3,560 shares at net asset value of $12.53 per share
(cost, $45)................................................................................ 45
Global Aggressive Bond Series (Series K) - 1,677 shares at net asset value of $10.07 per
share (cost, $18).......................................................................... 17
Equity Income Series (Series O) - 16,260 shares at net asset value of $17.62 per share
(cost, $283)............................................................................... 287
Social Awareness Series (Series S) - 322 shares at net asset value of $22.25 per share
(cost, $7)................................................................................. 7
-------------
Total assets...................................................................................... $74,743
=============
</TABLE>
<PAGE>
NET ASSETS
Net assets are represented by (NOTE 3):
<TABLE>
<CAPTION>
NUMBER OF UNITS UNIT VALUE AMOUNT
---------------------------------------------------
<S> <C> <C> <C>
NON-TRUST CONTRACTS
Prime Obligations Subaccount:
Accumulation units........................................... 113,674 $10.86 $ 1,235
Bond Subaccount:
Accumulation units........................................... 738,886 11.42 8,435
Mid Capitalization Subaccount:
Accumulation units........................................... 1,742,779 15.51 27,026
International Discovery Subaccount:
Accumulation units........................................... 1,035,408 11.76 12,177
Small Capitalization Subaccount:
Accumulation units........................................... 1,230,077 18.15 22,330
Colonial U.S. Stock Subaccount:
Accumulation units........................................... 12,046 10.18 123
Colonial Strategic Income Subaccount:
Accumulation units........................................... 24,738 10.08 249
Newport Tiger Subaccount:
Accumulation units........................................... 1,290 9.09 12
Money Market Subaccount:
Accumulation units........................................... 4,451 10.02 45
Global Aggressive Bond Subaccount:
Accumulation units........................................... 1,681 10.05 17
Equity Income Subaccount:
Accumulation units........................................... 26,894 10.06 271
Social Awareness Subaccount:
Accumulation units........................................... 723 9.89 7
TRUST CONTRACTS
Prime Obligations Subaccount:
Accumulation units........................................... 20,698 10.85 224
Bond Subaccount:
Accumulation units........................................... 84,703 11.66 987
Mid Capitalization Subaccount:
Accumulation units........................................... 46,087 16.05 740
International Discovery Subaccount:
Accumulation units........................................... 29,672 12.17 361
Small Capitalization Subaccount:
Accumulation units........................................... 25,898 18.85 488
Equity Income Subaccount:
Accumulation units........................................... 1,574 10.07 16
------------------
Total net assets................................................ $74,743
==================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Parkstone Variable Annuity Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-TRUST CONTRACTS
--------------------------------------------------------------------------------
PRIME MID INTERNATIONAL SMALL COLONIAL
OBLIGATIONS BOND CAPITALIZATION DISCOVERY CAPITALIZATION U.S. STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dividend distributions........... $ 37 $ 288 $ - $ - $ - $ 1
Expenses (NOTE 2):
Mortality and expense risk fee (13) (92) (289) (147) (254) -
Administrative fee............ (4) (23) (83) (24) (36) -
--------------------------------------------------------------------------------
Net investment income (loss)..... 20 173 (372) (171) (290) 1
Capital gains distributions...... - - 3,386 - 111 12
Realized gain (loss) on
investments...................... - 115 1,210 546 1,475 -
Unrealized appreciation
(depreciation) on investments. - 151 (1,689) (379) (2,449) (10)
------------------------------------------------------------------
---------------
Net realized and unrealized gain
(loss) on investments......... - 266 2,907 167 (863) 2
--------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations.................... 20 439 2,535 (4) (1,153) 3
Net assets at beginning of year.. 1,059 6,605 19,425 9,919 18,737 -
Variable annuity deposits
(NOTES 2 AND 3)............... 2,630 2,509 7,720 4,670 7,524 120
Terminations and withdrawals
(NOTES 2 AND 3)............... (2,474) (1,118) (2,654) (2,408) (2,778) -
================================================================================
Net assets at end of year........ $ 1,235 $ 8,435 $27,026 $12,177 $22,330 $123
================================================================================
<CAPTION>
NON-TRUST CONTRACTS
--------------------------------------------------------------------------------
COLONIAL GLOBAL
STRATEGIC NEWPORT MONEY AGGRESSIVE EQUITY SOCIAL
INCOME TIGER MARKET BOND INCOME AWARENESS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------------------------------------------------------------
Dividend distributions........... $ 17 $ - $ - $ 1 $ - $-
Expenses (NOTE 2):
Mortality and expense risk fee - - - - - -
Administrative fee............ - - - - - -
--------------------------------------------------------------------------------
Net investment income (loss)..... 17 - - 1 - -
Capital gains distributions...... 1 - - - - -
Realized gain (loss) on
investments...................... - - - - - -
Unrealized appreciation
(depreciation) on investments. (18) - - (1) 4 -
--------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments......... (17) - - (1) 4 -
--------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
operations.................... - - - - 4 -
Net assets at beginning of year.. - - - - - -
Variable annuity deposits
(NOTES 2 AND 3)............... 249 12 45 17 267 7
Terminations and withdrawals
(NOTES 2 AND 3)............... - - - - - -
================================================================================
Net assets at end of year........ $249 $12 $45 $17 $271 $7
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Parkstone Variable Annuity Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
TRUST CONTRACTS
--------------------------------------------------------------------------------
PRIME MID INTERNATIONAL SMALL
OBLIGATIONS BOND CAPITALIZATION DISCOVERY CAPITALIZATION EQUITY INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dividend distributions........... $ 10 $ 40 $ - $ - $ - $ -
Expenses (NOTE 2):
Mortality and expense risk fee (1) (7) (11) (6) (10) -
Administrative fee............ - (1) (1) (1) - -
--------------------------------------------------------------------------------
Net investment income (loss)..... 9 32 (12) (7) (10) -
Capital gains distributions...... - - 249 - 7 -
Realized gain (loss) on
investments...................... - 1 (71) 40 (243) -
--------------------------------------------------------------------------------
Unrealized appreciation
(depreciation) on investments. - 34 (31) (41) 92 -
--------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments......... - 35 (147) (1) (144) -
Net increase (decrease) in net
assets resulting from
operations.................... 9 67 135 (8) (154) -
Net assets at beginning of year.. 298 921 1,699 967 1,514 -
Variable annuity deposits
(NOTES 2 AND 3)............... 347 96 126 104 71 16
Terminations and withdrawals
(NOTES 2 AND 3)............... (430) (97) (1,220) (702) (943) -
================================================================================
Net assets at end of year........ $ 224 $987 $ 740 $361 $ 488 $16
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<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 MID INTERNATIONAL SMALL
OBLIGATIONS BOND CAPITALIZATION 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 1,035 824
-------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments................................ - (41) 2,294 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
===================================================================
<CAPTION>
TRUST CONTRACTS
-------------------------------------------------------------------
PRIME MID INTERNATIONAL SMALL
OBLIGATIONS BOND CAPITALIZATION DISCOVERY CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------------------------------------------------
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.
<PAGE>
Parkstone Variable Annuity Account
Notes to Financial Statements (continued)
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,
Keyport Variable Investment Trust or SBL Fund, mutual funds 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, Mid Capitalization Fund emphasis on capital
appreciation, International Discovery Fund - emphasis on long-term capital
growth through investment in foreign and domestic common stocks, Small
Capitalization Fund - emphasis on capital appreciation through investment in
small- to medium-sized companies, Colonial U.S. Stock Fund - emphasis on seeking
growth over time through investment in common stock of U.S. companies, Colonial
Strategic Income Fund - emphasis on high current income through investment in
U.S. and foreign government securities and high yield, high risk corporate debt
securities, Newport Tiger Fund - emphasis on long-term capital growth through
investment in equity securities of companies located in East Asia, Series C
(Money Market Series) - emphasis on capital preservation while generating
interest income, Series K (Global Aggressive Bond Series) - emphasis on high
current income with secondary emphasis on capital appreciation, Series O (Equity
Income Series) - emphasis on substantial dividend income and capital
appreciation and Series S (Social Awareness Series) - emphasis on capital
appreciation.
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 Parkstone Advantage 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.
Portfolio investments of the Keyport Variable Investment Trust are made by
Liberty Advisory Services Corp. with Colonial Management Associates, Inc.
providing sub-advisory services to the Colonial U.S. Stock Fund and the Colonial
Strategic Income Fund and Newport Fund Management, Inc. providing sub-advisory
services to the Newport Tiger Fund. Portfolio investments of SBL fund are made
by Security Management Company, LLC with Lexington Management Corporation
providing sub-advisory services to Series K and T. Rowe Price Associates, Inc.
providing sub-advisory services to Series O.
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.
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)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Prime Obligations Fund............................. $ 2,749 $2,573 $ 422 $ 496
Bond Fund.......................................... 2,860 1,297 140 108
Mid Capitalization Fund............................ 11,776 3,696 2,445 3,302
International Discovery Fund....................... 4,883 2,793 1,366 1,970
Small Capitalization Fund.......................... 8,253 3,687 1,815 2,689
Colonial U.S. Stock Fund........................... 141 8 - -
Colonial Strategic Income Fund..................... 301 34 - -
Newport Tiger Fund................................. 20 8 - -
Money Market Series................................ 46 1 - -
Global Aggressive Bond Series...................... 18 - - -
Equity Income Series............................... 284 17 16 -
Social Awareness Series............................ 7 - - -
YEAR ENDED DECEMBER 31, 1996
Prime Obligations Fund............................. 1,805 1,411 3,773 3,615
Bond Fund.......................................... 3,383 689 503 181
Mid Capitalization 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
</TABLE>
ANNUITY RESERVES
As of December 31, 1997, 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 would 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.
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.
<PAGE>
Parkstone Variable Annuity Account
Notes to Financial Statements (continued)
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
net 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 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 $81,447 and $43,278 during 1997 and 1996, 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.
<PAGE>
Parkstone Variable Annuity Account
Notes to Financial Statements (continued)
3. SUMMARY OF UNIT TRANSACTIONS
<TABLE>
<CAPTION>
NON-TRUST CONTRACTS TRUST CONTRACTS
----------------------------------------------------------
1997 1996 1997 1996
----------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Prime Obligations Subaccount:
Variable annuity deposits.............................. 242 149 33 327
Terminations, withdrawals and expense charges.......... 227 115 41 313
Bond Subaccount:
Variable annuity deposits.............................. 217 289 9 45
Terminations, withdrawals and expense charges.......... 93 43 9 16
Mid Capitalization Subaccount:
Variable annuity deposits.............................. 535 487 8 88
Terminations, withdrawals and expense charges.......... 184 87 80 14
International Discovery Subaccount:
Variable annuity deposits.............................. 383 299 8 64
Terminations, withdrawals and expense charges.......... 197 51 58 2
Small Capitalization Subaccount:
Variable annuity deposits.............................. 429 390 3 59
Terminations, withdrawals and expense charges.......... 161 57 52 9
Colonial U.S. Stock Subaccount:
Variable annuity deposits.............................. 12 - - -
Terminations, withdrawals and expense charges.......... - - - -
Colonial Strategic Income Subaccount:
Variable annuity deposits.............................. 25 - - -
Terminations, withdrawals and expense charges.......... - - - -
Newport Tiger Subaccount:
Variable annuity deposits.............................. 1 - - -
Terminations, withdrawals and expense charges.......... - - - -
Money Market Subaccount:
Variable annuity deposits.............................. 4 - - -
Terminations, withdrawals and expense charges.......... - - - -
Global Aggressive Bond Subaccount:
Variable annuity deposits.............................. 2 - - -
Terminations, withdrawals and expense charges.......... - - - -
Equity Income Subaccount:
Variable annuity deposits.............................. 27 - 2 -
Terminations, withdrawals and expense charges.......... - - - -
Social Awareness Subaccount:
Variable annuity deposits.............................. 1 - - -
Terminations, withdrawals and expense charges.......... - - - -
</TABLE>
<PAGE>
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
CONTENTS - AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors ............................................ 12
Consolidated Balance Sheets ............................................... 13
Consolidated Statements of Income ......................................... 14
Consolidated Statements of Changes in Equity .............................. 15
Consolidated Statements of
Cash Flows ................................................................ 16
Notes to Consolidated Financial Statements ................................ 18
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, 1997 and 1996, 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, 1997. 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, 1997 and
1996, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 6, 1998
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
---------- -----------
(In Thousands)
ASSETS
Investments:
Securities available-for-sale:
Fixed maturities ................... $1,650,324 $ 1,805,066
Equity securities .................. 120,508 89,188
Fixed maturities held-to-maturity .. 452,411 528,045
Mortgage loans ..................... 64,251 66,611
Real estate ........................ 3,056 4,000
Policy loans ....................... 85,758 106,822
Cash and cash equivalents .......... 30,896 8,310
Other invested assets .............. 42,395 40,531
---------- -----------
Total investments .................................. 2,449,599 2,648,573
Accrued investment income .......................... 30,034 32,161
Accounts receivable ................................ 6,278 4,256
Reinsurance recoverable 408,096 92,197
Property and equipment, net ........................ 19,669 18,592
Deferred policy acquisition costs .................. 159,441 216,918
Other assets ....................................... 20,909 24,939
Separate account assets ............................ 3,716,639 2,802,927
---------- -----------
$6,810,665 $ 5,840,563
========== ===========
Liabilities and equity
Liabilities:
Policy reserves and annuity account values . $2,439,713 $ 2,497,998
Policy and contract claims ................. 10,955 10,607
Other policyholder funds ................... 21,582 24,073
Accounts payable and accrued expenses ...... 23,576 18,003
Income taxes payable:
Current ........................... 10,960 6,686
Deferred ........................... 58,261 54,847
Long-term debt and other borrowings ........ 65,000 65,000
Other liabilities .......................... 29,098 11,990
Separate account liabilities ............... 3,716,639 2,793,911
---------- -----------
Total liabilities .................................. 6,375,784 5,483,115
Equity:
Retained earnings .......................... 409,432 357,927
Unrealized gain (loss) on securities
available-for-sale, net .................. 25,449 (479)
---------- -----------
Total equity ....................................... 434,881 357,448
---------- -----------
$6,810,665 $ 5,840,563
========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
-------- --------- --------
(In Thousands)
Revenues:
<S> <C> <C> <C>
Insurance premiums and other considerations ........................ $ 24,640 $ 28,848 $ 49,608
Net investment income .............................................. 184,975 194,783 182,012
Asset based fees ................................................... 72,025 55,977 40,652
Other product charges .............................................. 9,163 10,470 10,412
Realized gains (losses) on investments ............................. 4,929 (244) 3,876
Other revenues ..................................................... 21,389 24,391 22,164
-------- --------- --------
Total revenues ............................................................. 317,121 314,225 308,724
Benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances ............................ 102,640 108,705 113,700
Benefit claims in excess of account balances ..................... 4,985 7,541 6,808
Traditional life insurance benefits ................................ 3,966 6,474 7,460
Supplementary contract payments .................................... 9,660 11,121 11,508
Increase in traditional life reserves .............................. 7,050 8,580 13,212
Dividends to policyholders ......................................... 1,608 2,374 2,499
Other benefits ..................................................... 19,699 20,790 22,379
-------- --------- --------
Total benefits ............................................................. 149,608 165,585 177,566
Commissions and other operating expenses ................................... 56,933 52,044 48,305
Amortization of deferred policy acquisition costs .......................... 26,179 25,930 26,628
Interest expense ........................................................... 5,305 4,285 7
Restructuring expenses ..................................................... 2,643 -- --
Other expenses ............................................................. 3,381 1,667 1,099
-------- --------- --------
Total benefits and expenses ................................................ 244,049 249,511 253,605
-------- --------- --------
Income before income taxes ................................................. 73,072 64,714 55,119
Income taxes ............................................................... 21,567 20,871 17,927
-------- --------- --------
Net income ................................................................. $ 51,505 $ 43,843 $ 37,192
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Equity
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Retained earnings:
Beginning of year ............................ $ 357,927 $ 314,084 $ 276,892
Net income ................................... 51,505 43,843 37,192
--------- --------- ---------
End of year .................................. 409,432 357,927 314,084
Unrealized gain (loss) on securities
available-for-sale, net:
Beginning of year ............................ (479) 11,607 (48,466)
Change in unrealized gain (loss) on securities
available-for-sale, net ....................... 25,928 (12,086) 60,073
--------- --------- ---------
End of year ..................................... 25,449 (479) 11,607
Total equity .................................... $ 434,881 $ 357,448 $ 325,691
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
----------- ----------- ---------
(In Thousands)
Operating activities
<S> <C> <C> <C>
Net income ............................................................ $ 51,505 $ 43,843 $ 37,192
Adjustments to reconcile net income to net
cash provided by operating activities:
Annuity and interest sensitive life products:
Interest credited to account balances ................. 102,640 108,705 113,700
Charges for mortality and administration .............. (10,582) (13,115) (16,585)
(Decrease) increase in traditional life policy reserves ....... (3,101) 10,697 2,142
Decrease (increase) in accrued investment income .............. 2,127 (1,538) (4,573)
Policy acquisition costs deferred ............................. (37,999) (36,865) (33,021)
Policy acquisition costs amortized ............................ 26,179 25,930 26,628
Accrual of discounts on investments ........................... (2,818) (3,905) (3,421)
Amortization of premiums on investments ...................... 9,138 11,284 9,782
Depreciation and amortization ................................. 3,959 3,748 3,750
Other ......................................................... (8,444) (3,379) (4,225)
----------- ----------- ---------
Net cash provided by operating activities ............................. 132,604 145,405 131,369
Investing activities
Sale, maturity or repayment of investments:
Fixed maturities available-for-sale ........................... 368,901 870,240 517,480
Fixed maturities held-to-maturity ............................. 124,013 58,874 59,873
Equity securities available-for-sale .......................... 48,495 3,643 10,242
Mortgage loans ................................................ 3,739 12,545 23,248
Real estate ................................................... 946 2,935 3,173
Short-term investments ........................................ -- 20,069 229,871
Separate account assets ...................................... 9,180 5,214 --
Other invested assets ......................................... 7,865 6,224 22,839
----------- ----------- ---------
563,139 979,744 866,726
Acquisition of investments:
Fixed maturities available-for-sale ........................... (219,736) (936,376) (591,121)
Fixed maturities held-to-maturity ............................. (1,188) (52,422) (125,276)
Equity securities available-for-sale .......................... (67,004) (68,222) (7,500)
Mortgage loans ................................................ (1,447) (4,538) (4,179)
Real estate ................................................... (712) (2,637) (1,511)
Short-term investments ........................................ -- (19,070) (180,259)
Separate account assets ....................................... -- -- (12,000)
Other invested assets ......................................... (7,518) (3,712) (31,861)
----------- ----------- ---------
(297,605) (1,086,977) (953,707)
Purchase of property and equipment ............................ (4,144) (1,879) (2,036)
Net increase in policy loans .................................. (8,654) (6,370) (8,058)
----------- ----------- ---------
Net cash transferred per coinsurance agreement ................ (218,043) -- (16,295)
----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(In Thousands)
Financing activities
Issuance of long-term debt ...................... $ -- $ 65,000 $ --
Annuity and interest sensitive life products:
Deposits credited to account balances ... 167,517 202,129 234,321
Withdrawals from account balances ....... (312,228) (305,530) (251,647)
--------- --------- ---------
Net cash used in financing activities ........... (144,711) (38,401) (17,326)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 22,586 (8,478) 673
Cash and cash equivalents at beginning of year .. 8,310 16,788 16,115
--------- --------- ---------
Cash and cash equivalents at end of year ........ $ 30,896 $ 8,310 $ 16,788
========= ========= =========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest ................................ $ 5,307 $ 2,966 $ 120
========= ========= =========
Income taxes ............................ $ 27,920 $ 16,213 $ 11,551
========= ========= =========
Supplemental disclosures of noncash investing
and financing activities
Conversion of mortgage loans to real estate
owned ........................................... $ -- $ 844 $ --
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
NOTES TO FINANCIAL STATEMENTSDecember 31, 1997
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 comprised primarily of individual and group annuities
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.
