<PAGE>
SECURITY VARILIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
1-800-888-2461
This prospectus describes Security Varilife, a Flexible Premium Variable
Life Insurance Policy (individually, the "Policy," and collectively, the
"Policies") offered by Security Benefit Life Insurance Company ("Security
Benefit"). The Policy, for so long as it remains in force, provides lifetime
insurance protection on the Insured named in the Policy through the Maturity
Date. The Policy is designed to provide maximum flexibility in connection with
premium payments and death benefits by permitting the Policyowner, subject to
certain restrictions, to vary the frequency and amount of premium payments and
to increase or decrease the death benefit payable under the Policy. This
flexibility allows a Policyowner to provide for changing insurance needs under a
single insurance policy. A Policy may also be surrendered for its Net Cash
Surrender Value.
Net premium payments may be allocated at the Policyowner's discretion to one
or more of the Variable Accounts that comprise a separate account of Security
Benefit called the Security Varilife Separate Account (the "Separate Account"),
or to the Fixed Account of Security Benefit. Any portion of a net premium
allocated to one or more of the Variable Accounts is invested in the
corresponding portfolios of the SBL Fund (the "Fund"), which currently consists
of eleven portfolios or "Series." The Variable Accounts and the corresponding
series of the Fund are: the Growth Variable Account (Series A); the
Growth-Income Variable Account (Series B); the Money Market Variable Account
(Series C); the Worldwide Equity Variable Account (Series D); the High Grade
Income Variable Account (Series E); the Social Awareness Variable Account
(Series S); the Emerging Growth Variable Account (Series J); the Global
Aggressive Bond Variable Account (Series K); the Specialized Asset Allocation
Variable Account (Series M); the Managed Asset Allocation Variable Account
(Series N); and the Equity Income Variable Account (Series O). The Accumulated
Value in the Fixed Account will accrue interest at an interest rate that is
declared from time to time by Security Benefit.
To the extent that all or a portion of net premium payments are allocated to
the Separate Account, the Accumulated Value under the Policy will vary based
upon the investment performance of the Variable Accounts to which the
Accumulated Value is allocated. No minimum amount of Accumulated Value is
guaranteed.
The Policy provides a death benefit equal to the Specified Amount plus
Accumulated Value (or, if greater, Accumulated Value multiplied by a certain
percentage). The death benefit will vary daily with the investment performance
of the Variable Accounts for any Policyowner who has allocated Accumulated Value
to the Variable Accounts. For so long as the Policy remains in force, the death
benefit will never be less than the current Specified Amount.
A Policy may be returned according to the terms of its Free-Look Right (see
"Right to Examine a Policy--Free-Look Right," page 17), during which time net
premium payments allocated to the Separate Account will be invested in the Money
Market Variable Account.
It may not be advantageous to replace existing insurance with the Policy.
This prospectus generally describes only the portion of the Policy involving
the Separate Account. For a brief summary of the Fixed Account, see "The Fixed
Account," page 24.
- --------------------------------------------------------------------------------
THE POLICY INVOLVES RISK, INCLUDING LOSS OF PRINCIPAL AND IS NOT A DEPOSIT OR
OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THE POLICY IS NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE SBL FUND. BOTH
PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
Date: May 1, 1996
- --------------------------------------------------------------------------------
1
<PAGE>
TABLE OF CONTENTS
Page
IMPORTANT TERMS............................................................ 5
SUMMARY OF THE POLICY...................................................... 6
Purpose of the Policy.................................................. 6
Policy Values.......................................................... 6
The Death Benefit...................................................... 6
Premium Features....................................................... 6
Allocation Options..................................................... 7
Transfer of Accumulated Value.......................................... 7
Policy Loans........................................................... 7
Free-Look Right........................................................ 7
Surrender Right........................................................ 7
Partial Withdrawal Benefits............................................ 7
Charges and Deductions................................................. 7
Premium Tax........................... ............................. 7
Deductions from Accumulated Value...... ............................ 8
Deductions from the Variable Accounts... ........................... 8
Surrender Charge......................... .......................... 8
Tax Treatment of Increases in Accumulated Value........................ 8
Tax Treatment of Death Benefit......................................... 8
The Fixed Account...................................................... 8
Contacting Security Benefit............................................ 8
INFORMATION ABOUT SECURITY BENEFIT AND THE SEPARATE ACCOUNT................ 8
Security Benefit Life Insurance Company................................ 8
Security Varilife Separate Account..................................... 8
SBL Fund............................................................... 9
Series A............................................................... 9
Series B............................................................... 9
Series C............................................................... 9
Series D............................................................... 10
Series E............................................................... 10
Series S............................................................... 10
Series J............................................................... 10
Series K............................................................... 10
Series M............................................................... 10
Series N............................................................... 10
Series O............................................................... 10
The Investment Adviser................................................. 10
THE POLICY................................................................. 10
Application for a Policy............................................... 10
Premiums............................................................... 11
Guaranteed Death Benefit Premium....................................... 12
Allocation of Net Premiums............................................. 12
Dollar Cost Averaging Option........................................... 12
Asset Reallocation Option.............................................. 13
Transfer of Accumulated Value.......................................... 13
Death Benefit.......................................................... 14
Death Benefit Examples.............................................. 14
Changes in Specified Amount............................................ 14
Increases........................................................... 15
Decreases........................................................... 15
- --------------------------------------------------------------------------------
2
<PAGE>
Page
THE POLICY (CONTINUED)
Policy Values.......................................................... 15
Accumulated Value................................................... 15
Cash Surrender Value................................................ 15
Net Cash Surrender Value............................................ 15
Determination of Accumulated Value..................................... 15
Policy Loans........................................................... 16
Benefits at Maturity................................................... 16
Surrender.............................................................. 16
Partial Withdrawal Benefits............................................ 17
Right to Examine a Policy--Free-Look Right............................. 17
Lapse.................................................................. 17
Reinstatement.......................................................... 18
CHARGES AND DEDUCTIONS..................................................... 18
Premium Tax............................................................ 18
State and Local Premium Tax Charge.................................. 18
Deductions from Accumulated Value...................................... 18
Cost of Insurance...................................................... 18
Deductions from the Variable Accounts.................................. 19
Administrative Charge............................................... 19
Mortality and Expense Risk Charge................................... 19
Surrender Charge.................................................... 19
Corporate and Other Purchasers......................................... 19
Other Charges.......................................................... 20
Guarantee of Certain Charges........................................... 20
OTHER INFORMATION.......................................................... 20
Federal Income Tax Considerations...................................... 20
Diversification Requirements........................................ 20
Tax Treatment of Policies........................................... 20
Conventional Life Insurance Policies................................ 21
Modified Endowment Contracts........................................ 21
Reasonableness Requirements for Charges............................. 22
Other............................................................... 22
Charge for Security Benefit Income Taxes............................ 22
Voting of Fund Shares.................................................. 22
Disregard of Voting Instructions....................................... 23
Report to Owners....................................................... 23
Substitution of Investments............................................ 23
Changes to Comply With Law............................................. 24
PERFORMANCE INFORMATION.................................................... 24
THE FIXED ACCOUNT.......................................................... 24
General Description.................................................... 24
Death Benefit.......................................................... 25
Policy Charges......................................................... 25
Transfers, Surrenders, Withdrawals, and Policy Loans................... 25
- --------------------------------------------------------------------------------
3
<PAGE>
Page
MORE ABOUT THE POLICY...................................................... 25
Ownership.............................................................. 25
Joint Owners........................................................ 25
Beneficiary............................................................ 25
Exchange of Insured.................................................... 26
Exchange of Policy During First 24 Months.............................. 26
The Contract........................................................... 26
Payments............................................................... 26
Assignment............................................................. 26
Errors on the Application.............................................. 27
Incontestability....................................................... 27
Payment in Case of Suicide............................................. 27
Participating.......................................................... 27
Policy Illustrations................................................... 27
Payment Plan........................................................... 27
Distribution of the Policy............................................. 27
MORE ABOUT SECURITY BENEFIT................................................ 28
Management............................................................. 28
State Regulation....................................................... 29
Telephone Transfer Privileges.......................................... 30
Legal Proceedings...................................................... 30
Legal Matters.......................................................... 30
Registration Statement................................................. 30
Experts................................................................ 30
Financial Statements................................................... 30
APPENDIX................................................................... 67
ILLUSTRATIONS.............................................................. 68
- --------------------------------------------------------------------------------
THE POLICY 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, THE FUND'S PROSPECTUS OR
THE STATEMENT OF ADDITIONAL INFORMATION OF THE FUND OR ANY SUPPLEMENT THERETO.
THIS IS A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. ITS PURPOSE IS TO
PROVIDE INSURANCE PROTECTION FOR THE BENEFICIARY NAMED IN THE POLICY. THIS
POLICY IS NOT IN ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN
OF A MUTUAL FUND.
- --------------------------------------------------------------------------------
4
<PAGE>
IMPORTANT TERMS
ACCUMULATED VALUE - The total value of the amounts in the Variable Accounts of
the Separate Account and the Fixed Account for the Policy as well as any amount
set aside in the Loan Account to secure Policy Debt as of any Valuation Date.
AGE - The Insured's age as of his or her last birthday as of the Policy Date,
increased by the number of complete Policy Years elapsed.
BENEFICIARY - The person or persons named by the Policyowner in the application
or by proper later designation to receive the death benefit proceeds upon the
death of the Insured.
CASH SURRENDER VALUE - The Accumulated Value less the surrender charge.
FIXED ACCOUNT - An account that is part of Security Benefit's General Account to
which all or a portion of net premium payments may be allocated for accumulation
at a fixed rate of interest (which may not be less than 4.0 percent) declared by
Security Benefit.
GENERAL ACCOUNT - All assets of Security Benefit other than those allocated to
the Separate Account or to any other segregated separate account of Security
Benefit.
GUARANTEED DEATH BENEFIT PREMIUM - A Planned Periodic Premium in an amount
specified by Security Benefit which, if paid in advance, will keep the Policy in
force during the first ten Policy Years (first five Policy Years for policies
issued in the Commonwealth of Massachusetts) even if Net Cash Surrender Value is
insufficient to cover the monthly deduction on any Monthly Payment Date.
HOME OFFICE - The Life Administration Department at Security Benefit's office,
700 SW Harrison Street, Topeka, Kansas 66636-0001.
INSURED - The person upon whose life the Policy is issued and whose death is the
contingency upon which the death benefit proceeds are payable.
LOAN ACCOUNT - An account to which amounts are transferred from the Variable
Accounts and the Fixed Account as collateral for Policy loans.
MATURITY DATE - The Policy Anniversary on which the Insured is Age 95.
MONTHLY PAYMENT DATE - The day each month on which the monthly deduction is due
against the Accumulated Value. The first Monthly Payment Date is the Policy
Date.
NET CASH SURRENDER VALUE - Cash Surrender Value less Policy Debt.
PLANNED PERIODIC PREMIUM - The premium determined by the Policyowner as a level
amount planned to be paid at fixed intervals over a specified period of time.
The annual Planned Periodic Premium is used in the measurement of the surrender
charge. It is shown in the Policy.
POLICY DATE - The date used to determine the Monthly Payment Date, Policy
Months, Policy Years, and Policy Monthly, Quarterly, Semiannual, and Annual
Anniversaries. It is usually the date the initial premium is received at
Security Benefit's Home Office.
POLICY DEBT - The unpaid loan balance including accrued loan interest.
POLICYOWNER OR OWNER - The person who owns the Policy. The Policyowner will be
the Insured unless otherwise stated in the application. If the Policy has been
absolutely assigned, the assignee becomes the Owner. A collateral assignee is
not the Owner.
SPECIFIED AMOUNT - The amount determined by Security Benefit based upon the Age
of the Insured, the Planned Periodic Premium and, if the medical or paramedical
underwriting method is used, the underwriting class of the Insured. In addition,
for Policies issued in Illinois, New Jersey, Oregon and Texas, the gender of the
Insured is a factor in determining the Specified Amount. The Specified Amount
may be increased or decreased under certain circumstances.
VALUATION DATE - Each date on which the Separate Account is valued, which
currently includes each day that the New York Stock Exchange is open for
trading. The New York Stock Exchange is closed on weekends and on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, July
Fourth, Labor Day, Thanksgiving Day, and Christmas Day.
VALUATION PERIOD - The period that starts at the close of a Valuation Date and
ends at the close of the next succeeding Valuation Date.
- --------------------------------------------------------------------------------
5
<PAGE>
SUMMARY OF THE POLICY
This summary is intended to provide a brief overview of the more
significant aspects of the Policy. Further detail is provided in this prospectus
and in the Policy. Unless the context indicates otherwise, the discussion in
this summary and the remainder of the prospectus relates to the portion of the
Policy involving the Separate Account. The Fixed Account is briefly described
under "The Fixed Account," on page 24 and in the Policy.