The Company intends to modify its organizational structure by forming a
Kansas mutual holding company to be named Security Benefit Mutual Holding
Company. The Company will convert to a stock life insurance company and
continue to operate under its current name. All capital stock shares of the
reorganized stock life insurance company will be issued to and owned by a
newly created intermediate stock holding company Security Benefit
Corporation. Initially, Security Benefit Mutual Holding Company will own all
of the voting stock of Security Benefit Corporation. Kansas law requires
that Security Benefit Mutual Holding Company hold at least 51% of the
outstanding voting stock of the stock life insurance company (except to the
extent qualifying shares are required by the Kansas Insurance Code to be
held by directors of an insurance company admitted and authorized to do
business in Kansas). The conversion plan is subject to approval of the
Kansas Insurance Department and the policyholders of the Company.
BASIS OF PRESENTATION
The consolidated financial statements include the operations and accounts of
Security Benefit Life Insurance Company and its wholly-owned subsidiaries,
including Security Benefit Group, Inc., First Security Benefit Life
Insurance and Annuity Company of New York, Security Management Company, LLC,
Security Distributors, Inc., Security Benefit Academy, Inc. and Creative
Impressions, Inc. Significant intercompany transactions have been eliminated
in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements requires management to
make estimates and assumptions that affect amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
INVESTMENTS
Fixed maturities are classified as either held-to-maturity or
available-for-sale. Fixed maturities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost, adjusted
for amortization of premiums and accrual of discounts. 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 any unrealized gain or loss, net of deferred policy acquisition
costs (DPAC) and deferred income taxes, reported as a separate component of
equity. The DPAC offsets to the unrealized gain or loss 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 classified as available-for-sale and
stated at fair value. Mortgage loans and short-term investments are reported
at amortized cost. Real estate investments are carried at the lower of
depreciated cost or estimated realizable value. Policy loans are reported at
unpaid principal. Investments accounted for by the equity method include
investments in, and advances to, various joint ventures and partnerships.
Realized gains and losses on sales of investments are recognized in revenues
on the specific identification method. The operations of the Company are
subject to risk resulting from interest rate fluctuations to the extent that
there is a difference between the amount of the Company's interest-earning
assets and the amount of interest-bearing liabilities that are
prepaid/withdrawn, mature or reprice in specified periods. The principal
objective of the Company's asset/liability management activities is to
provide maximum levels of net investment income while maintaining acceptable
levels of interest rate and liquidity risk and facilitating the funding
needs of the Company. The Company periodically may use derivative financial
instruments to modify its interest sensitivity to levels deemed to be
appropriate based on the Company's current economic outlook.
Such derivative financial instruments are for purposes other than trading
and classified as available-for-sale in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Accordingly, these instruments
are stated at fair value with the change in fair value reported as a
separate component of equity.
DEFERRED POLICY ACQUISITION COSTS
To the extent recoverable from future policy revenues and gross profits,
commissions and other policy-issue, underwriting and marketing costs that
are primarily related to the acquisition or renewal of traditional life
insurance, interest sensitive life and deferred annuity business have been
deferred. Traditional life insurance deferred policy acquisition costs are
being amortized in proportion to premium revenues over the premium-paying
period of the related policies using assumptions consistent with those used
in computing policy benefit reserves.
For interest sensitive life and deferred annuity business, deferred policy
acquisition costs are amortized in proportion to the present value
(discounted at the crediting rate) of expected gross profits from
investment, mortality and expense margins. That amortization is adjusted
retrospectively when estimates of current or future gross profits to be
realized from a group of products are revised.
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 home office real estate, furniture and
fixtures, and data processing hardware and related systems, are recorded at
cost, less accumulated depreciation. The provision for depreciation of
property and equipment is computed using the straight-line method over the
estimated lives of the related assets.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying
balance sheets represent funds that are separately administered for the
benefit of contractholders who bear the investment risk. The separate
account assets and liabilities are carried at fair value. Revenues and
expenses related to separate account assets and liabilities, to the extent
of benefits paid or provided to the separate account contractholders, are
excluded from the amounts reported in the consolidated statements of income.
Investment income and gains or losses arising from separate accounts accrue
directly to the contractholders and are, therefore, not included in
investment earnings in the accompanying statements of income. Revenues to
the Company from the separate accounts consist principally of contract
maintenance charges, administrative fees, and mortality and expense risk
charges.
POLICY RESERVES AND ANNUITY ACCOUNT VALUES
Liabilities for future policy benefits for traditional life and reinsurance
products are computed using a net level premium method, including
assumptions as to investment yields, mortality and withdrawals, and other
assumptions that approximate expected experience.
Liabilities for future policy benefits for interest sensitive life and
deferred annuity products represent accumulated contract values without
reduction for potential surrender charges and deferred front-end contract
charges that are amortized over the life of the policy. Interest on
accumulated contract values is credited to contracts as earned. Crediting
rates ranged from 3.8% to 7.25% during 1997, 3.5% to 7.25% during 1996 and
4% to 7.75% during 1995.
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 unrealized gains and losses on securities
available-for-sale).
RECOGNITION OF REVENUES
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these traditional products are
recognized as revenues when due. Revenues from interest sensitive life
insurance products and deferred annuities consist of policy charges for the
cost of insurance, policy administration charges and surrender charges
assessed against contractholder account balances during the period.
RESTRUCTURING EXPENSES
Restructuring expenses include costs relating to the mutual holding company
conversion and termination benefits provided to certain associates under an
early retirement program.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
o Cash and cash equivalents: The carrying amounts reported in the balance
sheet for these instruments approximate their fair values.
o Investment securities: Fair values for fixed maturities are based on
quoted market prices, if available. For fixed maturities not actively
traded, fair values are estimated using values obtained from independent
pricing services or estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality and
maturity of the investments. The fair values for equity securities are
based on quoted market prices.
o Mortgage loans and policy loans: Fair values for mortgage loans and
policy loans are estimated using discounted cash flow analyses based on
market interest rates for similar loans to borrowers with similar credit
ratings. Loans with similar characteristics are aggregated for purposes
of the calculations.
o 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.
o Long-term debt: Fair values for long-term debt are estimated using
discounted cash flow analyses based on current borrowing rates for
similar types of borrowing arrangements.
2. INVESTMENTS
Information as to the amortized cost, gross unrealized gains and losses, and
fair values of the Company's portfolio of fixed maturities and equity
securities at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of U.S.
government corporations and agencies .............. $ 214,088 $ 3,313 $ -- $ 217,401
Obligations of states and political subdivisions .. 23,753 1,320 8 25,065
Special revenue and assessment .................... 255 45 -- 300
Corporate securities .............................. 742,123 27,986 1,674 768,435
Mortgage-backed securities ........................ 510,991 11,429 2,137 520,283
Asset-backed securities ........................... 117,907 1,030 97 118,840
-------------------------------------------------
Totals ............................................ $1,609,117 $ 45,123 $ 3,916 $1,650,324
=================================================
Equity securities ................................. $ 109,763 $ 11,220 $ 475 $ 120,508
=================================================
HELD-TO-MATURITY
Obligations of states and political subdivisions .. $ 74,802 $ 2,094 $ 30 $ 76,866
Corporate securities .............................. 108,609 5,295 201 113,703
Mortgage-backed securities ........................ 227,131 2,725 364 229,492
Asset-backed securities ........................... 41,869 297 1 42,165
Totals ............................................ $ 452,411 $ 10,411 $ 596 $ 462,226
<PAGE>
<CAPTION>
December 31, 1996
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(In Thousands)
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
=================================================
Totals ............................................... $1,810,980 $ 24,456 $ 30,370 $1,805,066
=================================================
Equity securities .................................... $ 86,991 $ 2,422 $ 225 $ 89,188
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
-------------------------------------------------
Totals ............................................... $ 528,045 $ 4,969 $ 4,310 $ 528,704
=================================================
</TABLE>
The change in the Company's unrealized gain (loss) on fixed maturities was
$56,277,000, $(51,773,000) and $220,048,000 during 1997, 1996 and 1995,
respectively; the corresponding amounts for equity securities were $8,588,000,
$1,595,000 and $1,034,000 during 1997, 1996 and 1995, respectively.
The amortized cost and fair value of fixed maturities at December 31, 1997, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available-For-Sale Held-To-Maturity
----------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less ............. $ 33,328 $ 33,578 $ -- $ --
Due after one year through five years 202,757 206,870 6,821 6,947
Due after five years through 10 years 455,242 466,263 37,726 38,995
Due after 10 years .................. 288,892 304,490 138,864 144,627
Mortgage-backed securities .......... 510,991 520,283 227,131 229,492
Asset-backed securities ............. 117,907 118,840 41,869 42,165
---------- ---------- -------- --------
$1,609,117 $1,650,324 $452,411 $462,226
========== ========== ======== ========
</TABLE>
<PAGE>
Major categories of net investment income for the years ended December 31,
1997, 1996 and 1995 are summarized as follows:
1997 1996 1995
--------- -------- --------
(In Thousands)
Interest on fixed maturities ..... $ 167,646 $174,592 $165,684
Dividends on equity securities ... 7,358 5,817 1,309
Interest on mortgage loans ....... 6,017 6,680 7,876
Interest on policy loans ......... 6,282 6,372 5,927
Interest on short-term investments 2,221 1,487 2,625
Other ............................ (166) 4,199 2,740
Total investment income .......... 189,358 199,147 186,161
Investment expenses .............. 4,383 4,364 4,149
----------------------------------
Net investment income ............ $ 184,975 $194,783 $182,012
==================================
Proceeds from sales of fixed maturities and equity securities and related
realized gains and losses, including valuation adjustments, for the years
ended December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
-------- -------- --------
(In Thousands)
Proceeds from sales ....... $333,498 $393,189 $310,590
Gross realized gains ...... 11,889 9,407 5,901
Gross realized losses ..... 6,640 9,723 3,361
Net realized gains (losses) for the years ended December 31, 1997, 1996 and
1995 consist of the following:
1997 1996 1995
------- ------- ------
(In Thousands)
Fixed maturities ............... $ 861 $(1,329) $1,805
Equity securities .............. 4,388 1,013 735
Other .......................... (320) 72 1,336
-------------------------------------
Total realized gains (losses) .. $ 4,929 $ (244) $3,876
=====================================
There were no deferred losses at December 31, 1997, and $2.2 million at
December 31, 1996, resulting from terminated and expired futures contracts.
These are included in fixed maturities and amortized as an adjustment to net
investment income. There were no outstanding agreements to sell securities
at December 31, 1997 or 1996.
The composition of the Company's portfolio of fixed maturities by quality
rating at December 31, 1997 is as follows:
Quality Rating Carrying Amount %
- --------------------------------- ---------- ------
(In Thousands)
AAA ..................... $1,024,624 48.73%
AA ...................... 161,469 7.68
A ....................... 396,387 18.85
BBB ..................... 329,371 15.66
Noninvestment grade...... 190,884 9.08
---------- ------
$2,102,735 100.00%
================================
<PAGE>
The Company has a diversified portfolio of commercial and residential
mortgage loans outstanding in 14 states. The loans are somewhat
geographically concentrated in the midwestern and southwestern United States
with the largest outstanding balances at December 31, 1997 being in the
states of Kansas (31%), Iowa (16%) and Texas (14%).
3. EMPLOYEE BENEFIT PLANS
Substantially all Company employees are covered by a qualified,
noncontributory defined benefit pension plan sponsored by the Company and
certain of its affiliates. Benefits are based on years of service and an
employee's highest average compensation over a period of five consecutive
years during the last 10 years of service. The Company's policy has been to
contribute funds to the plan in amounts required to maintain sufficient plan
assets to provide for accrued benefits. In applying this general policy, the
Company considers, among other factors, the recommendations of its
independent consulting actuaries, the requirements of federal pension law
and the limitations on deductibility imposed by federal income tax law. The
Company records pension cost in accordance with the provisions of SFAS No.
87, "Employers' Accounting for Pensions."
Pension cost for the plan for the years ended December 31, 1997, 1996 and
1995 is summarized below and includes termination benefit costs, a
significant portion of which were reflected as a reduction of the gain
recognized upon the sale of the block of life insurance business described
in Note 4.
1997 1996 1995
------- ------- -------
(In Thousands)
Service cost ................. $ 641 $ 670 $ 528
Interest cost ................ 721 587 508
Actual return on plan assets . (1,892) (1,064) (1,568)
Net amortization and deferral 990 284 900
Termination benefits ......... 1,539 -- --
-----------------------------------
Net pension cost ............. $ 1,999 $ 477 $ 368
===================================
The funded status of the plan as of December 31, 1997 and 1996 was as follows:
December 31
1997 1996
-------- --------
(In Thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation ................. $ (8,191) $ (6,059)
Non-vested benefit obligation ............. (865) (202)
-----------------------
Accumulated benefit obligation ............ (9,056) (6,261)
Excess of projected benefit obligation
over accumulated benefit obligation ..... (3,431) (2,961)
Projected benefit obligation .............. (12,487) (9,222)
Plan assets, at fair market value .......... 11,279 10,085
-----------------------
Plan assets greater than (less than) projected
benefit obligation ...................... (1,208) 863
Unrecognized net loss ...................... 1,819 1,007
Unrecognized prior service cost ............ 642 700
Unrecognized net asset established at the
date of initial application .............. (1,657) (1,841)
-----------------------
Net (accrued) prepaid pension cost ......... $ (404) $ 729
=======================
<PAGE>
Assumptions were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate .......................... 7.25% 7.75% 7.5%
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
</TABLE>
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 1997. 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 the
years ended December 31, 1997, 1996 and 1995 is summarized below and
includes termination benefit costs, a significant portion of which were
reflected as a reduction of the gain recognized upon the sale of the block
of life insurance business described in Note 4.
1997 1996 1995
----- ---- ----
(In Thousands)
Service cost .................. $ 155 $157 $151
Interest cost ................. 291 280 305
Net amortization .............. (32) -- --
Termination benefits .......... 372 -- --
--------------------------------
$ 786 $437 $456
================================
The funded status of the plan as of December 31, 1997 and 1996 was as follows:
1997 1996
------- -------
(In Thousands)
Accumulated postretirement benefit
obligation:
Retirees ......................... $(2,595) $(2,498)
Active participants:
Retirement eligible .............. (666) (568)
Others ........................... (1,100) (1,023)
-----------------------
(4,361) (4,089)
Unrecognized net gain .................... (692) (348)
-----------------------
Accrued postretirement benefit cost ...... $(5,053) $(4,437)
=======================
The annual assumed rate of increase in the per capita cost of covered
benefits is 9% for 1997 and is assumed to decrease gradually to 5% for 2001
and remain at that level thereafter. The health care cost trend rate has a
significant effect on the amount reported. For example, increasing the
assumed health care cost trend rates by one percentage point each year would
increase the accumulated postretirement benefit obligation as of December
31, 1997 by $201,000 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1997 by $55,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.25%, 7.75% and 7.5% at December 31, 1997, 1996 and 1995,
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 $1,857,000, $1,783,000 and $1,567,000 for
1997, 1996 and 1995, 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, 1997 and 1996 was
$7.4 billion and $4 billion, respectively.
Principal reinsurance transactions for the years ended December 31, 1997,
1996 and 1995 are summarized as follows:
1997 1996 1995
------- ------- ------
(In Thousands)
Reinsurance ceded:
Premiums paid ............ $33,872 $25,442 $5,305
================================
Commissions received ..... $ 4,636 $ 4,669 $ 230
================================
Claim recoveries ......... $14,581 $ 5,235 $3,089
================================
In the accompanying financial statements, premiums, benefits, settlement
expenses and deferred policy acquisition costs are reported net of
reinsurance ceded; policy liabilities and accruals are reported gross of
reinsurance ceded. The Company remains liable to policyholders if the
reinsurers are unable to meet their contractual obligations under the
applicable reinsurance agreements. To minimize its exposure to significant
losses from reinsurance insolvencies, the Company evaluates the financial
condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities or economic
characteristics of reinsurers. At December 31, 1997 and 1996, the Company
had established a receivable totaling $408,096,000 and $92,197,000 for
reserve credits, reinsurance claims and other receivables from its
reinsurers. Substantially all of these receivables are collateralized by
assets of the reinsurers held in trust. The amount of reinsurance assumed is
not significant.
In 1997, the Company transferred, though a 100% coinsurance agreement, $318
million in policy reserves and claim liabilities reduced by a ceding
commission of $63 million and other related items. The agreement related to
a block of universal life and traditional life insurance business. The
Company recorded a pretax gain of $14,625,000 which is deferred in other
liabilities and amortized to income over the estimated life of the business
transferred.
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 significant
adverse effect on the Company. The nonmajor medical business placed in the
pool has experienced significant losses. At December 31, 1997, 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 gains
(losses) on securities available-for-sale.