PURPOSE OF THE POLICY
The Policy offers a Policyowner insurance protection on the life of the
Insured through the Maturity Date for so long as the Policy is in force. Like
traditional fixed life insurance, the Policy provides for a death benefit equal
to its Specified Amount, accumulation of cash value, and surrender and loan
privileges. Unlike traditional fixed life insurance, the Policy offers a choice
of allocation alternatives and an opportunity for the Policy's Accumulated Value
and its death benefit to grow based on investment results. The Policy is a
flexible premium policy, so that, unlike many other insurance policies and
subject to certain limitations, a Policyowner may choose the amount and
frequency of premium payments.
POLICY VALUES
A Policyowner may allocate net premium payments among the various Variable
Accounts that comprise the Separate Account and that invest in corresponding
portfolios, known as "Series," of the SBL Fund. A Policyowner may also allocate
net premium payments to the Fixed Account.
Depending on the investment experience of the selected Variable Accounts,
the Accumulated Value may increase or decrease on any day. The death benefit may
also increase or decrease depending upon several factors, and will never
decrease below the Specified Amount provided the Policy is in force. There is no
guarantee that the Policy's Accumulated Value and death benefit will increase.
The Policyowner bears the investment risk on that portion of the net premiums
and Accumulated Value allocated to the Separate Account.
The Policy will remain in force until the earliest of the Maturity Date,
the death of the Insured, or a full surrender of the Policy, unless, before any
of these events, Net Cash Surrender Value is insufficient to pay the current
monthly deduction on a Monthly Payment Date and a Grace Period expires without
sufficient additional premium payment or loan repayment by the Policyowner. A
Policy will not lapse, however, during the first ten Policy Years (first five
Policy Years for policies issued in the Commonwealth of Massachusetts) if the
Guaranteed Death Benefit Premium has been paid.
THE DEATH BENEFIT
The Policy provides a death benefit equal to the Specified Amount of the
Policy plus the Accumulated Value (determined as of the date of the Insured's
death) or, if greater, Accumulated Value multiplied by a death benefit
percentage. See "Death Benefit," page 14.
PREMIUM FEATURES
Security Benefit requires a Policyowner to pay an initial premium equal to
at least 1/12 of the Guaranteed Death Benefit Premium for the first Policy Year.
Thereafter, subject to certain limitations, a Policyowner may choose the amount
and frequency of premium payments. The Policy, therefore, provides the
Policyowner with the flexibility to vary premium payments to reflect varying
financial conditions.
When applying for a Policy, a Policyowner will determine a Planned Periodic
Premium that provides for the payment of level premiums over a specified period
of time; however, a Policyowner is not required to pay Planned Periodic
Premiums. Security Benefit will determine the Policy's Specified Amount based
upon the Age of the Insured, the Planned Periodic Premium and, if the medical or
paramedical underwriting method is used, the underwriting class of the Insured.
In addition, for Policies issued in Illinois, New Jersey, Oregon and Texas, the
gender of the Insured is a factor in determining the Specified Amount. Premiums
may be paid monthly under the Secur-O-Matic plan where the Owner authorizes
Security Benefit to withdraw premiums from the Owner's checking account on the
7th, 14th, 21st or 28th day of each month. The minimum initial premium required
must be paid before the Secur-O-Matic plan will be accepted by Security Benefit.
The amount, frequency, and period of time over which a Policyowner pays
premiums may affect whether or not the Policy will be classified as a Modified
Endowment Contract, which is a type of life insurance contract subject to
different tax treatment for certain pre-death distributions. For more
information on the tax treatment of life insurance contracts, including those
classified as Modified Endowment Contracts, see "Federal Income Tax
Considerations," page 20.
Payment of the Planned Periodic Premiums will not guarantee that a Policy
will remain in force unless the Guaranteed Death Benefit Premium has been paid.
Instead, the duration of the Policy depends upon the Policy's Accumulated Value.
Even if Planned Periodic Premiums are paid, the Policy will lapse any time Net
Cash Surrender Value is insufficient to pay the current monthly deduction and a
Grace Period expires without sufficient payment. Any premium payment must be for
at least $25 and the minimum Planned Periodic Premium is $100 per month.
Security Benefit also may reject or limit any premium payment that would result
in an immediate increase in the net amount at
- --------------------------------------------------------------------------------
6
<PAGE>
risk under the Policy, although such a premium may be accepted with satisfactory
evidence of insurability.
ALLOCATION OPTIONS
The Variable Accounts invest in portfolios of a mutual fund which offers
the Policyowner the opportunity to direct Security Benefit to invest in
diversified portfolios of stocks, bonds, money market instruments, or a
combination of these securities, or in securities of foreign issuers. Each of
the Variable Accounts invests exclusively in shares of a designated portfolio
("Series") of the SBL Fund (the "Fund"). There are eleven Series of the Fund,
each of which has a different investment objective. The Variable Accounts and
the corresponding series of the Fund are: the Growth Variable Account (Series
A); the Growth-Income Variable Account (Series B); the Money Market Variable
Account (Series C); the Worldwide Equity Variable Account (Series D); the High
Grade Income Variable Account (Series E); the Social Awareness Variable Account
(Series S); the Emerging Growth Variable Account (Series J); the Global
Aggressive Bond Variable Account (Series K); the Specialized Asset Allocation
Variable Account (Series M); the Managed Asset Allocation Variable Account
(Series N); and the Equity Income Variable Account (Series O). See "SBL Fund,"
page 9. Security Management Company, a subsidiary of Security Benefit is the
Investment Adviser of each of the Series subject to the direction and control of
the Fund's Board of Directors. The Adviser has engaged Lexington Management
Corporation to serve as Sub-Adviser of Series D, and K, and T. Rowe Price
Associates, Inc. to serve as Sub-Adviser of Series N and O. The Investment
Manager has engaged Meridian Investment Management Corporation and
Templeton/Franklin Investment Services, Inc. to provide certain analytic
research services with respect to Series M.
The Policyowner may choose to allocate net premium payments among the
eleven Variable Accounts constituting the Separate Account, and to the Fixed
Account.
TRANSFER OF ACCUMULATED VALUE
The Policyowner may transfer Accumulated Value among the Variable Accounts,
and, subject to certain other limitations, between the Variable Accounts and the
Fixed Account. Transfers may be made by telephone if the Telephone Transfer
section of the application or an Authorization for Telephone Requests form has
been properly completed and signed and filed at Security Benefit's Home Office.
See "Transfer of Accumulated Value," page 13.
POLICY LOANS
The Policyowner may borrow from Security Benefit an amount up to 75 percent
of the Policy's Net Cash Surrender Value, subject to a minimum loan of $1,000.
The Policyowner may borrow an amount in excess of 75 percent of Net Cash
Surrender Value on Policies issued in certain states, as required by applicable
state law. The Policy will be the only security required for a Policy loan. See
"Policy Loans," page 16.
The amount of any Policy Debt is subtracted from the death benefit or from
the Cash Surrender Value upon surrender. See "Policy Loans," page 16. The Policy
will lapse when Net Cash Surrender Value is insufficient to cover the current
monthly deduction on a Monthly Payment Date, and a Grace Period expires without
a sufficient premium or repayment of Policy Debt.
FREE-LOOK RIGHT
A Policyowner may obtain a full refund of the premium paid if the Policy is
returned within 20 days after the Owner receives it or 45 days after the
application for the Policy is completed, whichever is later. During the
Free-Look Period, net premiums will be allocated to the Money Market Variable
Account. See "Allocation of Net Premiums," page 12.
SURRENDER RIGHT
The Owner can surrender the Policy during the life of the Insured and
receive its Net Cash Surrender Value, which is equal to the Accumulated Value
less the surrender charge and less any outstanding Policy Debt.
PARTIAL WITHDRAWAL BENEFITS
A Partial Withdrawal Benefit is available under the Policy. Under this
Benefit, a Policyowner may make a "Partial Withdrawal" of Net Cash Surrender
Value up to four times during a Policy Year provided that, among other
restrictions, the Partial Withdrawal is for at least $500, does not exceed 75
percent of Net Cash Surrender Value, and the Policy's Net Cash Surrender Value
after the withdrawal is at least $1,000. A Partial Withdrawal will decrease the
death benefit if the death benefit is greater than the Specified Amount. See
"Partial Withdrawal Benefits," at page 17.
CHARGES AND DEDUCTIONS
PREMIUM TAX
A premium tax is deducted from each premium payment under a Policy prior to
allocation of the net premium to the Policyowner's Accumulated Value. The
premium tax consists of the following item:
* A state and local premium tax charge is assessed against each premium to
pay applicable state and local premium taxes, currently ranging from .75 percent
to 5 percent.
- --------------------------------------------------------------------------------
7
<PAGE>
DEDUCTIONS FROM ACCUMULATED VALUE
A charge called the monthly deduction is deducted from a Policy's
Accumulated Value on each Monthly Payment Date. The monthly deduction consists
of the following item:
* COST OF INSURANCE: This monthly charge compensates Security Benefit for
providing life insurance coverage for the Insured. The amount of the charge is
equal to a current cost of insurance rate multiplied by the net amount at risk
under a Policy at the beginning of the Policy Month.
DEDUCTIONS FROM THE VARIABLE ACCOUNTS
* ADMINISTRATIVE CHARGE: Security Benefit deducts a daily administrative
charge from the Assets of each Variable Account equal to an annual rate of .35
percent of the average daily net assets of each Variable Account.
* MORTALITY AND EXPENSE RISK CHARGE: Security Benefit deducts a daily
charge from the assets of each Variable Account for mortality and expense risks
assumed by Security Benefit. This charge is equal to an annual rate of .90
percent of the average daily net assets of each Variable Account.
SURRENDER CHARGE
Security Benefit will assess a surrender charge against Accumulated Value
upon surrender of a Policy during the first 14 Policy Years. The surrender
charge is a percentage of the lesser of the Policy's annual Planned Periodic
Premium or the total premium payments made to the date of surrender. The
percentage varies depending upon the Age of the Insured on the date the Policy
is issued and the Policy Year in which the Policy is surrendered.
The operating expenses of the Separate Account are paid by Security
Benefit. Investment advisory fees and operating expenses of the Fund are paid by
the Fund. For a description of these charges, see "Charges and Deductions," page
18.
TAX TREATMENT OF INCREASES IN ACCUMULATED VALUE
The Accumulated Value under the Policy is currently subject to the same
federal income tax treatment as the cash value under fixed life insurance.
Therefore, generally the Policyowner will not be deemed to be in constructive
receipt of the Accumulated Value unless and until the Policyowner is deemed to
be in receipt of a distribution from the Policy. For information on the tax
treatment of the Policy and on the tax treatment of a surrender, a Partial
Withdrawal, or a Policy Loan, see "Federal Income Tax Considerations," page 20.
TAX TREATMENT OF DEATH BENEFIT
The death benefit under the Policy is currently subject to federal income
tax treatment consistent with that of fixed life insurance. Therefore, generally
the death benefit will be fully excludable from the gross income of the
Beneficiary under the Internal Revenue Code. See "Federal Income Tax
Considerations," page 20.
THE FIXED ACCOUNT
The Policyowner may allocate all or a portion of net premium payments and
transfer Accumulated Value to the Fixed Account. Amounts allocated to the Fixed
Account are held in Security Benefit's General Account. Security Benefit
guarantees that the Accumulated Value allocated to the Fixed Account will be
credited interest monthly at a rate equivalent to an effective annual rate of 4
percent. In addition, Security Benefit may in its sole discretion pay interest
in excess of the guaranteed amount. See "The Fixed Account," page 24.
CONTACTING SECURITY BENEFIT
All written requests, notices, and forms required by the Policies, and any
questions or inquiries should be directed to Security Benefit's Life
Administration Department at 700 SW Harrison Street, Topeka, Kansas 66636-0001.
INFORMATION ABOUT SECURITY BENEFIT AND THE SEPARATE ACCOUNT
SECURITY BENEFIT LIFE INSURANCE COMPANY
Security Benefit is a mutual life insurance company organized under the
laws of the State of Kansas. It was organized originally as a fraternal benefit
society and commenced business February 22, 1892. It became a mutual life
insurance company under its present name on January 2, 1950.
Security Benefit offers a complete line of life insurance policies and
annuity contracts, as well as financial and retirement services. It is admitted
to do business in the District of Columbia, and in all states except New York.
As of the end of 1995, Security Benefit had over $15 billion of life insurance
in force and total assets of approximately $4.7 billion. Together with its
subsidiaries, Security Benefit has total funds under management of approximately
$5.7 billion.
The Principal Underwriter for the Policies is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Management Company, which is wholly-owned by Security Benefit Group, Inc., a
financial services holding company wholly owned by Security Benefit.