Income tax expense consists of the following for the years ended December
31, 1997, 1996 and 1995:
1997 1996 1995
-------- ------- -------
(In Thousands)
Current ........... $ 32,194 $12,528 $15,200
Deferred .......... (10,627) 8,343 2,727
-------------------------------------------
$ 21,567 $20,871 $17,927
===========================================
The provision for income taxes differs from the amount computed at the
statutory federal income tax rate due primarily to dividends received
deductions and tax credits.
Net deferred tax assets or liabilities consist of the following:
December 31
--------------------
1997 1996
------- -------
(In Thousands)
Deferred tax assets:
Future policy benefits .................. $ 9,869 $20,487
Net unrealized depreciation on
securities available-for-sale ........ -- 1,409
Guaranty fund assessments ............... 1,250 1,400
Employee benefits ....................... 6,487 4,852
Deferred gain on coinsurance agreement .. 4,970 --
Other ................................... 7,497 4,620
---------------------
Total deferred tax assets .................. 30,073 32,768
Deferred tax liabilities:
Deferred policy acquisition costs ....... 53,173 69,647
Net unrealized appreciation on
securities available-for-sale ........ 18,115 --
Deferred gain on investments ............ 8,378 10,446
Depreciation ............................ 1,935 2,061
Other ................................... 6,733 5,461
---------------------
Total deferred tax liabilities ............. 88,334 87,615
---------------------
Net deferred tax liabilities ............... $58,261 $54,847
=====================
6. CONDENSED FAIR VALUE INFORMATION
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosures of fair value information about financial instruments,
whether recognized or not recognized in a company's balance sheet, for which
it is practicable to estimate that value. The methods and assumptions used
by the Company to estimate the following fair value disclosures for
financial instruments are set forth in Note 1.
SFAS No. 107 excludes certain insurance liabilities and other nonfinancial
instruments from its disclosure requirements. However, the liabilities under
all insurance contracts are taken into consideration in the Company's
overall management of interest rate risk that minimizes exposure to changing
interest rates through the matching of investment maturities with amounts
due under insurance contracts. The fair value amounts presented herein do
not include an amount for the value associated with customer or agent
relationships, the expected interest margin (interest earnings in excess of
interest credited) to be earned in the future on investment-type products or
other intangible items. Accordingly, the aggregate fair value amounts
presented herein do not necessarily represent the underlying value of the
Company; likewise, care should be exercised in deriving conclusions about
the Company's business or financial condition based on the fair value
information presented herein.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Investments:
Mortgage loans ............... $ 64,251 $ 66,454 $ 66,611 $ 69,004
Policy loans ................. 85,758 85,993 106,822 108,685
Liabilities:
Supplementary contracts
without life contingencies . 29,890 30,189 33,225 33,803
Individual and group annuities 1,894,605 1,713,509 1,942,697 1,767,692
Long-term debt ............... 65,000 71,793 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 $1,018,000,
$1,108,000 and $802,000 for the years ended December 31, 1997, 1996 and
1995, respectively. The Company has aggregate future lease commitments at
December 31, 1997 of $3,906,000 for noncancelable operating leases
consisting of $1,158,000 in 1998, $1,026,000 in 1999, $940,000 in 2000,
$782,000 in 2001. There are no noncancelable lease commitments beyond 2001.
In 2001, under the terms of one of the operating leases, the Company has the
option to renew the lease for another five years, purchase the asset for
approximately $4.7 million, or return the asset to the lessor and pay a
termination charge of approximately $3.7 million.
In connection with its investments in low income housing partnerships, the
Company is committed to invest additional capital of $4,008,000 and
$9,190,000 in 1998 and 1999, respectively.
Guaranty fund assessments are levied on the Company by life and health
guaranty associations in most states in which it is licensed to cover losses
of policyholders of insolvent or rehabilitated insurers. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. The Company cannot predict whether and to what extent
legislative initiatives may affect the right to offset. Based on information
from the National Organization of Life and Health Guaranty Association and
information from the various state guaranty associations, the Company
believes that it is probable that these insolvencies will result in future
assessments. The Company regularly evaluates its reserve for these
insolvencies and updates its reserve based on the Company's interpretation
of information recently received. The associated costs for a particular
insurance company can vary significantly based on its premium volume by line
of business in a particular state and its potential for premium tax offset.
The Company accrued no additional reserves for these insolvencies in 1997.
Additional accruals in the amount of $1,574,000 and $2,302,000 were recorded
during 1996 and 1995, respectively. At December 31, 1997, the Company has
reserved $3,573,000 to cover current and estimated future assessments, net
of related premium tax credits.
8. LONG-TERM DEBT AND OTHER BORROWINGS
The Company has a $61.5 million line of credit facility from the Federal
Home Loan Bank of Topeka. Any borrowings in connection with this facility
bear interest at .1% over the Federal Funds rate. No amounts were
outstanding at December 31, 1997 and 1996.
In February 1996, the Company negotiated three separate $5 million 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 pay ment of interest on or principal of the
surplus notes may be made only with the prior approval of the Kansas
Insurance Commissioner and only out of surplus funds that the Kansas
Insurance Commissioner determines to be available for such payment under the
Kansas Insurance Code.
9. RELATED PARTY TRANSACTIONS
The Company owns shares of mutual funds managed by Security Management
Company, LLC with net asset values totaling $85,950,000 and $60,559,000 at
December 31, 1997 and 1996, respectively.
10. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets were as follows:
December 31
1997 1996
---------- ----------
(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 .........$3,716,639 $2,793,911
Assets of the separate accounts owned
by the Company, at fair value .................. -- 9,016
-----------------------
$3,716,639 $2,802,927
=======================
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 generally accepted accounting principles (GAAP). Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners, 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 insur ance operations are $382,005,000 and $286,689,000 at December
31, 1997 and 1996, respectively.
12. IMPACT OF YEAR 2000 (UNAUDITED)
Some of the Company's computer systems were written using two digits rather
than four to define the applicable year. As a result, those computer systems
will not recognize the year 2000 which, if not corrected, could cause
disruptions of operations, including, among other things, an inability to
process transactions or engage in similar normal business activities.
The Company has completed an assessment of its systems which will need to be
modified or replaced to function properly in the year 2000. Based on this
assessment, the Company does not believe that the costs to complete such
system modifications or replacements will be material to the Company's
financial statements. The Company has been in the process of converting
existing products to a new administration system during the past few years,
and all new products during this conversion period have been placed on the
new system.
The modification or replacement of the Company's computer systems not
currently year 2000 ready is estimated to be completed not later than March
31, 1999, which is prior to any anticipated impact on its operating systems.
The Company believes that with modifications to existing software and
conversions to new software, the year 2000 issue will not pose significant
operational problems for its computer systems. However, if such
modifications and conversions are not made or are not completed timely, the
year 2000 issue could have a material impact on the operations of the
Company.
The Company has initiated formal communications with significant third
parties which provide the Company with information to determine the extent
to which the Company's interface systems are vulnerable to those third
parties' failure to solve their own year 2000 issues. There is no guarantee
that the systems of other companies on which the Company's systems rely will
be timely converted and would not have an adverse effect on the Company's
systems. However, third-party vendors of the Company's primary adminis
trative systems have represented to the Company that the systems are or will
be year 2000 ready.
The costs of the project and the date on which the Company believes it will
complete the year 2000 modifications are based on management's estimates,
which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved,
and actual results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to convert to year 2000 ready systems and similar uncertainties.
<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)(a) Individual Contract - Advantage (Form V6020;
R10-97)(d)
(b) Individual Contract - Advantage -Unisex (Form F6020;
R10-97)
(c) Individual Contract - Trust (Form V6020-1; R10-97)(d)
(d) Individual Contract - Trust - Unisex (Form V6020-1;
R10-97)
(e) Loan Endorsement (Form V6850; 10-97)(d)
(f) Withdrawal Charge Waiver Endorsement (Form V6053;
10-97)(d)
(g) Endorsement - Advantage (Form V6052; 10-97)(d)
(h) Endorsement - Trust (Form V6052-1; 10-97)(d)
(i) IRA Endorsement (Form 4453C-5; R9-96)(c)
(j) TSA Endorsement (Form 6832A; R9-96)(c)
(k) Section 457 Endorsement (Form V6054; R1-98)
(5) Form of Application (Form V6839; R10-97)(d)
(6)(a) Composite of Articles of Incorporation of SBL(c)
(b) Bylaws of SBL(d)
(7) Not Applicable
(8)(a) Fund Participation and Variable Contract Marketing
Agreement(c)
(b) Participation Agreement Among Liberty Investments
Trust, Liberty Financial Investment Inc., and
Security Benefit Life Ins. Co.
(9) Opinion and Consent of Counsel
(10) Consent of Independent Auditors
(11) Not Applicable
(12) Not Applicable
(13) Schedules for Computation of Performance
(14) Financial Data Schedules
(15) Powers of Attorney of Howard R. Fricke, Thomas R.
Clevenger, Sister Loretto Marie Colwell, John C. Dicus,
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).
(c) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 4 under the Securities Act of
1933 and Amendment No. 6 under the Investment Company Act of 1940 to
Registration Statement No. 33-65654 (April 30, 1997).
(d) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 6 under the Securities Act of
1933 and Amendment No. 8 under the Investment Company Act of 1940 to
Registration Statement No. 33-65654 (May 1, 1998).
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES WITH
DEPOSITOR
Howard R. Fricke* Chairman of the Board, 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
Steven J. Douglas Director
3231 East 6th Street
Topeka, KS 66607
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
Kris Robbins* President and Chief Operating
Officer
Roger K. Viola* Senior Vice President, General
Counsel and Secretary
T. Gerald Lee* Senior Vice President and Chief
Administrative Officer
Malcolm E. Robinson* Senior Vice President and
Assistant to the President
Donald E. Caum* Senior Vice President
Richard K Ryan* Senior Vice President
Amy J. Lee* Vice President and Associate
General Counsel
Venette Davis Senior Vice President
James R. Schmank* Vice President - Corporate
Development
J. Craig Anderson Senior Vice President
*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.
The following chart indicates the persons controlled by or under
common control with Parkstone Variable Annuity or SBL:
<TABLE>
<CAPTION>
PERCENT OF
JURISDICTION OF VOTING SECURITIES
NAME INCORPORATION OWNED BY SBL
<S> <C> <C>
Security Benefit Life Insurance Company
(Mutual Life Insurance Company Kansas -----
Security Benefit Group, Inc.
(Holding Company) Kansas 100%
Security Management Company, LLC
(Investment Adviser) Kansas 100%
Security Distributors, Inc.
(Broker/Dealer, Principal Underwriter of
Mutual Funds) Kansas 100%
Security Benefit Academy, Inc.
(Daycare Company) Kansas 100%
Creative Impressions, Inc.
(Advertising Agency) Kansas 100%
Security Benefit Clinic and Hospital
(Nonprofit provider of hospital
benevolences for fraternal certificate
holders) Kansas 100%
First Advantage Insurance Agency, Inc. Kansas 100%
First Security Benefit Life Insurance and
Annuity Company of New York New York 100%
</TABLE>
SBL is also the depositor of the following separate accounts: SBL
Variable Annuity Accounts I, III, IV, and Variflex Separate Account
(Variflex), Variflex Separate Account (Variflex Educator Series), SBL
Variable Life Insurance Account Varilife, Security Varilife Separate
Account, SBL Variable Annuity Account VIII Variflex LS, SBL Variable
Annuity Account VIII Variflex Signature, 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 Growth and Income Fund 40.2%
Security Ultra Fund 34.0%
SBL Fund 100%
ITEM 27. NUMBER OF CONTRACTOWNERS
As of February 28, 1998, there were 1,360 owners of Parkstone
Variable Annuity Qualified Contracts, 1,543 owners of Parkstone
Non-Qualified Contracts, 18 owners of Parkstone Non-Qualified Trust
Contracts, and 1 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
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 Separate Account (Variflex),
Variflex Separate Account (Variflex Educator Series), SBL
Variable Life Insurance Account Varilife, SBL Variable Annuity
Account VIII Variflex LS, , SBL Variable Annuity Account VIII
Variflex Signature, 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.
(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 R. Schmank Vice President and Director
Mark E. Young Vice President and Director
Amy J. Lee Secretary
Brenda M. Harwood Treasurer
William G. Mancuso Regional Vice President
Susan L. Tully Regional Vice President
Donald E. Caum Director
*700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
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 American
Counsel of Life Insurance, SEC No-Action Letter, [1988-1989
Transfer Binder] Fed. Sec. L. Rep. (CCH) at paragraph 78,904
(Nov. 28, 1988), 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.
(f) Security Benefit Life Insurance Company ("SBL") 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
SBL.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements of Securities Act Rule 485 for effectiveness of this Registration
Statement and has caused this Registration Statement to be signed on its behalf,
in the City of Topeka, and State of Kansas on this 24th day of April, 1998.
SIGNATURES AND TITLES
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of the Board (The Depositor)
and Chief Executive Officer
By: ROGER K. VIOLA
Thomas R. Clevenger Roger K. Viola, Senior Vice President,
Director General Counsel and Secretary as
Attorney-In-Fact for the Officers and
Directors Whose Names Appear Opposite
Sister Loretto Marie Colwell
Director
PARKSTONE VARIABLE ANNUITY
John C. Dicus (The Registrant)
Director
William W. Hanna By: SECURITY BENEFIT LIFE INSURANCE COMPANY
Director (The Depositor)
By: HOWARD R. FRICKE
John E. Hayes, Jr. Howard R. Fricke, Chairman of the Board
Director and Chief Executive Officer
Laird G. Noller
Director By: DONALD J. SCHEPKER
Donald J. Schepker, Senior Vice President,
Chief Financial Officer and Treasurer
Robert C. Wheeler
Director
Frank C. Sabatini (ATTEST): ROGER K. VIOLA
Director Roger K. Viola, Senior Vice
President, General Counsel and
Secretary
Date: April 24, 1998
<PAGE>
EXHIBIT INDEX
(1) None
(2) None
(3) None
(4) (a) None
(b) Individual Contract - Advantage - Unisex (Form V6020; R10-97)
(c) None
(d) Individual Contract - Trust - Unisex (Form V6020-1; R10-97)
(e) None
(f) None
(g) None
(h) None
(i) None
(j) None
(k) 457 Endowment (Form V6054; R1-98)
(5) None
(6) (a) None
(b) None
(7) None
(8) (a) None
(b) Participation Agreement among Liberty Investments Trust, Liberty
Financial Investment, Inc. and SBL
(9) Opinion and Consent of Counsel
(10) Consent of Independent Auditors
(11) None
(12) None
(13) Schedules for Computation of Performance
(14) Financial Data Schedules
(15) Powers of Attorney
PARKSTONE VARIABLE ANNUITY
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
THE COMPANY'S PROMISE
In consideration of the Purchase Payments and the attached application, Security
Benefit Life Insurance Company (the "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. The Contract's table of contents is on page 2.
FREE LOOK PERIOD-RIGHT TO CANCEL
IF FOR ANY REASON THE OWNER IS NOT SATISFIED WITH THIS CONTRACT, THE OWNER MAY
RETURN IT TO THE COMPANY WITHIN 10 DAYS FROM THE DATE OF RECEIPT. IT MAY BE
RETURNED BY DELIVERING OR MAILING IT TO THE COMPANY. IF RETURNED, THIS CONTRACT
SHALL BE DEEMED VOID FROM THE CONTRACT DATE. THE COMPANY WILL REFUND ANY
PURCHASE PAYMENTS MADE AND ALLOCATED TO THE FIXED ACCOUNT AND WILL REFUND
SEPARATE ACCOUNT CONTRACT VALUE AS OF THE DATE THE RETURNED POLICY IS RECEIVED
BY THE COMPANY.
SIGNED FOR THE 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 PREMIUM 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 specified in
this Contract.
*This Contract is Participating.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBG LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
A MEMBER OF THE SECURITY BENEFIT GROUP OF COMPANIES
700 SW HARRISON STREET, TOPEKA, KS 66636-0001
1-800-355-4555
<PAGE>
TABLE OF CONTENTS
PAGE
CONTRACT SPECIFICATIONS 3
DEFINITIONS 4
GENERAL PROVISIONS 7
THE CONTRACT 7
COMPLIANCE 7
MISSTATEMENT OF AGE 7
EVIDENCE OF SURVIVAL 7
INCONTESTABILITY 7
ASSIGNMENT 7
TRANSFERS 8
CLAIMS OF CREDITORS 8
NONFORFEITURE VALUES 8
PARTICIPATION 9
STATEMENTS 9
OWNERSHIP, ANNUITANT AND BENEFICIARY PROVISIONS 9
OWNERSHIP 9
JOINT OWNERSHIP 9
ANNUITANT 9
PRIMARY AND CONTINGENT BENEFICIARIES 9
OWNERSHIP AND BENEFICIARY CHANGES 9
PURCHASE PAYMENT PROVISIONS 10
FLEXIBLE PURCHASE PAYMENTS 10
PURCHASE PAYMENT LIMITATIONS 10
PURCHASE PAYMENT ALLOCATION 10
PLACE OF PAYMENT 10
CONTRACT VALUE AND EXPENSE PROVISIONS 10
CONTRACT VALUE 10
FIXED ACCOUNT CONTRACT VALUE 10
FIXED ACCOUNT INTEREST CREDITING 11
SEPARATE ACCOUNT CONTRACT VALUE 11
ACCUMULATION UNIT VALUE 11
NET INVESTMENT FACTOR 11
DETERMINING ACCUMULATION UNITS 12
MORTALITY AND EXPENSE RISK CHARGE 12
PREMIUM TAX EXPENSE 12
ADMINISTRATION CHARGE 12
MUTUAL FUND EXPENSES 12
WITHDRAWAL PROVISIONS 12
WITHDRAWALS 12, 13
WITHDRAWAL VALUE 13
WITHDRAWAL CHARGES 13
FREE WITHDRAWALS 13
SYSTEMATIC WITHDRAWALS 14
FREE SYSTEMATIC WITHDRAWALS 14
DISABILITY WAIVER 14
DATE OF REQUEST 14
PAYMENT OF WITHDRAWAL BENEFITS 14, 15
DEATH BENEFIT PROVISIONS 15
DEATH BENEFIT 15
PROOF OF DEATH 16
DISTRIBUTION RULES 16
ANNUITY PAYMENT PROVISIONS 16
ANNUITY START DATE 16, 17
CHANGE OF ANNUITY START DATE 17
ANNUITY START AMOUNT 17
WITHDRAWAL CHARGES 17
ANNUITY TABLES 17
ANNUITY PAYMENTS 17
CHANGE OF ANNUITY OPTION 18
FIXED ANNUITY PAYMENTS 18
VARIABLE ANNUITY PAYMENTS 18
ANNUITY UNITS 18
NET INVESTMENT FACTOR 18, 19
ALTERNATE ANNUITY OPTION RATES 19
ANNUITY OPTIONS 19, 20
ANNUITY TABLES 21, 22
AMENDMENTS OR ENDORSEMENTS, IF ANY
<PAGE>
DEFINITIONS
SEPARATE ACCOUNT
Income and realized and unrealized gains and losses from assets in the Separate
Account are credited to, or charged against, the Separate account without regard
to the income, gains or losses from the Company's general account or its other
separate account. The Separate Account is divided into Subaccounts shown on page
3. Income and realized and unrealized gains and losses from assets in each
Subaccount are credited to, or charged against, the Subaccount without regard to
income, gains or losses in the other Subaccounts. The Company has the right to
transfer to its general account any assets of the Separate Account that are in
excess of the reserves and other Contract liabilities with respect to the
Separate Account. The value of the assets in the Separate Account on each
Valuation Date is determined as of the end of each Valuation Date.