SECURITY VARILIFE SEPARATE ACCOUNT
The Security Varilife Separate Account ("Separate Account") is a separate
investment account of Security Benefit used only to support the variable death
benefits and policy values of variable life insurance policies. The assets
- --------------------------------------------------------------------------------
8
<PAGE>
in the Separate Account are kept separate from the General Account assets and
other separate accounts of Security Benefit.
Security Benefit owns the assets in the Separate Account and is required to
maintain sufficient assets in the Separate Account to meet anticipated
obligations of the Policies funded by the Account. The Separate Account is
divided into subaccounts called Variable Accounts. The income, gains, or losses
of the Separate Account are credited to or charged against the assets of the
Separate Account without regard to the other income, gains, or losses of
Security Benefit. Assets in the Separate Account attributable to the reserves
and other liabilities under the Policies are not chargeable with liabilities
arising from any other business that Security Benefit conducts. Security Benefit
may transfer to its General Account any assets which exceed anticipated
obligations of the Separate Account. All obligations arising under the Policy
are general corporate obligations of Security Benefit. Security Benefit may
invest its own assets in the Separate Account for other purposes, but not to
support Policies other than variable life insurance policies, and may accumulate
in the Separate Account proceeds from various Policy charges and investment
results applicable to those assets.
The Separate Account was established on September 13, 1993, under Kansas
law under the authority of the Board of Directors of Security Benefit. The
Separate Account is registered as a unit investment trust with the SEC. Such
registration does not involve any supervision by the SEC of the administration
or investment practices or policies of the Account.
Each Variable Account invests exclusively in shares of a designated Series
of the Fund. Security Benefit may in the future establish additional Variable
Accounts within the Separate Account, which may invest in other Series of the
Fund or in other securities or other investment vehicles.
SBL FUND
The Fund is a diversified, open-end management investment company of the
series type. The Fund is registered with the SEC under the Investment Company
Act of 1940. Such registration does not involve supervision by the SEC of the
investments or investment policy of the Fund. The Fund currently has eleven
separate portfolios ("Series"), each of which pursues different investment
objectives and policies. The shares of each Series are purchased by Security
Benefit for the corresponding Variable Account at net asset value, i.e., without
sales load. All dividends and capital gains distributions received from a Series
are automatically reinvested in such Series at net asset value, unless Security
Benefit, on behalf of the Separate Account, elects otherwise. Fund shares will
be redeemed by Security Benefit at their net asset value to the extent necessary
to make payments under the Policies.
Shares of the Fund currently are offered only for purchase by separate
accounts of Security Benefit to serve as an investment medium for variable life
insurance policies and for variable annuity contracts issued by Security
Benefit. Thus, the Fund serves as an investment medium for both variable life
insurance policies and variable annuity contracts. This is called "mixed
funding." Shares of the Fund may also be sold in the future to separate accounts
of other insurance companies, both affiliated and not affiliated with Security
Benefit. This is called "shared funding." Security Benefit currently does not
foresee any disadvantages to Policyowners arising from either mixed or shared
funding; however, due to differences in tax treatment or other considerations,
it is theoretically possible that the interests of owners of various contracts
for which the Fund serves as an investment medium might at some time be in
conflict. However, Security Benefit, the Fund's Board of Directors, and any
other insurance companies that participate in the Fund in the future are
required to monitor events in order to identify any material conflicts that
arise from the use of the Fund for mixed and/or shared funding. The Fund's Board
of Directors are required to determine what action, if any, should be taken in
the event of such a conflict. If such a conflict were to occur, Security Benefit
might be required to withdraw the investment of one or more of its separate
accounts from the Fund. This might force the Fund to sell securities at
disadvantageous prices.
A summary of the investment objective of each Series of the Fund is
described below. There can be no assurance that any Series will achieve its
objective. More detailed information is contained in the accompanying prospectus
of the Fund, including information on the risks associated with the investments
and investment techniques of each of the Series.
THE FUND'S PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ CAREFULLY
BEFORE INVESTING.
SERIES A - Amounts allocated to the Growth Variable Account are invested in
Series A. The investment objective of Series A is to seek long-term capital
growth by investing in a broadly diversified portfolio of common stocks,
securities convertible into common stocks, preferred stocks, bonds and other
debt secuSERIES B - Amounts allocated to the Growth-Income Variable Account are
invested in Series B. Series B seeks long-term growth of capital, with secondary
emphasis on income, by investing in various types of securities, including
common stocks, convertible securities, preferred stocks and debt securities.
Series B's investments in debt securities may include securities rated below
investment grade (commonly known as "junk bonds").
SERIES C - Amounts allocated to the Money Market Variable Account are
invested in Series C. The investment objective of Series C is to provide as high
a level of current income as is consistent with preserving capital. It invests
in high quality money market instruments with maturities of not longer than
thirteen months.
- --------------------------------------------------------------------------------
9
<PAGE>
SERIES D - Amounts allocated to the Worldwide Equity Variable Account are
invested in Series D. The investment objective of Series D is to seek long-term
growth of capital primarily through investment in common stocks and equivalents
of companies domiciled in foreign countries and the United States.
SERIES E - Amounts allocated to the High Grade Income Variable Account are
invested in Series E. The investment objective of Series E is to provide current
income with security of principal. Series E seeks to achieve this investment
objective by investing in a broad range of debt securities, including U.S. and
foreign corporate debt securities and securities issued by the U.S. and foreign
governments.
SERIES S - Amounts allocated to the Social Awareness Variable Account are
invested in Series S. The investment objective of Series S is to seek high total
return through a combination of income and capital appreciation by investing in
various types of securities which meet certain social criteria established for
the Series. Series S will invest in a diversified portfolio of common stocks,
convertible securities, preferred stocks and debt securities.
SERIES J - Amounts allocated to the Emerging Growth Variable Account are
invested in Series J. The investment objective of Series J is to seek capital
appreciation through investment in a broadly diversified portfolio of securities
which may include common stocks, preferred stocks, debt securities and
securities convertible into common stocks.
SERIES K - Amounts allocated to the Global Aggressive Bond Variable Account
are invested in Series K. The investment objective of Series K is to seek high
current income and, as a secondary objective, capital appreciation by investing
in a combination of foreign and domestic high-yield, lower rated debt securities
(commonly known as "junk bonds").
SERIES M - Amounts allocated to the Specialized Asset Allocation Variable
Account are invested in Series M. The investment objective of Series M is to
seek high total return consisting of capital appreciation and current income.
Series M seeks this objective by following an asset allocation strategy that
contemplates shifts among a wide range of investment categories and market
sectors, including equity and debt securities of domestic and foreign issuers.
SERIES N - Amounts allocated to the Managed Asset Allocation Variable
Account are invested in Series N. The investment objective of Series N is to
seek a high level of total return by investing primarily in a diversified
portfolio of debt and equity securities.
SERIES O - Amounts allocated to the Equity Income Variable Account are
invested in Series O. The investment objective of Series O is to seek to provide
substantial dividend income and also capital appreciation by investing primarily
in dividend-paying common stocks of established companies.
THE INVESTMENT ADVISER
Security Management Company, located at 700 SW Harrison Street, Topeka,
Kansas 66636, serves as Investment Adviser to each Series of the Fund. Security
Management Company is registered with the SEC as an investment adviser. Security
Management Company formulates and implements continuing programs for the
purchase and sale of securities in compliance with the investment objective,
policies, and restrictions of each Series, and is responsible for the day-to-day
decisions to buy and sell securities for the Series, except Series D, K, N and
O. The Investment Adviser has engaged Lexington Management Corporation, Park 80
West, Plaza Two, Saddle Brook, New Jersey 07662 to provide certain investment
advisory services to Series D and K of the Fund. The Investment Adviser has
engaged T. Rowe Price Associates, Inc., 100 East Pratt, Baltimore, Maryland
21202 to provide certain investment advisory services to Series N and O. The
Investment Adviser has engaged Meridian Investment Management Corporation, 12835
East Arapahoe Road, Tower II, 7th Floor, Englewood, Colorado 80112 and
Templeton/Franklin Investment Services, Inc., 777 Mariners Island Boulevard, San
Mateo, California 94404, to provide certain analytic research services with
respect to Series M.
THE POLICY
The variable life insurance benefits provided by the Policies are funded
through the Policyowner's Accumulated Value in the Separate Account and the
Fixed Account. The information included below describes the benefits, features,
charges, and other major provisions of the Policies.
APPLICATION FOR A POLICY
The Policy is designed to meet the needs of individuals and for
corporations who wish to provide coverage and benefits for key employees. Anyone
wishing to purchase the Policy may submit an application to Security Benefit. A
Policy can be issued on the life of an Insured for Ages up to and including Age
75 with evidence of insurability satisfactory to Security Benefit. The Insured's
Age is calculated as of the Insured's last birthday as of the Policy Date.
Acceptance is subject to Security Benefit's underwriting rules, and Security
Benefit reserves the right to request additional information and to reject an
application.
Each Policy is issued with a Policy Date, which is the date used to
determine the Monthly Payment Date, Policy Months, Policy Years, and Policy
Monthly, Quarterly, Semiannual and Annual Anniversaries. If the application is
accompanied by all or a portion of the initial premium and is accepted by
Security Benefit, the Policy Date is usually the date the application and
premium payment were received at Security Benefit's Home Office. If an
application is not accompanied by all or a portion of the initial premium
payment, the Policy Date is usually the date the application
- --------------------------------------------------------------------------------
10
<PAGE>
is accepted by Security Benefit. Security Benefit first becomes obligated under
the Policy on the date the total initial premium is received or on the date the
application is accepted, whichever is later. Any monthly deductions due will be
taken on the Monthly Payment Date on or next following the date Security Benefit
becomes obligated. The initial premium must be received within 20 days after the
Policy is issued, although Security Benefit may waive the 20-day requirement at
its discretion. If the initial premium is not received or the application is
rejected by Security Benefit, the Policy will be canceled and any partial
premium received will be refunded.
Subject to Security Benefit's approval, a Policy may be backdated, but the
Policy Date may not be more than six months prior to the date of the
application. Backdating can be advantageous if the Insured's lower issue Age
results in lower cost of insurance rates. If the Policy is backdated, the
minimum initial premium required will include sufficient premium to cover the
backdating period. Monthly deductions will be made for the period the Policy
Date is backdated.
Insured's are assigned to underwriting (risk) classes which are used in
calculating the cost of insurance charges. In assigning Insureds to underwriting
classes, Security Benefit will normally use the simplified issue underwriting
method, but may also use the medical or paramedical underwriting method, which
may require a medical examination of a proposed Insured. Other forms of
underwriting may be used when deemed appropriate by Security Benefit.
PREMIUMS
The Policy is a flexible-premium policy, and it provides considerable
flexibility, subject to the limitations described below, to pay premiums at the
Policyowner's discretion. Security Benefit usually requires a Policyowner to pay
a minimum initial premium equal to 1/12 of the Guaranteed Death Benefit Premium
for the first Policy Year, which will be based upon the Policy's Specified
Amount, the Age of the Insured and, if the medical or paramedical underwriting
method is used, the underwriting class of the Insured. In addition, for Policies
issued in Illinois, New Jersey, Oregon and Texas, the gender of the Insured is a
factor in determining the Guaranteed Death Benefit Premium. Thereafter, subject
to the limitations described below, a Policyowner may choose the amount and
frequency of premium payments. The Policy, therefore, provides the Policyowner
with the flexibility to vary premium payments to reflect varying financial
conditions. Security Benefit may reduce the minimum initial premium required
under certain circumstances, such as for a group or sponsored arrangements.
When applying for a Policy, a Policyowner will determine a Planned Periodic
Premium that provides for the payment of level premiums over a specified period
of time; however, the Policyowner is not required to pay Planned Periodic
Premiums. Security Benefit will determine the Policy's Specified Amount based
upon the Age of the Insured, the Planned Periodic Premium and, if the medical or
paramedical underwriting method is used, the underwriting class of the Insured.
Premiums may be paid monthly under the Secur-O-Matic plan where the Owner
authorizes Security Benefit to withdraw premiums from the Owner's checking
account each month on the 7th, 14th, 21st, or 28th day of each month. The
minimum initial premium required must be paid before the Secur-O-Matic plan will
be accepted by Security Benefit.
The amount, frequency and period of time over which a Policyowner pays
premiums may affect whether the Policy will be classified as a modified
endowment contract, which is a type of life insurance contract subject to
different tax treatment for certain pre-death distributions than conventional
life insurance contracts. Accordingly, variations from the Planned Periodic
Premiums on a Policy that is not otherwise a modified endowment contract may
result in the Policy becoming a modified endowment contract for tax purposes.
Payment of the Planned Periodic Premium will not guarantee that a Policy
will remain in force. Instead, the duration of the Policy depends upon the
Policy's Accumulated Value. Even if Planned Periodic Premiums are paid, the
Policy will lapse any time Net Cash Surrender Value is insufficient to pay the
current monthly deduction and a Grace Period expires without sufficient payment.