SUBACCOUNT NET ASSET VALUE
The Subaccount Net Asset Value is equal to: (1) the net asset value of all
shares of the underlying mutual fund held by the Subaccount; plus (2) any cash
or other assets; less (3) all liabilities of the Subaccount.
SUBACCOUNTS
The Separate Account is divided into Subaccounts which invest in shares of
mutual funds. Each Subaccount may invest its assets in a separate class or
series of a designated mutual fund or funds. The Subaccounts are shown on page
3. Subject to the regulatory requirements then in force, the Company reserves
the right to:
1. change or add designated mutual funds or other investment vehicles;
2. add, remove or combine Subaccounts;
3. add, delete or make substitutions for securities that are held or
purchased by the Separate Account or any Subaccount;
4. operate the Separate Account as a management investment company;
5. combine the assets of the Separate Account with other separate accounts
of the Company or an affiliate thereof;
6. restrict or eliminate any voting rights of the owner with respect to the
Separate Account or other persons who have voting rights as to the
Separate Account; and
7. terminate and liquidate any Subaccount.
If any of these changes result in a material change to the Separate Account or a
Subaccount, the Company will notify the Owner of the change. The Company will
not change the investment policy of any Subaccount in any material respect
without complying with the filing and other procedures of the 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.
GENERAL PROVISIONS
THE CONTRACT
The entire contract between the Owner and the Company consists of this Contract,
the attached Application, and any Amendments, Endorsement or Riders to the
Contract. All statements made in the Application will, in the absence of fraud,
as ruled 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.
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 shall 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 the 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 the laws of any state.
The Company will provide the Owner with a company 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
If the age of the Annuitant has been misstated, payments shall be adjusted, when
allowed by law, to the amount which would have been provided for the correct
age. Proof of the age of an annuitant may be required at any time, in a form
suitable to the Company. If payments have already commenced and the misstatement
has caused an underpayment, the full amount due will be paid with the next
scheduled payment. If the misstatement has caused an overpayment, the amount due
will be deducted from one or more future payments.
EVIDENCE OF SURVIVAL
When any payments under this Contract depend on the payee being alive on a given
date, proof that the payee is living may be required by the Company. Such proof
must be in a form accepted by 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 life of the Owner.
ASSIGNMENT
Please refer to page 3 to see if this Contract may be assigned. If it may be
assigned, no Assignment under this Contract is binding unless Received by the
Company in writing. The Company assumes no responsibility for the validity,
legality, or tax status 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.
DEATH BENEFIT PROVISIONS
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 accepted by the Company.
DISTRIBUTION RULES
The entire Death Benefit with any interest shall be paid within 5 years after
the death of any 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 one of Annuity Options
1 through 8; and (3) payments are made over a period that does not exceed the
life or life expectancy of the Designated Beneficiary; and (4) Annuity Payments
begin within one year of the death of the Owner. If the deceased Owner's spouse
is the sole Designated Beneficiary, the spouse shall become the sole Owner of
the Contract. He or she may elect to (1) keep the Contract in force until the
sooner of the spouse's death or the Annuity Start Date; or (2) receive the Death
Benefit.
If the Owner dies after the Annuity Start Date, any Annuity Payments shall
continue to be paid at least as rapidly as under the method of payment 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. This Contract
is also deemed to incorporate any other provision of the Code deemed necessary
by the Company, in its sole judgment, to qualify this Contract as an annuity.
The application of the distribution rules will be made in accordance with Code
section 72(s), or any successor provision, as interpreted by the Company in its
sole judgment.
The foregoing distribution rules do not apply to a Contract which is: (1)
provided under a plan described in Code section 401(a): (2) described in Code
section 403(b); (3) an individual retirement annuity or provided under an
individual retirement account or annuity; or (4) otherwise exempt from the Code
section 72(s) distribution rules.
ANNUITY PAYMENT PROVISIONS
ANNUITY START DATE
The owner may choose the Annuity Start Date at the time of application. The
Annuity Start Date may not be prior to the third Contract Anniversary; provided
that the Annuity Start Date may be prior to the third Contract Anniversary if
one of Annuity Options 5 or 6 is elected. 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, but in no event later than the oldest Annuitant's
ninety-fifth birthday. If no Annuity Start Date is chosen, the Company will use
the later of (1) the oldest Annuitant's seventieth birthday; or (2) the tenth
Contract anniversary, but in no event later than the Annuitant's ninety-fifth
birthday.
The Annuity Start Date is the date the first payment will be paid to the
Annuitant under one of the Annuity Options.
CHANGE OF ANNUITY START DATE
An Owner may change the Annuity Start Date subject to approval by the Company. 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 and
30 days prior to the previous Annuity Start Date.
ANNUITY START AMOUNT
The Annuity Start Amount is applied to one or more of the Annuity Options listed
on page 19. The Annuity Start Amount is: (1) the Contract Value on the Annuity
Start Date; less (2) any Premium Taxes due or paid by the Company. Unless
otherwise directed by the Owner. Annuity Start Amount derived from Fixed Account
Contract Value will be applied to purchase a Fixed Annuity Option; that derived
from Separate Account Contract Value will be applied to purchase a Variable
Annuity Option.
WITHDRAWAL CHARGES
Withdrawal Charges are not applied to (1) Annuity payments made under Annuity
Options 1-4, 7 and 8; or (2) those made under Annuity Options 5 and 6 that
provide for payments over a period of at least 7 years. Withdrawal Charges are
applied to annuity payments under Annuity Options 5 and 6 that provide for
payments over a period of less than 7 years. See "Withdrawal Provisions" on
pages 12-15.
ANNUITY TABLES
Annuity Table A through C show the guaranteed minimum amount of monthly annuity
Payment per $1,000 of Annuity Start Amount for Annuity Options 1 through 4, 7
and 8 that applied to the first Variable Annuity Payment and to each payment for
Fixed Annuity Payment. The amount of each Annuity Payment for Annuity Options 1
through 4 and 8 will depend on the Annuitant's age on the Annuity Start Date.
Table A and B assume 1900 as the year of birth of the Annuity To use Tables A
and B for an Annuitant born after 1900, the actual age is reduced by 0.1
(one-tenth) of a year for each year the year of birth exceeds 1900. For an
Annuitant with a birth year prior to 1900, the actual age is increased in a like
manner. The actual age (in completed months) reduced or increased becomes the
"adjusted age of the Annuitant." The guaranteed payout rate is then found by
interpolating the Annuitant's adjusted age between the ages shown in Tables A
and B. Tables A and B are based on the 1983 Table "A" mortality table and an
interest rate of 3.5% per year. On request the company will furnish the amount
of monthly annuity Payment per $1,000 applied for any ages not shown.
For annuity Options 5 through 7, annuity rates based on age are not used to
calculate annuity payment. Annuity Payments for Options 5 and 6 are computed
without reference to the Annuity Tables.
ANNUITY PAYMENTS
The Annuity Option is shown on page 3. Owner may choose any form of Annuity
Option that is allowed by the Company. The Owner may choose an Annuity Option by
written request. This request must be Received by the Company at least 30 days
prior to the Annuity Start Date. Several Annuity Options are listed on pages 19
and 20. No Annuity Option can be selected that requires the Company to make
periodic payments of less than $50.00. If no Annuity Option is chosen prior to
the Annuity Start Date, the Company will use Life with 10-Year Fixed Period
Option. Each Annuity Option allows for making Annuity Payments annually,
semiannually, quarterly or monthly.
ANNUITY OPTIONS (CONTINUED)
OPTION 5
FIXED PERIOD OPTION: This option provide 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. This rate is guaranteed to be no
less than the Guaranteed Rate shown on page 3. If the Contract Value is held in
the Separate Account then the amount of the payments will vary as a result of
the investment performance of the Subaccounts chosen. If all the Annuitants die
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 amount applied, including daily interest adjustment, 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. This rate is guaranteed to be no less than the Guaranteed
Rate shown on page 3. If the Contract Value is held in the Separate Account,
then the number of payments will vary as a result of the investment performance
of the Subaccounts chosen. If all the Annuitants die before receiving all the
payments, any remaining payments will be made to the Designated Beneficiary.
OPTION 7
PERIOD CERTAIN OPTION: This option provides payments for a fixed period of 5,
10, 15 or 20 years. Payments will be made until the end of this period. If the
Annuitant dies prior to the end of the period, the remaining payments will be
made to the Designated Beneficiary. Table C shows some of the guaranteed rates
for this option.
OPTION 8
JOINT AND CONTINGENT SURVIVOR OPTION: This option provides payments for the life
of the primary Annuitant. Payments will be made to the primary Annuitant as long
as he or she is living. Upon the death of the primary Annuitant, payments will
be made to the contingent Annuitant as long as he or she is living. If the
Contingent Annuitant is not living upon the death of the Primary Annuitant, no
payments will be made to the Contingent Annuitant. Table B shows some of the
guaranteed rates for this option.
<PAGE>
ANNUITY TABLES
TABLE A
SETTLEMENT OPTIONS ONE, TWO, AND THREE
MINIMUM INITIAL MONTHLY INSTALLMENTS PER $1,000 OF AMOUNT APPLIED
<TABLE>
<CAPTION>
Adjusted
Age Option One Option Two Option Three
of Annuitant Life Year Fixed Period Ends Unit
Unisex Only 5 Years 10 Years 15 Years 20 Years Refund
----------- ---------- ------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
55 4.54 4.53 4.51 4.46 4.38 4.40
56 4.62 4.61 4.58 4.53 4.44 4.47
57 4.71 4.70 4.66 4.60 4.51 4.54
58 4.80 4.79 4.75 4.68 4.57 4.62
59 4.90 4.88 4.84 4.76 4.64 4.70
60 5.00 4.99 4.93 4.84 4.70 4.78
61 5.11 5.09 5.03 4.93 4.77 4.87
62 5.23 5.21 5.14 5.02 4.84 4.96
63 5.36 5.33 5.25 5.12 4.91 5.06
64 5.49 5.46 5.37 5.21 4.98 5.17
65 5.64 5.60 5.50 5.31 5.05 5.28
66 5.79 5.75 5.63 5.42 5.12 5.39
67 5.95 5.91 5.77 5.53 5.19 5.52
68 6.13 6.08 5.91 5.63 5.25 5.65
69 6.32 6.26 6.07 5.74 5.32 5.79
70 6.53 6.46 6.23 5.86 5.37 5.94
71 6.75 6.67 6.40 5.97 5.43 6.09
72 6.99 6.89 6.58 6.08 5.48 6.26
73 7.26 7.13 6.76 6.18 5.52 6.44
74 7.54 7.39 6.95 6.29 5.57 6.63
75 7.85 7.67 7.14 6.39 5.60 6.83
</TABLE>
Values not shown will be provided upon request. Annual, semiannual, or quarterly
installments can be determined by multiplying the monthly installments by
11.812853, 5.9572227, and 2.9914196 respectively.
TABLE B
SETTLEMENT OPTIONS FOUR AND EIGHT
MINIMUM INITIAL MONTHLY INSTALLMENT PER $1,000 OF AMOUNT APPLIED
Adjusted Age of Adjusted Age of Secondary Annuitant
Primary Annuitant 55 60 62 65 70 75
----------------- ---- ---- ---- ---- ---- ----
55 4.16 4.27 4.30 4.35 4.42 4.47
60 4.34 4.51 4.57 4.66 4.78 4.86
62 4.41 4.61 4.68 4.79 4.94 5.04
65 4.51 4.76 4.85 4.99 5.20 5.35
70 4.66 4.99 5.13 5.34 5.67 5.95
75 4.78 5.19 5.37 5.66 6.16 6.63
Values not shown will be provided upon request. Annual, semiannual, or quarterly
installments can be determined by multiplying the monthly installments by
11.812853, 5.9572227, and 2.9914196 respectively.
TABLE C
SETTLEMENT OPTION SEVEN
MINIMUM INITIAL MONTHLY INSTALLMENT PER $1,000 OF AMOUNT APPLIED
PERIOD CERTAIN
5 YEARS 10 YEARS 15 YEARS 20 YEARS
- ------- -------- -------- --------
18.11 9.83 7.1 5.75
Values not shown will be provided upon request. Annual, semiannual, or quarterly
installment can be determined by multiplying the monthly installments by
11.812853, 5.9572227, and 2.9914196 respectively.
<PAGE>
PARKSTONE VARIABLE ANNUITY
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PREMIUM 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 being on the
Annuity Start Date using the method as specified in this Contract.
*This Contract is Participating.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies 700 SW Harrison, Topeka, KS
66636-0001 1-800-355-4555
PARKSTONE VARIABLE ANNUITY
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
THE COMPANY'S PROMISE
In consideration of the Purchase Payments and the attached application, Security
Benefit Life Insurance Company (the "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. The Contract's table of contents is on page 2.
FREE LOOK PERIOD-RIGHT TO CANCEL
IF FOR ANY REASON THE OWNER IS NOT SATISFIED WITH THIS CONTRACT, THE OWNER MAY
RETURN IT TO THE COMPANY WITHIN 10 DAYS FROM THE DATE OF RECEIPT. IT MAY BE
RETURNED BY DELIVERING OR MAILING IT TO THE COMPANY. IF RETURNED, THIS CONTRACT
SHALL BE DEEMED VOID FROM THE CONTRACT DATE. THE COMPANY WILL REFUND ANY
PURCHASE PAYMENTS MADE AND ALLOCATED TO THE FIXED ACCOUNT AND WILL REFUND
SEPARATE ACCOUNT CONTRACT VALUE AS OF THE DATE THE RETURNED POLICY IS RECEIVED
BY THE COMPANY.
SIGNED FOR THE 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 PREMIUM 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 specified in
this Contract.
*This Contract is Participating.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBG LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
A MEMBER OF THE SECURITY BENEFIT GROUP OF COMPANIES
700 SW HARRISON STREET, TOPEKA, KS 66636-0001
1-800-355-4555
<PAGE>
TABLE OF CONTENTS
PAGE
CONTRACT PROVISIONS 3
DEFINITIONS 4
GENERAL PROVISIONS 7
THE CONTRACT 7
COMPLIANCE 7
MISSTATEMENT OF AGE 7
EVIDENCE OF SURVIVAL 7
INCONTESTABILITY 7
ASSIGNMENT 7
TRANSFERS 8
CLAIMS OF CREDITORS 8
NONFORFEITURE VALUES 8
PARTICIPATION 9
STATEMENTS 9
OWNERSHIP, ANNUITANT AND BENEFICARY PROVISIONS 9
OWNERSHIP 9
JOINT OWNERSHIP 9
ANNUITANT 9
PRIMARY AND CONTINGENT BENEFICIARIES 9
OWNERSHIP AND BENEFICIARY CHANGES 9
PURCHASE PAYMENT PROVISIONS 10
FLEXIBLE PURCHASE PAYMENTS 10
PURCHASE PAYMENT LIMITATIONS 10
PURCHASE PAYMENT ALLOCATION 10
PLACE OF PAYMENT 10
CONTRACT VALUE AND EXPENSE PROVISIONS 10
CONTRACT VALUE 10
FIXED ACCOUNT CONTRACT VALUE 10
FIXED ACCOUNT INTEREST CREDITING 11
SEPARATE ACCOUNT CONTRACT VALUE 11
ACCUMULATION UNIT VALUE 11
NET INVESTMENT FACTOR 11
DETERMINING ACCUMULATION UNITS 12
MORTALITY AND EXPENSE RISK CHARGES 12
PREMIUM TAX EXPENSE 12
ADMINISTRATION CHARGE 12
MUTUAL FUND EXPENSES 12
WITHDRAWAL PROVISIONS 12
WITHDRAWALS 12, 13
WITHDRAWAL VALUE 13
WITHDRAWAL CHARGES 13
FREE WITHDRAWALS 13
SYSTEMATIC WITHDRAWALS 14
FREE SYSTEMATIC WITHDRAWALS 14
DISABILITY WAIVER 14
DATE OF REQUEST 14
PAYMENT OF WITHDRAWAL BENEFITS 14, 15
DEATH BENEFIT PROVISIONS 15
DEATH BENEFIT 15
PROOF OF DEATH 16
DISTRIBUTION RULES 16
ANNUITY PAYMENT PROVISIONS 16
ANNUITY START DATE 16, 17
CHANGE OF ANNUITY START DATE 17
ANNUITY START AMOUNT 17
WITHDRAWAL CHARGES 17
ANNUITY TABLES 17
ANNUITY PAYMENTS 17
CHANGE OF ANNUITY OPTION 18
FIXED ANNUITY PAYMENTS 18
VARIABLE ANNUITY PAYMENTS 18
ANNUITY UNITS 18
NET INVESTMENT FACTOR 18, 19
ALTERNATE ANNUITY OPTION RATES 19
ANNUITY OPTIONS 19, 20
ANNUITY TABLES 21, 22
AMENDMENTS OR ENDORSEMENTS, IF ANY
<PAGE>
PARKSTONE VARIABLE ANNUITY
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PREMIUM 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 Contract is Participating.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBG LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of the Security Benefit Group of Companies
700 SW Harrison, Topeka, KS 66636-000l
1-800-355-4555
<PAGE>
DEFINITIONS (CONTINUED)
SEPARATE ACCOUNT (CONTINUED)
Income and realized and unrealized gains and losses from assets in the Separate
Account are credited to, or charged against, the Separate account without regard
to the income, gains or losses from the Company's general account or its other
separate accounts. The Separate Account is divided into Subaccounts shown on
page 3. Income and realized and unrealized gains and losses from assets in each
Subaccount are credited to, or charged against, the Subaccount without regard to
income, gains or losses in the other Subaccounts. The Company has the right to
transfer to its general account any assets of the Separate Account that are in
excess of the reserves and other contract liabilities with respect to the
Separate Account. The value of the assets in the Separate Account on each
Valuation Date is determined as of the end of each Valuation Date.