See "Guaranteed Death Benefit Premium," page 12 and "Lapse," page 17.
Any premium payment must be for at least $25 and the minimum Planned
Periodic Premium is $100 per month. Security Benefit also may reject or limit
any premium payment that would result in an immediate increase in the net amount
at risk under the Policy, although such a premium may be accepted with evidence
of insurability satisfactory to Security Benefit. See "Cost of Insurance," page
18. A premium payment would result in an immediate increase in the net amount at
risk if the death benefit under a Policy is, or upon acceptance of the premium
would be, equal to a Policyowner's Accumulated Value multiplied by a death
benefit percentage. See "Death Benefit," page 14. If satisfactory evidence of
insurability is not received, the payment, or portion thereof may be returned.
All or a portion of a premium payment will be rejected and returned to the
Policyowner if it would exceed the maximum premium limitations prescribed by
federal tax law.
A premium tax will be deducted from each premium payment. See "Charges and
Deductions," page 18. The remainder of the premium, known as the net premium,
will be allocated as described below under "Allocation of Net Premiums."
Additional payments will first be treated as additional premium payments unless
a Policyowner indicates that the payment is repayment of Policy Debt. Any
portion of a payment that exceeds the amount of Policy Debt will be applied as
an additional premium payment.
- --------------------------------------------------------------------------------
11
<PAGE>
GUARANTEED DEATH BENEFIT PREMIUM
A Policyowner may determine to pay the Guaranteed Death Benefit Premium
which, if paid in advance, according to the premium frequency selected by the
Policyowner will keep the Policy in force during the first ten Policy Years (the
first five Policy Years for policies issued in the Commonwealth of
Massachusetts) even if during that period Net Cash Surrender Value is
insufficient to cover the monthly deduction on any Monthly Payment Date. The
Guaranteed Death Benefit Premium is determined by Security Benefit based upon
the Policy's Specified Amount, the Age of the Insured and, if the medical or
paramedical underwriting method is used, underwriting class of the Insured. In
addition, for Policies issued in Illinois, New Jersey, Oregon and Texas, the
gender of the Insured is a factor in determining the Guaranteed Death Benefit
Premium. Security Benefit will send a reminder notice if the amount of premiums
paid on a Policy, less outstanding Policy Debt and any Partial Withdrawals, is
less than an amount equal to the monthly Guaranteed Death Benefit Premium times
the number of Policy Months the Policy has been in force. If the required
payment is not made within 61 days, measured from the date of the notice, the
Guaranteed Death Benefit will no longer be in effect and may not be reinstated.
A Policy Loan taken in the first ten Policy Years (first five Policy Years for
policies issued in the Commonwealth of Massachusetts) may cause the Guaranteed
Death Benefit to terminate. As a result, the Policy will not have the protection
from lapse otherwise provided by the Guaranteed Death Benefit Premium during the
first ten Policy Years. See "Lapse," page 17.
ALLOCATION OF NET PREMIUMS
In the application for the Policy, the Policyowner selects the Variable
Accounts or the Fixed Account to which net premium payments will be allocated.
During the Free-Look Period, net premiums will be allocated to the Money Market
Variable Account, which invests in Series C of the Fund (except for amounts
allocated to the Loan Account to secure a Policy loan). The Accumulated Value
will be automatically allocated according to the Policyowner's instructions
contained in the application the later of 20 days after the Policy is issued or
45 days after the application is completed, or, if longer, upon receipt of the
minimum initial premium (the "Free-Look Period"). Net premiums received after
the Free-Look Period will be allocated upon receipt among the Variable Accounts
and the Fixed Account according to the Policyowner's most recent instructions.
Available allocation alternatives include the eleven Variable Accounts and the
Fixed Account.
A Policyowner may change the allocation of net premiums by submitting a
proper written request to Security Benefit's Home Office. The minimum amount
that may be allocated to a Variable Account or the Fixed Account is the greater
of $25 or 10 percent of the net premium. Security Benefit allows allocation of
only a whole percentage. Changes in net premium allocation instructions 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. Security Benefit reserves the right
to discontinue telephone net premium allocation instructions.
DOLLAR COST AVERAGING OPTION
Security Benefit currently offers an option under which Policyowners may
dollar cost average their allocations in the Variable Accounts under the Policy
by authorizing Security Benefit to make periodic allocations of Accumulated
Value from any one Variable Account to one or more of the other Variable
Accounts. Dollar cost averaging is a systematic method of investing in which
securities are purchased at regular intervals in fixed dollar amounts so that
the cost of the securities gets averaged over time and possibly over various
market values. The option will result in the allocation of Accumulated Value to
one or more Variable Accounts, and these amounts will be credited at the
Accumulation Unit values 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 Variable Account 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 Variable Account 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 Policyowner will not have losses.
A Dollar Cost Averaging Request form is available upon request. On the
form, the Policyowner must designate whether Accumulated Value is to be
transferred on the basis of a specific dollar amount, a fixed period or earnings
only, the Variable Account or Accounts 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 Policy's Accumulated Value
must be at least $10,000 and a Dollar Cost Averaging Request in proper form must
be received by Security Benefit at its Home Office. A Policyowner may not have
in effect at the same time Dollar Cost Averaging and Asset Reallocation Options.
After Security Benefit has received a Dollar Cost Averaging Request in proper
form at its Home Office, Security Benefit will transfer Accumulated Value in
amounts designated by the Policyowner from the Variable Account from which
transfers are to be made to the Variable Account or Accounts chosen by the
Policyowner. The minimum amount that may be transferred from any Variable
Account is $100. After the Free-Look Period, the
- --------------------------------------------------------------------------------
12
<PAGE>
first transfer will be effected on the monthly or quarterly anniversary,
whichever corresponds to the period selected by the Policyowner, of the date of
receipt at Security Benefit's Home Office of a Dollar Cost Averaging Request in
proper form, until the total amount elected has been transferred, until
Accumulated Value in the Variable Account from which transfers are made has been
depleted, or until the Policy enters the Grace Period. Amounts periodically
transferred under this option are not currently subject to any transfer charges
that may be imposed by Security Benefit.
A Policyowner may instruct Security Benefit at any time to terminate the
option by written request to Security Benefit's Home Office. In that event, the
Accumulated Value in the Variable Account from which transfers were being made
that has not been transferred will remain in that Variable Account, subject to
monthly deductions, unless the Policyowner instructs otherwise. If a Policyowner
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 Variable Account 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 Accumulated Value
at the time the request is made must be at least $10,000. Security Benefit may
discontinue, modify, or suspend the Dollar Cost Averaging Option at any time.