SUBACCOUNT NET ASSET VALUE
The Subaccount Net Asset Value is equal to: (1) the net asset value of all
shares of the underlying mutual fund held by the Subaccount; plus (2) any cash
or other assets; less (3) all liabilities of the Subaccount.
SUBACCOUNTS
The Separate Account is divided into Subaccounts which invest in shares of
mutual funds. Each Subaccount may invest its assets in a separate class or
series of a designated mutual fund or funds. The Subaccounts are shown on page
3. Subject to the regulatory requirements then in force, the Company reserves
the right to:
1. change or add designated mutual funds or other investment vehicles;
2. add, remove or combine Subaccounts;
3. add, delete or make substitutions for securities that are held or
purchased by the Separate Account or any Subaccount;
4. operate the Separate Account as a management investment company;
5. combine the assets of the Separate Account with other separate accounts
of the Company or an affiliate thereof;
6. restrict or eliminate any voting rights of the Owner with respect to the
Separate Account or other persons who have voting rights as to the
Separate Account; and
7. terminate and liquidate any Subaccount.
If any of these changes result in a material change to the Separate Account or a
Subaccount, the Company will notify the Owner of the change. The Company will
not change the investment policy of any Subaccount in any material respect
without complying with the filing and other procedures of the 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.
GENERAL PROVISIONS
THE CONTRACT
The entire Contract between the Owner and the Company consists of this contract,
the attached Application, and any amendments, Endorsement or Riders to the
Contract. All statements made in the Application will, in the absence of fraud,
as ruled 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.
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 shall 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 the 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 the laws 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
If the age of the Annuitant has been misstated, payments shall be adjusted, when
allowed by law, to the amount which would have been provided for the correct
age. Proof of the age of an Annuitant may be required at any time, in a form
suitable to the Company. If payments have already commenced and the misstatement
has caused an underpayment, the full amount due will be paid with the next
scheduled payment. If the misstatement has caused an overpayment, the amount due
will be deducted from one or more future payments.
EVIDENCE OF SURVIVAL
When any payments under this Contract depend on the payee being alive on a given
date, proof that the payee is living may be required by the Company. Such proof
must be in a form accepted by 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 life of the Owner.
ASSIGNMENT
Please refer to page 3 to see if this Contract may be assigned. If it may be
assigned, no Assignment under this Contract is binding unless Received by the
Company in writing. The Company assume no responsibility for the validity,
legality, or tax status 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.
DEATH BENEFIT PROVISIONS
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 accepted by the Company.
DISTRIBUTION RULES
The entire Death Benefit with any interest shall be paid within 5 years after
the death of any 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 one of Annuity Options
1 through 8; and (3) payments are made over a period that does not exceed the
life or life expectancy of the Designated Beneficiary; and (4) Annuity Payments
begin within one year of the death of the Owner. If the deceased Owner's spouse
is the sold Designated Beneficiary, the spouse shall become the sole Owner of
the Contract. He or she may elect to: (1) keep the Contract in force until the
sooner of the spouse's death or the Annuity Start Date; or (2) receive the Death
Benefit.
If any Owner dies after the Annuity Start Date, any Annuity Payments shall
continue to be paid at least as rapidly as under the method of payment 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. This Contract
is also deemed to incorporate any other provision of the code deemed necessary
by the Company, in its sole judgment, to qualify this Contract as an annuity.
The application of the distribution rules will be made in accordance with Code
section 72(s), or any successor provision, as interpreted by the Company in its
sole judgment.
The foregoing distribution rules do not apply to a Contract which is: (1)
provided under a plan described in Code section 401(a); (2) described in Code
section 403(b); (3) an individual retirement annuity or provided under an
individual retirement account or annuity; or (4) otherwise exempt from the Code
section 72(s) distribution rules.
ANNUITY PAYMENT PROVISIONS
ANNUITY START DATE
The Owner may choose the Annuity Start Date at the time of application. The
Annuity Start Date may not be prior to the third Contract Anniversary; provided
that the Annuity Start Date may be prior to the third Contract Anniversary if
one of Annuity Options 5 or 6 is elected. 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, but in no event later than the oldest Annuitant's
ninety-fifth birthday. If no Annuity Start Date is chosen, the Company will use
the later of: (1) the oldest Annuitant's seventieth birthday; or (2) the tenth
Contract Anniversary, but in no event later than the Annuitant's ninety-fifth
birthday.
The Annuity Start Date is the date the first payment will be made to the
Annuitant under one of the Annuity Options.
CHANGE OF ANNUITY START DATE
An Owner may change the Annuity Start Date subject to approval by the Company. 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 and
30 days prior to the previous Annuity Start Date.
ANNUITY START AMOUNT
The Annuity Start Amount is applied to one or more of the Annuity Options listed
on page 19-20. The Annuity Start Amount is: (1) the Contract Value on the
Annuity Start Date; less (2) any Premium Taxes due or paid by the company.
Unless otherwise directed by the Owner, Annuity Start Amount derived from Fixed
Account Contract Value will be applied to purchase a Fixed annuity option; that
derived from Separate Account Contract Value will be applied to purchase a
Variable Annuity Option.
WITHDRAWAL CHARGES
Withdrawal Charges are not applied to: (1) Annuity payments made under Annuity
Options 1-4, 7 and 8; or (2) those made under Annuity Options 5 and 6 that
provide for payments over a period of at least 7 years. Withdrawal Charges are
applied to annuity payments under Annuity Options 5 and 6 that provide for
payments over a period of less than 7 years.
See "Withdrawal Provisions" on pages 12-15.
ANNUITY TABLES
Annuity Tables A through C show the guaranteed minimum amount of monthly Annuity
Payment per $1,000 of Annuity Start Amount for Annuity Options 1 through 4, 7
and 8 that applies to the first Variable Annuity Payment and to each payment for
Fixed Annuity Payments. The amount of each Annuity Payment for Annuity Options 1
through 4 and 8 will depend on the Annuitant's age on the Annuity Start Date.
Tables A and B assume 1900 as the year of birth of the Annuitant. To use Tables
A and B for an Annuitant born after 1900, the actual age is reduced by 0.1
(one-tenth) of a year for each year the year of birth exceeds 1900. For an
Annuitant with a birth year prior to 1900, the actual age is increased in a like
manner. The actual age (in completed months) reduced or increased becomes the
"adjusted age of the Annuitant." The guaranteed payout rate is then found by
interpolating the Annuitant's adjusted age between the ages shown in Tables A
and B. Tables A and B are based on the 1983 Table "A" mortality table and an
interest rate of 3.5% per year. On request the Company will furnish the amount
of monthly Annuity Payment per $1,000 applied for any ages not shown.
For Annuity Options 5 through 7, annuity rates based on age are not used to
calculate annuity payments. Annuity Payments for Options 5 and 6 are computed
without reference to the Annuity Tables.
ANNUITY PAYMENTS
The Annuity Option is shown on page 3. The Owner may choose any form of Annuity
Option that is allowed by the Company. The Owner may choose an Annuity Option by
written request. The request must be Received by the Company at least 30 days
prior to the Annuity Start Date. Several Annuity Options are listed on pages 19
and 20. No Annuity Option can be selected that requires the Company to make
periodic payments of less than $50.00. If no Annuity Option is chosen prior to
the Annuity Start Date, the Company will use Life with 10-Year Fixed Period
Option. Each Annuity Option allows for making Annuity Payments annually,
semiannually, quarterly or monthly.
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. This rate is guaranteed to be no
less than the Guaranteed Rate shown on page 3. If the Contract Value is held in
the Separate Account, then the amount of the payments will vary as a result of
the investment performance of the Subaccounts chosen. If all the Annuitants die
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 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) credit on
the Fixed Account. This rate is guaranteed to be not less than the Guaranteed
Rate shown on page 3. If the Contract Value is held in the Separate Account,
then the number of payments will vary as a result of the investment performance
of the Subaccounts chosen. If all the Annuitants die before receiving all the
payments, any remaining payments will be made to the Designated Beneficiary.
OPTION 7
PERIOD CERTAIN OPTION: This option provides payments for a fixed period of 5,
10, 15 or 20 years. Payments will be made until the end of this period. If the
Annuitant dies prior to the end of the period, the remaining payments will be
made to the Designated Beneficiary. Table C shows some of the guaranteed rates
for this option.
OPTION 8
JOINT AND CONTINGENT SURVIVOR OPTION: This option provides payments for the life
of the primary Annuitant Payments will be made to the primary Annuitant as long
as he or she is living. Upon the death of the primary Annuitant, payments will
be made to the contingent Annuitant as long as he or she is living. If the
Contingent Annuitant is not living upon the death of the Primary Annuitant, no
payments will be made to the Contingent Annuitant. Table B shows some of the
guaranteed rates for this option.
<PAGE>
ANNUITY TABLES
TABLE A
SETTLEMENT OPTIONS ONE, TWO, AND THREE
MINIMUM INITIAL MONTHLY INSTALLMENTS PER $1,000 OF AMOUNT APPLIED
<TABLE>
<CAPTION>
Adjusted
Age Option One Option Two Option Three
of Annuitant Life Year Fixed Period Ends Unit
Unisex Only 5 Years 10 Years 15 Years 20 Years Refund
------------ ---------- ------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
55 4.54 4.53 4.51 4.46 4.38 4.40
56 4.62 4.61 4.58 4.53 4.44 4.47
57 4.71 4.70 4.66 4.60 4.51 4.54
58 4.80 4.79 4.75 4.68 4.57 4.62
59 4.90 4.88 4.84 4.76 4.64 4.70
60 5.00 4.99 4.93 4.84 4.70 4.78
61 5.11 5.09 5.03 4.93 4.77 4.87
62 5.23 5.21 5.14 5.02 4.84 4.96
63 5.36 5.33 5.25 5.12 4.91 5.06
64 5.49 5.46 5.37 5.21 4.98 5.17
65 5.64 5.60 5.50 5.31 5.05 5.28
66 5.79 5.75 5.63 5.42 5.12 5.39
67 5.95 5.91 5.77 5.53 5.19 5.52
68 6.13 6.08 5.91 5.63 5.25 5.65
69 6.32 6.26 6.07 5.74 5.32 5.79
70 6.53 6.46 6.23 5.86 5.37 5.94
71 6.75 6.67 6.40 5.97 5.43 6.09
72 6.99 6.89 6.58 6.08 5.48 6.26
73 7.26 7.13 6.76 6.18 5.52 6.44
74 7.54 7.39 6.95 6.29 5.57 6.63
75 7.85 7.67 7.14 6.39 5.60 6.83
</TABLE>
Values not shown will be provided upon request. Annual, semiannual, or quarterly
installments can be determined by multiplying the monthly installments by
11.812853, 5.9572227, and 2.9914196 respectively.
TABLE B
SETTLEMENT OPTIONS FOUR AND EIGHT
MINIMUM INITIAL MONTHLY INSTALLMENT PER $1,000 OF AMOUNT APPLIED
<TABLE>
<CAPTION>
ADJUSTED AGE OF ADJUSTED AGE OF SECONDARY ANNUITANT
PRIMARY ANNUITANT 55 60 62 65 70 75
----------------- ----- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
55 4.16 4.27 4.30 4.35 4.42 4.47
60 4.34 4.51 4.57 4.66 4.78 4.86
62 4.41 4.61 4.68 4.79 4.94 5.04
65 4.51 4.76 4.85 4.99 5.20 5.35
70 4.66 4.99 5.13 5.34 5.67 5.95
75 4.78 5.19 5.37 5.66 6.16 6.63
</TABLE>
Values not shown will be provided upon request. Annual, semiannual, or quarterly
installments can be determined by multiplying the monthly installments by
11.812853, 5.9572227, and 2.9914196 respectively.
TABLE C
SETTLEMENT OPTION SEVEN
MINIMUM INITIAL MONTHLY INSTALLMENT PER $1,000 OF AMOUNT APPLIED
PERIOD CERTAIN
5 YEARS 10 YEARS 15 YEARS 20 YEARS
- ------- -------- -------- --------
18.11 9.83 7.1 5.75
Values not shown will be provided upon request. Annual, semiannual, or quarterly
installment can be determined by multiplying the monthly installments by
11.812853, 5.9572227, and 2.9914196 respectively.
ENDORSEMENT FOR SECTION 457 PLANS
The Contract to which this Endorsement is attached is hereby modified as set
forth below so that it may be used under the Plan. This Endorsement is attached
to and made part of the Contract as of the Contract Date or, if later, the date
shown below.
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
ANNUITANT
An employee or independent contractor ("Contractor") who performs services for
the Employer and is entitled to benefit payments under the Plan.
CODE
The Internal Revenue Code of 1986, as amended.
COMPANY
Security Benefit Life Insurance Company, 700 Harrison Street, Topeka, Kansas
66636-0001.
EMPLOYER
The Governmental or Tax-Exempt Employer which has established the Plan.
GOVERNMENTAL EMPLOYER
("Govt. Employer") A state, a political subdivision, an agency, or
instrumentality of a State or a political subdivision thereof.
OWNER
The entity that has purchased the Contract. The Owner shall control the Contract
and may exercise all contractual rights hereunder. The Owner shall be either the
Employer or the trustee of a trust which holds the assets of the Plan.
PLAN
A deferred compensation plan established by the Employer which meets the
requirements of Code Section 457(b) for which the Contract has been purchased.
REQUIRED BEGINNING DATE
The date when benefit payments to an Annuitant are required to commence under
the Plan. This date will be the April 1st following:
(a) the calendar year in which the Annuitant attains age 70 1/2; or (if
permitted by the Plan),
(b) the later of (a) above or the calendar year in which the Annuitant
separates from service with the Employer.
TAX-EXEMPT EMPLOYER
A tax-exempt organization (other than a "church" or "qualified church-controlled
organization" described in Code Section 3121(w)(3)).
- --------------------------------------------------------------------------------
SECTION 457 PLAN PROVISIONS
- --------------------------------------------------------------------------------
PARTICIPATION
Only individuals who perform services for the Employer, either as an employee or
as a Contractor, may participate in the Plan.
Premiums applied to the Contract may not exceed the maximum deferral amount
permitted under Code Sections 457(b)(2) and (3) or 457(c).
-1-
<PAGE>
- --------------------------------------------------------------------------------
SECTION 457 PLAN PROVISIONS (continued)
- --------------------------------------------------------------------------------
PARTICIPATION (continued)
Premiums paid under a salary reduction agreement may be applied to this Contract
for any calendar month only if an agreement providing for such salary reduction
was entered into before the beginning of such month. However, with respect to a
new employee or Contractor, premiums may be paid for the calendar month during
which the individual first performs services for the Employer if a salary
reduction agreement is entered into on or before the first day performance of
the service begins.
DISTRIBUTIONS
Unless the Plan permits in-service distributions as set forth in Code Section
457(e)(9), distributions shall not be made under the Contract earlier than:
(i) the calendar year in which the Annuitant attains age 70 1/2;
(ii) when the Annuitant is separated from service with the Employer; or
(iii)when the Annuitant is faced with an "unforeseeable emergency" (within the
meaning of Treasury Regulation Section 1.457-2(h).
Distributions from this Contract must comply with the minimum distribution rules
of Code Section 401(a)(9), which include the incidental death benefit rule of
Section 401(a)(9)(G). The entire interest under the Contract must be distributed
as follows:
(a) not later than the Required Beginning Date; or
(b) commencing not later than the Required Beginning Date over the life of
the Annuitant or the lives of the Annuitant and the Beneficiary (or over
a period not extending beyond the life expectancy of the Annuitant or the
joint life expectancy of the Annuitant and the Beneficiary).
If the Annuitant dies before distribution of his or interest in the Contract has
begun as described in paragraph (b) above, the Annuitant's entire interest must
be distributed by December 31 of the calendar year which contains the 5th
anniversary of the Owner's death, unless: (i) such interest is distributed to a
Beneficiary over his or her life (or over a period not extending beyond his or
her life expectancy); and (ii) such distributions begin by December 31 of the
calendar year following the year in which the Owner died. If the Beneficiary is
the Annuitant's surviving spouse, the date on which distributions are required
to begin shall not be earlier than the date on which the Annuitant would have
attained age 70 1/2. However, in all cases where the Annuitant dies before
distribution of his or her interest begins, the entire interest must be paid
over a period not to exceed 15 years (or the life expectancy of the surviving
spouse if he or she is the Beneficiary).
If the Annuitant dies after distribution of his or her interest in the Contract
has begun as set forth in paragraph (b), above, but before the entire interest
has been distributed, the remaining interest will be distributed at least as
rapidly as under the method of distribution being used prior to the Annuitant's
death.
All distributions must comply with a method offered by the Company under the
Contract.
Distributions from the Contract payable over a period of more than one year
shall be made in substantially nonincreasing amounts. Such amounts must be paid
at least annually.
-2-
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL RULES
- --------------------------------------------------------------------------------
NON-TRUSTEED GOVERNMENTAL PLANS
If the Plan was established by a Govt. Employer and no trust has been
established to hold the assets of the Plan; then
(1) the Contract shall not be transferred, sold, assigned or pledged as
collateral for a loan by the Govt. Employer; and;
(2) no amounts may be paid under the Contract for any purpose other than for
the exclusive benefit of the employees and Contractors covered under the
Plan and their beneficiaries prior to satisfaction of all liabilities under
the Plan with respect to such employees and Contractors and their
beneficiaries.
TRUSTEED GOVERNMENTAL PLANS
If the Plan was established by a Govt. Employer which establishes a trust to
hold the assets of the Plan and the Trustee is the Owner of the Contract, the
Contract shall be held by the trustee under the terms of the trust.
TAX-EXEMPT EMPLOYER PLANS
If the Plan was established by a Tax-Exempt Employer, all amounts of
compensation deferred under the Plan, all property and rights purchased with
such amounts and all income thereon shall:
(1) remain (until made available to the Annuitant or other Beneficiary) solely
the property and rights of the Tax-Exempt Employer (without being
restricted to the provision of benefits under the Plan); and
(2) will be subject only to the claims of the Tax-Exempt Employer's general
creditors.
The Company reserves the right to amend this endorsement to comply with future
changes in the Code and any regulations or rulings issued thereunder. The
Company shall provide the Owner with a copy of any such amendment
SECURITY BENEFIT LIFE INSURANCE COMPANY
ROGER K. VIOLA
Secretary
- ---------------------------------
Endorsement Effective Date
(If Other Than Contract Date)
-3-
EXHIBIT 99.8b
PARTICIPATION AGREEMENT
AMONG
LIBERTY VARIABLE INVESTMENT TRUST,
LIBERTY FINANCIAL INVESTMENTS, INC.,
AND
SECURITY BENEFIT LIFE INSURANCE COMPANY
This Agreement, made and entered into this _____ day of _______________,
1997, by and among Security Benefit Life Insurance Company (the "Company"), on
its own behalf and on behalf of each separate account, set forth in Schedule A
hereto as may be amended from time to time (each such account referred to as a
"Separate Account"), Liberty Variable Investment Trust (the "Trust"), and
Liberty Financial Investments, Inc. ("LFII").
WHEREAS, the Trust engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
to be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement (hereinafter "Participating
Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several series
of shares (such series being hereinafter referred to individually as a "Series"
or collectively as the "Series"); and
WHEREAS, the Trust relies on an order from the Securities and Exchange
Commission ("SEC"), dated July 1, 1988 (File No. 812-7044), granting life
insurance companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder to the extent necessary to
permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate
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accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, Liberty Advisory Services Corp. ("LASC") is a duly registered
investment adviser under the federal Investment Advisers Act of 1940 ("Advisers
Act") and any applicable state securities law; and
WHEREAS, Colonial Investors Service Center, Inc. ("CISC") serves as transfer
agent to the Trust; and
WHEREAS, the Company has registered or will register certain variable
insurance products (or interests in a separate account funding such contracts)
supported wholly or partially by the Separate Account (the "Contracts") under
the 1933 Act; and said Contracts are listed in Schedule B hereto, as it may be
amended from time to time by mutual written agreement; and
WHEREAS, each Separate Account is a duly organized, validly existing
segregated asset account established by resolution of its Board of Directors or
by the Executive Committee of the Board; and
WHEREAS, the Company has registered or will register each Separate Accounts
as a unit investment trust under the 1940 Act; and
WHEREAS, LFII is registered as a broker-dealer with the SEC under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
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WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Trust on behalf of
each Separate Account to fund certain Contracts and LFII is authorized to sell
such shares to unit investment trusts such as each Separate Account at net asset
value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Trust and LFII and LASC agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. LFII will sell to the Company those shares of the Trust which each
Separate Account orders, executing such orders on a daily basis at the net asset
value next computed after receipt of such orders by the Trust. For the purposes
of this Section 1.1., CISC shall be the designee of the Trust for receipt of
such orders from each Separate Account and receipt by such designee shall
constitute receipt by the Trust.
1.2. The Trust will make its shares available indefinitely for purchase at
the applicable net asset value per share by the Company and its Separate
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall use reasonable efforts to
calculate such net asset value on each day on which the New York Stock Exchange
is open for trading ("Business Day"). Notwithstanding the foregoing, the Board
of Trustees of the Trust (the "Trustees") 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 their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such Series.
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1.3. The Trust and LFII agree that shares of the Trust will be sold only to
Participating Insurance Companies and their Separate Accounts. No shares of any
Series will be sold to the general public.
1.4. The Trust and LFII will not sell Trust shares to any insurance company
or separate account unless an agreement containing provisions substantially the
same as Articles I, III, V, VII and Sections 2.3 and 2.10 of Article II of this
Agreement is in effect to govern such sales.
1.5. The Trust will redeem for cash, at the Company's request, any full or
fractional shares of the Trust held by the Company, executing such requests at
the net asset value next computed after receipt by the Trust of such requests.
For purposes of this Section 1.5., CISC shall be the designee of the Trust for
receipt of requests for redemption for each Separate Account.
1.6. The Trust may suspend the right of redemption or postpone the date of
payment or satisfaction upon redemption consistent with Section 22(e) of the
1940 Act and any rules thereunder. Cash redemptions ordinarily shall be paid not
later than one Business Day following receipt by the Trust, or its designee, of
the request for redemption, unless, as described herein, the Trust exercises its
rights under Section 22(e) of the 1940 Act. Cash payments shall be made in
federal funds transmitted by wire.
1.7. The Company will purchase and redeem the shares of each Series offered
by the then current prospectus of the Trust in accordance with the provisions of
such prospectus and statement of additional information (the "SAI")
(collectively referred to as "Prospectus," unless otherwise provided).
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1.8. The Company shall pay for Trust shares on the next Business Day after an
order to purchase Trust shares is made in accordance with the provisions of
Section 1.1. hereof. Payment shall be in federal funds transmitted by wire, or
may otherwise be provided by separate agreement. For purposes of Section 2.8 and
2.9, upon receipt by the Trust, or its designee, of the federal funds so wired,
such funds shall cease to be the responsibility of the Company and shall become
the responsibility of the Trust.
1.9. Issuance and transfer of the Trust's shares will be by book entry only.
Stock certificates will not be issued to the Company or the Separate Accounts.
Shares ordered from the Trust will be recorded in an appropriate title for each
Separate Account or the appropriate subaccount of each Separate Account.
1.10. The Trust, through its designee CISC, shall furnish same day notice (by
wire or telephone, followed by written confirmation) to the Company of any
income dividends or capital gain distributions payable on the shares of any
Series. The Company hereby elects to receive all such income, dividends and
capital gain distributions as are payable on the shares of each Series in
additional shares of that Series. The Company reserves the right to revoke this
election and to receive all such income, dividends and capital gain
distributions in cash. The Trust shall notify the Company through its designee,
CISC, of the number of shares so issued as payment of such income, dividends and
distributions.
1.11. The Trust shall make the net asset value per share for each Series
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7 p.m., Boston time.
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ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act to the extent required by the 1933 Act; that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws and that the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that prior to any
issuance or sale of any Contract it has legally and validly established each
Separate Account as a segregated asset account under the applicable state
insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register each Separate Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Trust represents and warrants that Trust shares sold pursuant to
this Agreement shall be registered under the 1933 Act duly authorized for
issuance and sold in compliance with the laws of the State of Kansas and all
applicable federal and any state securities laws and that the Trust is and shall
remain registered under the 1940 Act. The Trust shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Trust
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Trust or
LFII.
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2.3. The Trust currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future consistent with applicable law.
To the extent that it decides to finance distribution expenses pursuant to Rule
12b-1, the Trust undertakes to have its Trustees, a majority of whom are not
interested persons of the Trust, formulate and approve any plan under Rule 12b-1
to finance distribution expenses.
2.4. The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states,
except that the Trust represents that the Trust's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Kansas.
2.5. LFII represents and warrants that it is a member in good standing of the
NASD and is registered as a broker-dealer with the SEC. LFII further represents
that it will sell and distribute the Trust shares in accordance with the laws of
the State of Kansas and all applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly existing
under the laws of The Commonwealth of Massachusetts and that it does and will
comply in all material aspects with the 1940 Act.
2.7. The Trust represents and warrants that LASC is and shall remain duly
registered as an investment adviser under all applicable federal and state
securities laws and that LASC shall perform its obligations for the Trust in
compliance in all material respects with the applicable laws of the State of
Kansas and any applicable state and federal securities laws.
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2.8. The Trust and LFII represent and warrant that all of its trustees,
officers, employees, and other individuals/entities having access to securities
or funds of the Trust are and shall continue to be at all times covered by a
joint fidelity bond for the benefit of the Trust in an amount not less than the
minimum coverage required by Rule 17g-(1) of the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable
fidelity insurance company.
2.9. The Company represents and warrants that all of its directors, officers,
employees, investment advisers, and other individuals/entities having access to
securities or funds of the Separate Account and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust, in an amount not less than $5 million. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
fidelity insurance company.
2.10. The Company represents and warrants that it will not transfer or
otherwise convey shares of the Trust, without the prior written consent of LFII.
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. LFII shall provide the Company with as many copies of the Trust's
current prospectus, excluding the SAI, as the Company may reasonably request in
connection with delivery of the prospectus, excluding the SAI, to purchasers of
Contracts. If requested by the Company in lieu thereof, the Trust shall provide
such documentation (including a final copy of the new prospectus, excluding the
SAI, as set in type at the Trust's expense) and other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the prospectus for the Trust is amended) to have the prospectus for the
Contracts and the Trust's
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prospectus, excluding the SAI, printed together in one document (such printing
to be at the Company's expense).
3.2. The Trust's prospectus shall state that the SAI for the Trust is
available from LFII and the Trust, at its expense, shall provide final copy of
such SAI to LFII for duplication and provision to any prospective owner who
requests the SAI and to any owner of a Variable Insurance Product ("Owners").
3.3. The Trust, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders and other communications to shareholders
in such quantity as the Company shall reasonably require for distribution to
Owners.
3.4. If and to the extent required by law, the Company and, so long as and to
the extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for Owners, the Trust shall:
(i) solicit voting instructions from Owners;
(ii) vote the Trust shares in accordance with instructions received
from Owners; and
(iii) vote Trust shares for which no instructions have been received in
the same proportion as Trust shares of such Series for which
instructions have been received.
The Company reserves the right to vote Trust shares held in any segregated asset
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
Separate Accounts participating in the Trust calculates voting privileges in a
manner consistent with the standards to be provided in writing to the
Participating Insurance Companies
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3.5. The Trust shall comply with all provisions of the 1940 Act requiring
voting by shareholders. The Trust reserves the right to take all actions,
including but not limited to, the dissolution, merger, and sale of all assets of
the Trust upon the sole authorization of its Trustees, to the extent permitted
by the laws of The Commonwealth of Massachusetts and the 1940 Act.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Trust
or its designee, each piece of sales literature or other promotional material in
which the Trust or LASC, or any sub-adviser, or LFII is named, at least fifteen
(15) days prior to its use. No such material shall be used if the Trust or its
designee reasonably objects to such use within fifteen (15) days after receipt
of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or Prospectus for the Trust shares, as
such registration statement and Prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Trust, or in sales
literature or other promotional material approved by the Trust or its designee
or by LFII, except with the permission of the Trust or LFII or the designee of
either.
4.3. The Trust or its designee shall furnish, or shall cause to be furnished,
to the Company or its designees, each piece of sales literature or other
promotional material in which the Company and/or its Separate Account(s), are
named at least fifteen ( 15) days prior to its use. No such material shall be
used if the Company or its designee reasonably objects to such use within
fifteen (15) days after receipt of such material.
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4.4. The Trust and LFII shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, any Separate Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for such
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for such Separate
Account which are in the public domain or approved by the Company for
distribution to Owners, or in sales literature or other promotional material
approved by the Company or its designee, except with the permission of the
Company.
4.5. The Trust will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemption, requests
for no-action letters, and all amendments to any of the above, that relate to
the Trust or its shares, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
4.6. The Company will provide to the Trust at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemption, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or any Separate Account, contemporaneously
with the filing of such document with the SEC.
4.7. For purposes of this Article IV, 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, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers
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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, and registration statements, prospectuses, SAIs,
shareholder reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust and LFII shall pay no fee or other compensation to the Company
under this Agreement, except that if the Trust or any Series adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
LFII may make payments to the Company or to the underwriter for the Contracts if
and in amounts agreed to by LFII in writing and such payments will be made out
of fees payable to LFII by the Trust for this purpose. No such payments shall be
made directly by the Trust. Currently, no such plan pursuant to Rule 12b-1 or
payments are contemplated.
5.2. All expenses incident to performance by the Trust under this Agreement
shall be paid by the Trust. The Trust shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Trust, in accordance with
applicable state laws prior to their sale. The Trust shall bear the expenses of
registration and qualification of the Trust's shares, preparation and filing of
the Trust's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting in type and printing the proxy materials
and reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or transfer
of the Trust's shares.
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5.3. The Company shall bear the expenses of distributing the Trust's proxy
materials and reports to Owners.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1. The Trust will at all times invest money from the Contracts in such a
manner as to ensure that, insofar as such investment is required to assure such
treatment, the Contracts will be treated as VARIABLE CONTRACTS under the Code
and the regulations issued thereunder. Without limiting the scope of the
foregoing, the Trust will at all times comply with Section 817(h) of the Code
and the Treasury Regulations thereunder relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Trust, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Trust so as to achieve compliance within the grace period afforded by Regulation
1.817-5.
6.2. The Trust represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Code and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
6.3. The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts under applicable provisions of
the Code and that they will make every effort to maintain such treatment and
that they will notify the Trust and LFII immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
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ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the Owners of separate accounts
of the Participating Insurance Companies investing in the Trust. A material
irreconcilable conflict may arise for a variety of reasons, including: (a) an
action by any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretive letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Series are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance policy owners; or (f) a decision by an insurer to disregard the voting
instructions of Owners. The Trustees shall promptly inform the Company if they
determine that a material irreconcilable conflict exists and the implications
thereof.
7.2. The Company will report any potential or existing conflicts (including
the occurrence of any event specified in paragraph 7.1. which may give rise to
such a conflict) of which it is aware to the Trustees. The Company will assist
the Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order, by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Trustees whenever
Owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Trustees, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as
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determined by a majority of the disinterested Trustees), take whatever steps are
necessary to remedy or eliminate the material irreconcilable conflict, up to and
including: (1) withdrawing the assets allocable to some or all of the separate
accounts of Participating Insurance Companies from the Trust or any Series and
reinvesting such assets in a different investment medium, including (but not
limited to) another Series of the Trust, or submitting the question whether such
segregation should be implemented to a vote of all affected Owners and, as
appropriate, segregating the assets of any appropriate group (I.E., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Owners the option of making such a
change; (2) establishing a new registered management investment company or
managed separate account; and (3) obtaining SEC approval.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Owner voting instructions and that decision represents
a minority position or would preclude a majority vote, the Company may be
required, at the Trust's election, to withdraw the affected Separate Account's
investment in the Trust and terminate this Agreement; provided, however that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested Trustees. Any such withdrawal and termination must take place
within six (6) months after the Trust gives written notice that this provision
is being implemented, and until the end of that six (6) month period LFII and
the Trust shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Trust.
7.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state
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regulators, then the Company will withdraw the affected Separate Account's
investment in the Trust and terminate this Agreement within six (6) months after
the Trustees inform the Company in writing that they have determined that such
decision has created a material irreconcilable conflict; provided, however, that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested Trustees. Until the end of the foregoing six (6) month period,
LFII and Trust shall continue to accept and implement orders by the Company for
the purchase (and redemption) of shares of the Trust.
7.6. For purposes of Sections 7.3. through 7.6. of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. The
Company shall not be required by Section 7.3. to establish a new funding medium
for the Contracts if an offer to do so has been declined by vote of a majority
of Owners materially adversely affected by the material irreconcilable conflict.
In the event that the Trustees determine that any proposed action does not
adequately remedy any material irreconcilable conflict, then the Company will
withdraw the affected Separate Account's investment in the Trust and terminate
this Agreement within six (6) months after the Trustees inform the Company in
writing of the foregoing determination, provided, however, that such withdrawal
and termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested
Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive
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Order) or terms and conditions materially different from those contained in the
Shared Funding Exemptive Order, then (a) the Trust and/or the Company, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable; and (b) Sections 3.4., 3.5., 7.1., 7.2., 7.3., 7.4., and 7.5. of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.l.(a). The Company will indemnify and hold harmless the Trust and each
of its Trustees and Officers and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1.) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (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 expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or
contained in the sales literature for the Contracts (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
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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 Company by or on behalf of the Trust
for use in the registration statement or prospectus for the
Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Trust shares; or
(ii) arise out of or are based upon statements or representations
(other than statements or representations contained in the
registration statement, Prospectus or sales literature of the
Trust not supplied by the Company, or persons under their control)
or wrongful conduct of one or both of the Company or persons under
their control, with respect to the sale or distribution of the
Contracts or Trust shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, Prospectus,
or sales literature of the Trust or any amendment thereof or
supplement thereto 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 a statement
or omission was made in reliance upon information furnished to the
Trust by or on behalf of the Company; or
(iv) arise out of or result from any failure by the Company to provide
the services and furnish the materials contemplated by this
Agreement; or
18
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Company, as limited by and in accordance
with the provisions of Section 8.1(b) and 8.1(c) hereof.
8. l.(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Trust, whichever is applicable.
8.l.(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company 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 Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which they may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the
19
<PAGE>
Company to such party of the election of the Company to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.1.(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.
8.2. INDEMNIFICATION BY THE TRUST
8.2.(a). The Trust will indemnify and hold harmless the Company, and
each of their directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2.) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Trust) or litigation (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 expenses (or actions in respect thereof) or settlements result
from the gross negligence, bad faith or willful misconduct of the Trustees or
any member thereof, are related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
and other qualification requirements specified in Article VI of
this Agreement); or
20
<PAGE>
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Trust; as limited by and in accordance with the
provisions of Sections 8.2.(b). and 8.2.(c). hereof.
8.2.(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Trust, LFII or each Separate Account, whichever is applicable.
8.2.(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have served upon such Indemnified
Party (or after such Indemnified party shall have received notice of such
service on any designated agent), but failure to notify the Trust of any such
claim shall not relieve the Trust from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is brought against
the Indemnified Parties, the Trust will be entitled to participate, at its own
expense, in the defense thereof. The Trust also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party
21
<PAGE>
named in the action. After notice from the Trust to such party of the Trust's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Trustees
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2.(d). The Company and LFII agree promptly to notify the Trust of the
commencement of any litigation or proceedings against them or any of their
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of any Separate Account,
or the sale or acquisition of shares of the Trust.
8.3. INDEMNIFICATION BY LFII
8.3.(a). LFII agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of LFII) or litigation (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 expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Trust's shares by the Contracts and:
(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
22
<PAGE>
prospectus or SAI or sales literature of the Trust (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 the
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 LFII or the Trust by or on behalf of
the Company for use in the Registration Statement or prospectus of
SAI for the Trust or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of
the Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement's prospectus, SAI or sales literature for
the Contracts not supplied by LFII or persons under its control)
or wrongful conduct of the Trust, or LFII or persons under their
control, with respect to the sale or distribution of the Contracts
or Trust shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus,
SAI, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission
to state therein a materiel fact required to be stated therein or
necessary to make the statement or statement therein not
misleading, if such statement or omission was made
23
<PAGE>
in reliance upon information furnished to the Company by or on
behalf of the Trust; or
(iv) arise as a result of any failure by LFII or the Trust to provide
the services and furnish the materials under the terms of this
Agreement (including a failure by the Trust, whether unintentional
or in good faith or otherwise, to comply with the diversification
and other qualification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the LFII in the Agreement
or arise out of or result from any other material breach of this
Agreement by LFII; as limited by and in accordance with the
provisions of Sections 8.3(b) and 8.3(c) hereof.
8.3.(b) LFII shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company or the Account, whichever is applicable.
8.3.(c) LFII shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LFII 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
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the LFII of any such claim shall not
24
<PAGE>
relieve LFII from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, LFII will be entitled to participate, at its own expense,
in the defense thereof. KSFC also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action. After
notice from LFII to such party of KFSC's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and LIFI will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.3.(d) The Company agrees promptly to notify LFII of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issuance or sale of the Contracts or the operation of
each Separate Account.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Kansas;
provided, however, that if such laws or any of the provisions of this Agreement
conflict with applicable provisions of the 1940 Act, the latter shall control.
9.2. This Agreement shall be made subject to the provisions of the 1933,
1934, and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
25
<PAGE>
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 6 months advance written notice to
the other parties;
(b) at the option of the Company to the extent that shares of Series
are not reasonably available to meet the requirements of the
Contracts as determined by the Company; or
(c) at the option of the Trust in the event that formal administrative
proceedings are instituted against the Company or LFII by the
NASD, the SEC, the Insurance Commissioner of the domiciliary state
of the Company or any other regulatory body regarding the duties
of the Company under this Agreement or related to the sale of the
Contracts, with respect to the operation of a Separate Account, or
the purchase of the Trust shares; provided, however, that the
Trust determines in its sole judgment exercised in good faith,
that any such administrative proceedings will have a material
adverse effect upon the ability of the Company to perform its
obligations under this Agreement or of LFII to perform its
obligations under its underwriting agreement with the Trust; or
(d) at the option of the Company in the event that formal
administrative proceedings are instituted against the Trust or
LFII by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body; provided, however,
26
<PAGE>
that the Company determines in its sole judgment exercised in good
faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the Trust or LFII to
perform its obligations under this Agreement; or
(e) with respect to a Separate Account, upon requisite authority to
substitute the shares of another investment company for shares of
the corresponding Series of the Trust in accordance with the terms
of the Contracts for which those Series shares had been selected
to serve as the underlying investment media. The Company will give
thirty (30) days' prior written notice to the Trust of the date of
any proposed action to replace the Trust shares; or
(f) at the option of the Company, in the event any of the Trust's
shares are not registered, issued or sold in accordance with
applicable federal and any state law or such law precludes the use
of such shares as the underlying investment media of the Contracts
issued or to be issued by the Company; or
(g) at the option of the Company, if the Trust ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision, or if the Company
reasonably believes that the Trust may fail to so qualify; or
(h) at the option of the Company, if the Trust fails to meet the
diversification requirements specified in Article VI hereof; or
27
<PAGE>
(i) at the option of either the Trust or LFII, if (1) the Trust or
LFII, respectively, shall determine, in their sole judgment
reasonably exercised in good faith, that the Company has suffered
a material adverse change in its business or financial condition
or is the subject of material adverse publicity and such material
adverse publicity will have a material adverse impact upon the
business and operations of either the Trust or LFII, (2) the Trust
or LFII shall notify the Company in writing of such determination
and its intent to terminate this Agreement, and (3) after
considering the actions taken by the Company and any other changes
in circumstances since the giving of such notice, such
determination of the Trust or LFII shall continue to apply on the
sixtieth (60th) day following the giving of such notice, which
sixtieth (60th) day shall be the effective date of termination; or
(j) at the option of the Company, if (1) the Company shall
determine, in its sole judgment reasonably exercised in good
faith, that either the Trust or LFII has suffered a material
adverse change in its business or financial condition or is the
subject of material adverse publicity and such material adverse
publicity will have a material adverse impact upon the business
and operations of the Company, (2) the Company shall notify the
Trust and LFII in writing of such determination and its intent to
terminate the Agreement, and
29
<PAGE>
(3) after considering the actions taken by the Trust and/or LFII
and any other changes in circumstances since the giving of such
notice, such determination shall continue to apply on the sixtieth
(60th) day following the giving of such notice, which sixtieth
(60th) day shall be the effective date of termination.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10. l.(a). may be exercised for any
reason or for no reason.
10.3. NOTICE REQUIREMENT. No termination of this Agreement shall be effective
unless and until the party terminating this Agreement gives prior written notice
to all other parties to this Agreement of its intent to terminate which notice
shall set forth the basis for such termination. Furthermore,
(a) in the event that any termination is based upon the provisions of
Article VII, or the provision of Section 10.1 (a), 10. l(i), or
10. l(j) of this Agreement, such prior written notice shall be
given in advance of the effective date of termination as required
by such provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1.(c). or 10.1.(d). of this Agreement, such prior
written notice shall be given at least ninety (90) days before the
effective date of termination.
10.4. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Trust and LFII shall at the option of the Company, continue to
make available additional shares of the Trust pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this
29
<PAGE>
Agreement (hereinafter referred to as "Existing Products"). Specifically,
without limitation, the Owners of the Existing Products shall be permitted to
reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
Existing Products. The parties agree that this Section 10.4. shall not apply to
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
10.5. The Company shall not redeem Trust shares attributable to the Contracts
(as opposed to Trust shares attributable to the Company's assets held in a
Separate Account) except (i) as necessary to implement Owner-initiated
transactions, or (ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter referred
to as a "Legally Required Redemption") or (iii) as permitted by an order of the
SEC pursuant to Section 26(b) of the 1940 Act. Upon request, the Company will
promptly furnish to the Trust and LFII the opinion of counsel for the Company
(which counsel shall be reasonably satisfactory to the Trust and LFII) to the
effect that any redemption pursuant to clause (ii) above is a Legally Required
Redemption. Furthermore, except in cases where permitted under the terms of the
Contracts, the Company shall not prevent Owners from allocating payments to a
Series that was otherwise available under the Contracts without first giving the
Trustee or LFII ninety (90) days notice of their intention to do so.
30
<PAGE>
ARTICLE XI. 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 Trust:
c/o Colonial Investors Service Center, Inc.
One Financial Center
Boston, Massachusetts 02211
Attention: General Counsel
If to the Company:
Security Benefit Life Insurance Company
Attention: General Counsel
700 SW Harrison
Topeka, Kansas 66636
If to LFII:
Liberty Financial Investments, Inc.
One Financial Center
Boston, Massachusetts 02111
Attention: Secretary
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with Trust must look solely to the property of the
Trust for the enforcement of any claims against the Trust hereunder and
otherwise understand that neither the Trustees, officers, agents or shareholders
of the Trust have any personal liability for any obligations entered into by or
on behalf of the Trust.
12.2. Subject to the requirements of legal process and regulatory authority,
each Party hereto shall treat as confidential the names and addresses of the
Owners and all information reasonably identified as confidential in writing be
any other party hereto and, except as permitted by this Agreement, shall not
disclose, disseminate or utilize such
31
<PAGE>
names and addresses and other confidential information until such time as it may
come into the public domain without the express written consent of the affected
party.
12.3. 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.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. 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 effected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, the Internal Revenue Service 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.
12.7. The Trust and LFII agree that to the extent any advisory or other fees
received by the Trust, LFII, CISC or LASC are determined to be unlawful in
appropriate legal or administrative proceedings, the Trust shall indemnify and
reimburse the Company for any out of pocket expenses and actual damages the
Company has incurred as a result of any such proceeding; provided, however, that
the provision of Section 8.2.(b). of this and 8.2.(c). shall apply to such
indemnification and reimbursement
32
<PAGE>
obligation. Such indemnification and
reimbursement obligation shall be in addition to any other indemnification and
reimbursement obligations of the Trust under this Agreement.
12.8. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligation,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
[this space intentionally left blank]
33
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below:
SECURITY BENEFIT LIFE INSURANCE COMPANY
By its authorized officer,
By: ________________________________
Title: ________________________________
Date: ________________________________
LIBERTY VARIABLE INVESTMENT TRUST
By its authorized officer,
By: ________________________________
Title: ________________________________
Date: ________________________________
LIBERTY FINANCIAL INVESTMENTS, INC.
By its authorized officer,
By: ________________________________
Title: ________________________________
Date: ________________________________
34
<PAGE>
SCHEDULE A
A-1
Parkstone Variable Annuity Account
35
<PAGE>
EXHIBIT 99.9
[SBG LOGO]
- --------------------------------------------------------------------------------
Security Benefit Life Insurance Company 700 SW Harrison St.
Security Benefit Group, Inc. Topeka, Kansas
66636-0001
Security Distributors, Inc. (785) 431-3000
Security Management Company, LLC
April 30, 1998
Security Benefit Life Insurance Company
700 SW Harrison Street
Topeka, KS 66636-0001
Dear Sir/Madam:
This letter is with reference to the Registration Statement of T. Rowe Price
Variable Annuity Account of which Security Benefit Life Insurance Company
(hereinafter SBL) is the Depositor. Said Registration Statement is being
filed with the Securities and Exchange Commission for the purpose of
registering the variable annuity contracts issued by SBL and the interests of
T. Rowe Price Variable Annuity Account under such variable annuity contracts
which will be sold pursuant to an indefinite registration.
I have examined the Articles of Incorporation and Bylaws of SBL, minutes of
the meeting of its Board of Directors and other records, and pertinent
provisions of the Kansas insurance laws, together with applicable
certificates of public officials and other documents which I have deemed
relevant. Based on the foregoing, it is my opinion that:
1. SBL is duly organized and validly existing as a stock life insurance
company under the laws of Kansas.
2. T. Rowe Price Variable Annuity Account has been validly created as a
Separate Account in accordance with the pertinent provisions of the
insurance laws of Kansas.
3. SBL has the power, and has validly and legally exercised it, to create
and issue the variable annuity contracts which are administered within and
by means of T. Rowe Price Variable Annuity Account.
4. The amount of variable annuity contracts to be sold pursuant to the
indefinite registration, when issued, will represent binding obligations
of SBL in accordance with their terms providing said contracts were issued
for the considerations set forth therein and evidenced by appropriate
policies and certificates.
<PAGE>
April 30, 1998
Page 2
I hereby consent to the inclusion in the Registration Statement of my
foregoing opinion.
Respectfully submitted,
/s/ AMY J. LEE
Amy J. Lee
Associate General Counsel and Vice President
Security Benefit Life Insurance Company
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts," to the use
of our reports dated February 6, 1998, with respect to the financial statements
of Security Benefit Life Insurance Company and Subsidiaries and the financial
statements of Parkstone Variable Annuity Account included in Post-Effective
Amendment No. 6 to the Registration Statement (Form N-4 No. 33-65654) and the
related Statement of Additional Information accompanying the Prospectus of
Parkstone Variable Annuity.
Ernst & Young LLP
Kansas City, Missouri
April 27, 1998
MID CAPITALIZATION FUND
Average annual total return as of December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 Year
1000 (1+T)^1 = 1,040.36
(1+T)^1 = (1.0404)^1
1+T = 1.0404
T = .0404
4.27 Years (since inception September 24, 1993)
1000 (1+T)^4.27 = 1,510.00
((1+T)^4.27)^1/4.27 = ((1.5100)^4.27)^1/4.27
1+T = 1.1014
T = .1014
SMALL CAPITALIZATION FUND
Average annual total return as of December 31, 1997
1 Year
1000 (1+T)^1 = 872.99
(1+T)^1 = (.8730)^1
1+T = .8730
T = (.1270)
4.27 Years (since inception September 24, 1993)
1000 (1+T)^4.27 = 1,774.00
((1+T)^4.27)^1/4.27 = ((1.7740)^4.27)^1/4.27
1+T = 1.1437
T = .1437
<PAGE>
BOND FUND
Average annual total return as of December 31, 1997
1 Year
1000 (1+T)^1 = 995.52
(1+T)^1 = (.9955)^1
1+T = .9955
T = (.0045)
4.27 Years (since inception September 24, 1993)
1000 (1+T)^4.27 = 1,100.00
((1+T)^4.27)^1/4.27 = ((1.1000)^4.27)^1/4.27
1+T = 1.0226
T = .0226
INTERNATIONAL DISCOVERY FUND
Average annual total return as of December 31, 1997
1 Year
1000 (1+T)^1 = 943.41
(1+T)^1 = (.9434)^1
1+T = .9434
T = (.0566)
4.27 Years (since inception September 24, 1993)
1000 (1+T)^4.27 = 1,136.00
((1+T)4.27)1/4.27 = ((1.1360)^4.27)^1/4.27
1+T = 1.0303
T = .0303
<PAGE>
COLONIAL U.S. STOCK SUBACCOUNT, VARIABLE SERIES
Average annual total return as of December 31, 1997
1 Year
1000 (1+T)^1 = 1,233.43
(1+T)^1 = (1.2334)^1
1+T = 1.2334
T = .2334
3.49 Years (since series inception July 5, 1994)
1000 (1+T)^3.49 = 2,030.00
((1+T)^3.49)^1/3.49 = ((2.0300)^3.49)^1/3.49
1+T = 1.2249
T = .2249
COLONIAL STRATEGIC INCOME SUBACCOUNT, VARIABLE
SERIES Average annual total return as of
December 31, 1997
1 Year
1000 (1+T)^1 = 1,008.01
(1+T)^1 = (1.0080)^1
1+T = 1.0080
T = .0080
3.49 Years (since series inception July 5, 1994)
1000 (1+T)^3.49 = 1,314.01
((1+T)^3.49)^1/3.49 = ((1.3140)^3.49)^1/3.49
1+T = 1.0814
T = .0814
<PAGE>
NEWPORT TIGER FUND SUBACCOUNT, VARIABLE SERIES
Average annual total return as of
December 31, 1997
1 Year
1000 (1+T)^1 = 636.17
(1+T)^1 = (.6362)^1
1+T = .6362
T = (.3638)
2.67 Years (since series inception May 1, 1995)
1000 (1+T)^2.67 = 813.77
((1+T)2.67)1/2.67 = ((.8138)^2.67)^1/2.67
1+T = .9257
T = (.0743)
SOCIAL AWARENESS SERIES
Average annual total return as of December 31, 1997
1 Year
1000 (1+T)^1 = 1,100.41
(1+T)^1 = (1.1004)^1
1+T = 1.1004
T = .1004
5 Years
1000 (1+T)^5 = 1,768.04
(1+T)^5)^1/5 = (1.7680)^1/5
1+T = 1.1207
T = .1207
6.67 Years (since series inception May 1, 1991)
1000 (1+T)^6.67 = 2,148.86
((1+T)^6.67)^1/6.67 = ((2.1489)^6.67)^1/6.67
1+T = 1.1215
T = .1215
<PAGE>
EQUITY INCOME SERIES
Average annual total return as of December 31, 1997
1 Year
1000 (1+T)^1 = 1,189.07
(1+T)^1 = (1.1891)^1
1+T = 1.1891
T = .1891
2.58 Years (since series inception June 1, 1995)
1000 (1+T)^2.58 = 1,681.50
((1+T)^2.58)^1/2.58 = ((1.6815)^2.58)^1/2.58
1+T = 1.2228
T = .2228
GLOBAL AGGRESSIVE BOND SERIES
Average annual total return as of December 31, 1997
1 Year
1000 (1+T)^1 = 972.82
(1+T)^1 = (.9728)^1
1+T = .9728
T = (.0272)
2.58 Years (since series inception June 1, 1995)
1000 (1+T)^2.58 = 1,190.74
((1+T)^2.58)^1/2.58 = ((1.1907)^2.58)1/2.58
1+T = 1.0699
T = .0699
<PAGE>
SBL MONEY MARKET FUND (SERIES C)
Average annual total return as of December 31, 1997
1 Year
1000 (1+T)^1 = 971.92
(1+T)^1 = (.9719)^1
1+T = .9719
T = (.0281)
5 Years
1000 (1+T)^5 = 1,114.37
(1+T)^5)^1/5 = (1.1144)^1/5
1+T = 1.0219
T = .0219
10 Years
1000 (1+T)^10 = 1,480.05
(1+T)^10)^1/10 = (1.4801)^1/10
1+T = 1.0400
T = .0400
<PAGE>
SBL MONEY MARKET YIELD
SBL Money Market Series (Series C) as of December 31, 1997
CALCULATION OF CHANGE IN UNIT VALUE:
12.5315325
(( 12.5208744 - .00003862793) - 1)7 = .00058066506
ANNUALIZED YIELD:
365/7 (.00058066506) = 3.03%
EFFECTIVE YIELD:
(1 + .00058066506)365/7 - 1 = 3.07%
<PAGE>
NONSTANDARDIZED AVERAGE ANNUAL TOTAL RETURN
MID CAPITALIZATION FUND
Average annual total return as of December 31, 1997
(Without Deduction of CDSC)
1 Year
1000 (1+T)^1 = 1,110.30
(1+T)^1 = (1.1103)^1
1+T = 1.1103
T = .1103
4.27 Years (since inception September 24, 1993)
1000 (1+T)^4.27 = 1,550.00
(1+T)^4.27)^1/4.27 = (1.5500)^1/4.27
1+T = 1.1081
T = .1081
SMALL CAPITALIZATION FUND
Average annual total return as of December 31, 1997
(Without Deduction of CDSC)
1 Year
1000 (1+T)^1 = 931.70
(1+T)^1 = (.9317)^1
1+T = .9317
T = (.0683)
4.27 Years (since inception September 24, 1993)
1000 (1+T)^4.27 = 1,814.00
(1+T)^4.27)^1/4.27 = (1.8140)^1/4.27
1+T = 1.1497
T = .1497
<PAGE>
BOND FUND
Average annual total return as of December 31, 1997
(Without Deduction of CDSC)
1 Year
1000 (1+T)^1 = 1,062.40
(1+T)^1 = (1.0624)^1
1+T = 1.0624
T = .0624
4.27 Years (since inception September 24, 1993)
1000 (1+T)^4.27 = 1,114.00
(1+T)^4.27)^1/4.27 = (1.1140)^1/4.27
1+T = 1.0312
T = .0312
INTERNATIONAL DISCOVERY FUND
Average annual total return as of December 31, 1997
(Without Deduction of CDSC)
1 Year
1000 (1+T)^1 = 1,006.80
(1+T)^1 = (1.0068)^1
1+T = 1.0068
T = .0068
4.27 Years (since inception September 24, 1993)
1000 (1+T)^4.27 = 1,176.00
(1+T)^4.27)^1/4.27 = (1.1760)^1/4.27
1+T = 1.0387
T = .0387
<PAGE>
NONSTANDARDIZED TOTAL RETURN
COLONIAL U.S. STOCK SUBACCOUNT, VARIABLE SERIES
Average annual total return as of December 31, 1997
(Without Deduction of CDSC)
1 Year
1000 (1+T)^1 = 1,303.40
(1+T)^1 = (1.3034)^1
1+T = 1.3034
T = .3034
3.49 Years (since series inception July 5, 1994)
1000 (1+T)^3.49 = 2,080.00
(1+T)^3.49)^1/3.49 = (2.080)^1/3.49
1+T = 1.2335
T = .2335
COLONIAL STRATEGIC INCOME FUND, VARIABLE
SERIES Average annual total return as of
December 31, 1997
(Without Deduction of CDSC)
1 Year
1000 (1+T)^1 = 1,075.80
(1+T)^1 = (1.0758)^1
1+T = 1.0758
T = .0758
3.49 Years (since series inception July 5, 1994)
1000 (1+T)^3.49 = 1,364.80
(1+T)^3.49)^1/3.49 = (1.3640)^1/3.49
1+T = 1.0930
T = .0930
<PAGE>
NEW PORT TIGER FUND, VARIABLE SERIES
Average Annual total return as of December 31, 1997
(Without Deduction of CDSC)
1 Year
1000 (1+T)^1 = 678.90
(1+T)^1 = (.6789)^1
1+T = .6789
T = (.3211)
2.67 Years (since series inception May 1, 1995)
1000 (1+T)^2.67 = 852.10
(1+T)^2.67)^1/2.67 = (.8521)^1/2.67
1+T = .9418
T = (.0582)
EQUITY INCOME SERIES
Average annual Total Return as of December 31, 1997
(Without Deduction of CDSC)
1 Year
1000 (1+T)^1 = 1,259.10
(1+T)^1 = (1.2591)^1
1+T = 1.2591
T = .2591
2.58 Years (since series inception June 1, 1995)
1000 (1+T)^2.58 = 1,731.50
(1+T)^2.58)^1/2.58 = (1.7315)^1/2.58
1+T = 1.2368
T = .2368
<PAGE>
GLOBAL AGGRESSIVE BOND SERIES
Average Annual Total Return as of December 31, 1997
(Without Deduction of CDSC)
1 Year
1000 (1+T)^1 = 1,038.20
(1+T)^1 = (1.0382)^1
1+T = 1.0382
T = .0382
2.58 Years (since series inception June 1, 1995)
1000 (1+T)^2.58 = 1,240.70
(1+T)^2.58)^1/2.58 = (1.2407)^1/2.58
1+T = 1.0871
T = .0871
SOCIAL AWARENESS SERIES
Average Annual Total Return as of December 31, 1997
(Without Deduction of CDSD)
1 Year
1000 (1+T)^1 = 1,170.40
(1+T)^1 = (1.1704)^1
1+T = 1.1704
T = .1704
5 Years
1000 (1+T)^5 = 1,808.00
(1+T)^5)^1/5 = (1.8080)^1/5
1+T = 1.1257
T = .1257
6.67 Years (since series inception May 1, 1991)
1000 (1+T)^6.67 = 2,168.90
(1+T)^6.67)^1/6.67 = (2.1689)^1/6.67
1+T = 1.1231
T = .1231
<PAGE>
SBL MONEY MARKET FUND (SERIES C)
Average Annual Total Return as of December 31, 1997
(Without Deduction of CDSC and Maintenance Fee)
1 Year
1000 (1+T)^1 = 1,037.30
(1+T)^1 = (1.0373)^1
1+T = 1.0373
T = .0373
5 Years
1000 (1+T)^5 = 1,154.40
(1+T)^5)^1/5 = (1.1544)^1/5
1+T = 1.0291
T = .0291
10 Years
1000 (1+T)^10 = 1,480.10
(1+T)^10)^1/10 = (1.4801)^1/10
1+T = 1.0400
T = .0400
<PAGE>
NONSTANDARDIZED CUMULATIVE RETURN
MID CAPITIALIZATION FUND
Cumulative Total Return as of December 31, 1997
(Without Deduction of CDSC)
EQUITY SERIES
1 Year
1,110.30 - 1,000.00 = 110.30
110.30/1,000.00 = 11.03%
4.27 Years (since inception September 24, 1993)
1,550.00 - 1,000.00 = 550.00
550.00/1,000.00 = 55.00%
SMALL CAPITALIZATION FUND
Cumulative Total Return as of December 31, 1997
(Without Deduction of CDSC)
SMALL CAP SERIES
1 Year
931.70 - 1,000.00 = (68.30)
(68.30)/1,000.00 = (6.83)%
4.27 Years (since inception September 24, 1993)
1,814.00 - 1,000.00 = 814.00
814.00/1,000.00 = 81.40%
BOND FUND
Cumulative Total Return as of December 31, 1997
(Without Deduction of CDSC)
BOND SERIES
1 Year
1,062.40 - 1,000.00 = 62.40
62.40/1,000.00 = 6.24%
4.27 Years (since inception September 24, 1993)
1,140.00 - 1,000.00 = 140.00
140.00/1,000.00 = 14.00%
<PAGE>
INTERNATIONAL DISCOVERY FUND
Cumulative Total Return as of December 31, 1997
(Without Deduction of CDSC)
INTERNATIONAL DISCOVERY SERIES
1 Year
1,006.80 - 1,000.00 = 6.80
6.80/1,000.00 = .68%
4.27 Years (since inception September 24, 1993)
1,176.00 - 1,000.00 = 176.00
176.00/1,000.00 = 17.60%
COLONIAL U.S. STOCK SUBACCOUNT, VARIABLE SERIES
Cumulative Total Return as of December 31, 1997
(Without Deduction of CDSC)
1 Year
1,303.40 - 1,000.00 = 303.40
303.40/1,000.00 = 30.34%
3.49 Years (since inception July 5, 1994)
2,080.00 - 1,000.00 = 1,080.00
1,080.00/1,000.00 = 108.00%
COLONIAL STRATEGIC INCOME SUBACCOUNT, VARIABLE
SERIES Cumulative Total Return as of December 31, 1997
(Without Deduction of CDSC)
1 Year
1,075.80 - 1,000.00 = 75.80
75.80/1,000.00 = 7.58%
3.49 Years (since inception July 5, 1994)
1,364.00 - 1,000.00 = 364.00
364.00/1,000.00 = 36.40%
<PAGE>
NEWPORT TIGER SUBACCOUNT, VARIABLE SERIES
Cumulative Total Return as of December 31, 1997
(Without Deduction of CDSC)
1 Year
678.90 - 1,000.00 = (321.10)
(321.10)/1,000.00 = (32.11)%
2.67 Years (since inception May 1. 1995)
852.10 - 1,000.00 = (147.90)
(147.90)/1,000.00 = (14.79)%
GLOBAL AGGRESSIVE BOND (SERIES K)
Cumulative Total Return as of December 31, 1997
(Without Deduction of CDSC and Maintenance Fee)
1 Year
1,038.20 - 1,000.00 = 38.20
38.20/1,000.00 = 3.82%
2.58 Years (since inception June 1, 1995)
1,240.70 - 1,000.00 = 240.70
240.70/1,000.00 = 24.07%
EQUITY INCOME SERIES (SERIES O)
Cumulative Total Return as of December 31, 1997
(Without Deduction of CDSC and Maintenance Fee)
1 Year
1,259.10 - 1,000.00 = 259.10
259.10/1,000.00 = 25.91%
2.58 Years (since inception June 1, 1995)
1,731.50 - 1,000.00 = 731.50
731.50/1,000.00 = 73.15%
<PAGE>
SOCIAL AWARENESS SERIES (SERIES S)
Cumulative Total Return as of December 31, 1997
(Without Deduction of CDSC and Maintenance Fee)
1 Year
1,170.40 - 1,000.00 = 170.40
170.40/1,000.00 = 17.04%
5 Years
1,808.00 - 1,000.00 = 808.00
808.00/1,000.00 = 80.80%
6.67 Years (since series inception May 1, 1991)
2,168.90 - 1,000.00 = 1,168.90
1,168.90/1,000.00 = 116.89%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 001
<NAME> PRIME OBLIGATIONS SUBACCOUNT
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<CURRENCY> U.S. DOLLARS
<S> <C>
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<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 1,235
<SENIOR-LONG-TERM-DEBT> 0
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<SHARES-COMMON-STOCK> 114
<SHARES-COMMON-PRIOR> 99
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,235
<DIVIDEND-INCOME> 37
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (16)
<NET-INVESTMENT-INCOME> 21
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 21
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 242
<NUMBER-OF-SHARES-REDEEMED> 227
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,042
<PER-SHARE-NAV-BEGIN> 10.75
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> (.09)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.86
<EXPENSE-RATIO> (.02)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 002
<NAME> PARKSTONE BOND SUBACCOUNT
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 8,100
<INVESTMENTS-AT-VALUE> 8,435
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,435
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 8,435
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 739
<SHARES-COMMON-PRIOR> 615
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 152
<NET-ASSETS> 8,435
<DIVIDEND-INCOME> 288
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (111)
<NET-INVESTMENT-INCOME> 177
<REALIZED-GAINS-CURRENT> 124
<APPREC-INCREASE-CURRENT> 152
<NET-CHANGE-FROM-OPS> 453
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 217
<NUMBER-OF-SHARES-REDEEMED> 93
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 124
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 7,340
<PER-SHARE-NAV-BEGIN> 10.73
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> .43
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.42
<EXPENSE-RATIO> (.02)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 003
<NAME> PARKSTONE MID CAPITALIZATION SUBACCOUNT
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 24,736
<INVESTMENTS-AT-VALUE> 27,026
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,026
<PAYABLE-FOR-SECURITIES> 27,026
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 27,026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,743
<SHARES-COMMON-PRIOR> 1,392
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,686)
<NET-ASSETS> 27,026
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (341)
<NET-INVESTMENT-INCOME> (341)
<REALIZED-GAINS-CURRENT> 4,604
<APPREC-INCREASE-CURRENT> (1,686)
<NET-CHANGE-FROM-OPS> 2,576
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
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<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 23,146
<PER-SHARE-NAV-BEGIN> 13.96
<PER-SHARE-NII> (.22)
<PER-SHARE-GAIN-APPREC> 1.77
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.51
<EXPENSE-RATIO> (.01)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 004
<NAME> PARKSTONE SMALL CAPITALIZATION SUBACCOUNT
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 21,461
<INVESTMENTS-AT-VALUE> 22,818
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<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,818
<PAYABLE-FOR-SECURITIES> 22,818
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 22,818
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,230
<SHARES-COMMON-PRIOR> 962
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,343)
<NET-ASSETS> 22,818
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (288)
<NET-INVESTMENT-INCOME> (288)
<REALIZED-GAINS-CURRENT> 1,600
<APPREC-INCREASE-CURRENT> (2,343)
<NET-CHANGE-FROM-OPS> (1,031)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 429
<NUMBER-OF-SHARES-REDEEMED> 161
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 268
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 20,401
<PER-SHARE-NAV-BEGIN> 19.47
<PER-SHARE-NII> (.26)
<PER-SHARE-GAIN-APPREC> (1.06)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.15
<EXPENSE-RATIO> (.01)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 005
<NAME> PARKSTONE INTERNATIONAL DISCOVERY SUBACCOUNT
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 11,332
<INVESTMENTS-AT-VALUE> 12,177
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,177
<PAYABLE-FOR-SECURITIES> 12,177
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 12,177
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,035
<SHARES-COMMON-PRIOR> 849
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (377)
<NET-ASSETS> 12,177
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (167)
<NET-INVESTMENT-INCOME> (167)
<REALIZED-GAINS-CURRENT> 561
<APPREC-INCREASE-CURRENT> (377)
<NET-CHANGE-FROM-OPS> 16
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 383
<NUMBER-OF-SHARES-REDEEMED> 197
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 186
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 006
<NAME> COLONIAL U.S. STOCK SUBACCOUNT
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 1-MO
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 007
<NAME> COLONIAL STRATEGIC INCOME SUBACCOUNT
<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> 008
<NAME> NEWPORT TIGER SUBACCOUNT
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1997
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 009
<NAME> SBL MONEY MARKET SUBACCOUNT
<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> 010
<NAME> LEXINGTON GLOBAL AGGRESSIVE BOND SUBACCOUNT
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1997
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 011
<NAME> T. ROWE PRICE EQUITY INCOME SUBACCOUNT
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 012
<NAME> SBL SOCIAL AWARENESS SUBACCOUNT
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1997
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 013
<NAME> PRIME OBLIGATIONS TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 014
<NAME> PARKSTONE BOND TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
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<AVERAGE-NET-ASSETS> 947
<PER-SHARE-NAV-BEGIN> 10.90
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> .37
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.66
<EXPENSE-RATIO> (.01)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 015
<NAME> PARKSTONE MID CAPITALIZATION TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 709
<INVESTMENTS-AT-VALUE> 740
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 740
<PAYABLE-FOR-SECURITIES> 740
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 740
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 46
<SHARES-COMMON-PRIOR> 117
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (31)
<NET-ASSETS> 740
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (12)
<NET-INVESTMENT-INCOME> (12)
<REALIZED-GAINS-CURRENT> 178
<APPREC-INCREASE-CURRENT> (31)
<NET-CHANGE-FROM-OPS> 135
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8
<NUMBER-OF-SHARES-REDEEMED> 80
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (72)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,684
<PER-SHARE-NAV-BEGIN> 14.46
<PER-SHARE-NII> (.15)
<PER-SHARE-GAIN-APPREC> 1.74
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.05
<EXPENSE-RATIO> (.01)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 016
<NAME> PARKSTONE SMALL CAPITALIZATION TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 472
<INVESTMENTS-AT-VALUE> 488
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 488
<PAYABLE-FOR-SECURITIES> 488
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 488
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 26
<SHARES-COMMON-PRIOR> 75
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 92
<NET-ASSETS> 488
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (10)
<NET-INVESTMENT-INCOME> (10)
<REALIZED-GAINS-CURRENT> (236)
<APPREC-INCREASE-CURRENT> 92
<NET-CHANGE-FROM-OPS> (154)
<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
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,350
<PER-SHARE-NAV-BEGIN> 20.21
<PER-SHARE-NII> (.20)
<PER-SHARE-GAIN-APPREC> (1.16)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.85
<EXPENSE-RATIO> (.01)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 017
<NAME> PARKSTONE INTERNATIONAL DISCOVERY TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 336
<INVESTMENTS-AT-VALUE> 361
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 361
<PAYABLE-FOR-SECURITIES> 361
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 361
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 30
<SHARES-COMMON-PRIOR> 80
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (41)
<NET-ASSETS> 361
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (7)
<NET-INVESTMENT-INCOME> (7)
<REALIZED-GAINS-CURRENT> 40
<APPREC-INCREASE-CURRENT> (41)
<NET-CHANGE-FROM-OPS> (8)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9
<NUMBER-OF-SHARES-REDEEMED> 58
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (49)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 972
<PER-SHARE-NAV-BEGIN> 12.11
<PER-SHARE-NII> (.13)
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.17
<EXPENSE-RATIO> (.01)
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000900259
<NAME> PARKSTONE VARIABLE ANNUITY
<SERIES>
<NUMBER> 018
<NAME> T. ROWE PRICE EQUITY INCOME TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-15-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 16
<INVESTMENTS-AT-VALUE> 16
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16
<PAYABLE-FOR-SECURITIES> 16
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 16
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 2
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 16
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .07
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.07
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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 3rd day of March, 1998.
THOMAS R. CLEVENGER
-------------------------------------------
Thomas R. Clevenger
SUBSCRIBED AND SWORN to before me this 3rd day of March, 1998.
ANNETTE E. CRIPPs
-------------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- --------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Sister Loretto Marie Colwell, being a Director of SECURITY BENEFIT LIFE
INSURANCE COMPANY, by these presents do make, constitute and appoint Howard R.
Fricke, James R. Schmank and Roger K. Viola, and each of them, my true and
lawful attorneys, each with full power and authority for me and in my name and
behalf to sign Registration Statements, any amendments thereto and any
applications for exemptive relief filed pursuant to the Investment Company Act
of 1940 or the Securities Act of 1933, as amended, and any instrument or
document filed as part thereof, or in connection therewith or in any way related
thereto, in connection with Variable 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 3rd day of March, 1998.
SISTER LORETTO MARIE COLWELL
-------------------------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 3rd day of March, 1998.
ANNETTE E. CRIPPS
-------------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- --------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, 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 3rd day of March, 1998.
JOHN C. DICUS
-------------------------------------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 3rd day of March, 1998.
ANNETTE E. CRIPPS
-------------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- --------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Steven J. Douglass, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable 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 3rd day of March, 1998.
STEVEN J. DOUGLASS
------------------------------------------
Steven J. Douglass
SUBSCRIBED AND SWORN to before me this 3rd day of March, 1998.
ANNETTE E. CRIPPS
------------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- -------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, 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 3rd day of March, 1998.
HOWARD R. FRICKE
-------------------------------------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 3rd day of March, 1998.
ANNETTE E. CRIPPS
------------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- -------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, W. W. Hanna, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable 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 3rd day of March, 1998.
W. W. HANNA
------------------------------------------
W. W. Hanna
SUBSCRIBED AND SWORN to before me this 3rd day of March, 1998.
ANNETTE E. CRIPPS
------------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- --------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, 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 3rd day of March, 1998.
JOHN E. HAYES, JR.
------------------------------------------
John E. Hayes, Jr.
SUBSCRIBED AND SWORN to before me this 3rd day of March, 1998.
ANNETTE E. CRIPPS
------------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- --------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, 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 3rd day of March, 1998.
LAIRD G. NOLLER
-------------------------------------------
Laird G. Noller
SUBSCRIBED AND SWORN to before me this 3rd day of March, 1998.
ANNETTE E. CRIPPS
-------------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- --------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Frank C. Sabatini, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable 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 3rd day of March, 1998.
FRANK C. SABATINI
-------------------------------------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 3rd day of March, 1998.
ANNETTE E. CRIPPS
-------------------------------------------
Notary Public
My Commission Expires:
7/8/2001
- --------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, 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 3rd day of March, 1998.
ROBERT C. WHEELER
-------------------------------------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 3rd day of March, 1998.
ANNETTE E. CRIPPS
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Notary Public
My Commission Expires:
7/8/2001
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