Accumulated Value may also be dollar cost averaged to or from the Fixed
Account, provided that transfers from the Fixed Account do not violate the
restrictions on transfers from the Fixed Account as described in "The Fixed
Account," on page 24.
ASSET REALLOCATION OPTION
Security Benefit currently offers an option under which Policyowners
authorize Security Benefit to automatically transfer their Accumulated Value
each quarter to maintain a particular percentage allocation among the Variable
Accounts as selected by the Policyowner. The Accumulated Value allocated to each
Variable Account will grow or decline in value at different rates during the
quarter and Asset Reallocation automatically reallocates the Accumulated Value
in the Variable Accounts each quarter to the allocation selected by the
Policyowner. Asset Reallocation is intended to transfer Accumulated Value from
those Variable Accounts that have increased in value to those Variable Accounts
that have declined in value. Over time, this method of investing may help a
Policyowner maintain an allocation of Accumulated Value at levels that the
Policyowner has selected consistent with his or her personal goals and
objectives. This reallocation method does not guarantee profits, nor does it
assure that a Policyowner will not have losses. It is possible that Accumulated
Value of an Owner who chooses this Option may, at any time, be less than the
Accumulated Value that the Owner would have experienced had this Option not been
selected.
To elect the Asset Reallocation Option, the Accumulated Value in the Policy
must be at least $10,000 and an Asset Reallocation Request in proper form must
be received by Security Benefit at its Home Office. An Asset Reallocation
Request form is available upon request. On the form, the Policyowner must
indicate the applicable Variable Accounts and the percentage of Accumulated
Value to be reallocated on a quarterly basis to each Variable Account ("Asset
Reallocation Program"). If the Asset Reallocation Option is elected, all
Accumulated Value that is invested in the Variable Accounts must be included in
the Asset Reallocation Program. A Policyowner may not have in effect at the same
time Dollar Cost Averaging and Asset Reallocation Options.
The Asset Reallocation Option will result in the transfer of Accumulated
Value to one or more of the Variable Accounts on the date of Security Benefit's
receipt of the Asset Reallocation Request in proper form and on each quarterly
anniversary of that date thereafter. The amounts transferred will be credited at
the 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 may be imposed by Security
Benefit.
A Policyowner may instruct Security Benefit at any time to terminate this
option by written request to Security Benefit's Home Office. In that event, the
Accumulated Value in the Variable Accounts that has not been transferred will
remain in those Variable Accounts, subject to monthly deductions, regardless of
the percentage allocation unless the Contractowner instructs otherwise. If a
Contractowner wishes to continue Asset Reallocation after it has been canceled,
a new Asset Reallocation Request form must be completed and sent to Security
Benefit's Home Office and the Accumulated Value at the time the request is made
must be at least $10,000. Security Benefit may discontinue, modify, or suspend,
and reserves the right to charge a fee for the Asset Reallocation Option at any
time.
Accumulated Value invested in the Fixed Account may be included in the
Asset Reallocation Program, provided that transfers from the Fixed Account do
not violate the restrictions on transfers from the Fixed Account as described in
"The Fixed Account" on page 24.
TRANSFER OF ACCUMULATED VALUE
Accumulated Value may be transferred after the Free-Look Period among the
Variable Accounts by the Policyowner upon proper written request to Security
Benefit's Home Office. Transfers (other than transfers in connection with the
Dollar Cost Averaging or Asset Reallocation Options) may be made by telephone if
the Telephone Transfer section of the application or an Authorization for
Telephone Requests form has been properly completed and signed and filed at
Security
- --------------------------------------------------------------------------------
13
<PAGE>
Benefit's Home Office. The minimum amount that may be transferred is $500 or if
less, the total Accumulated Value in the Variable Account, except that this
minimum does not apply to transfers under the Dollar Cost Averaging and Asset
Reallocation Options. Currently, there are no limitations on the number of
transfers between Variable Accounts, nor any minimum amount required to be
remaining in a given Variable Account after a transfer (except as required under
the Dollar Cost Averaging and Asset Reallocation Options). However, no transfer
may be made if a Policy is in the Grace Period and a payment required to avoid
lapse is not paid. See "Lapse," page 17. No charges are currently imposed upon
such transfers; however, Security Benefit reserves the right to allow six free
transfers in any Policy Year and to charge up to $25 for each additional
transfer. Security Benefit further reserves the right at a future date to limit
the size of transfers and remaining balances to limit the number and frequency
of transfers, and to discontinue telephone transfers.
Accumulated Value may also be transferred after the Free-Look Period from
the Variable Accounts to the Fixed Account; however, transfers from the Fixed
Account to the Variable Accounts are restricted as described in "The Fixed
Account," page 24.
DEATH BENEFIT
When the Policy is issued, Security Benefit will determine the initial
amount of insurance based on the instructions provided in the application. That
amount will be shown on the Specifications page of the Policy and is called the
"Specified Amount." Security Benefit may reduce the minimum Specified Amount
required at issuance under certain circumstances, such as for group or sponsored
arrangements.
For so long as the Policy remains in force, Security Benefit will, upon
proof of the death of an Insured, pay death benefit proceeds to a named
Beneficiary. Death benefit proceeds will consist of the death benefit under the
Policy reduced by any outstanding Policy Debt (and, if in the Grace Period, any
overdue chaThe death benefit will be equal to the Specified Amount of the Policy
plus the Accumulated Value (determined as of the end of the Valuation Period
during which the Insured dies) or, if greater, Accumulated Value multiplied by a
death benefit percentage. The death benefit percentages vary according to the
Age of the Insured and will be at least equal to the cash value corridor in
Section 7702 of the Internal Revenue Code, which addresses the definition of a
life insurance policy for tax purposes. The death benefit percentage is 250
percent for an Insured at Age 40 or under, and it declines for older Insureds. A
table showing the death benefit percentages is in the Appendix to this
Prospectus and in the Policy. The death benefit will always vary as Accumulated
Value varies. Therefore, favorable investment performance will be reflected, in
part, in increased insurance coverage.
DEATH BENEFIT EXAMPLES. The following examples demonstrate the
determination of the death benefit under two Policies -- Policies I and II --
with the same Specified Amount, but Accumulated Values that vary as shown, and
which assume an Insured is Age 40 at the time of death and that there is no
outstanding Policy Debt.
POLICY I POLICY II
-------- ---------
Specified Amount $100,000 $100,000
Accumulated Value on Date of Death $ 50,000 $ 75,000
Death Benefit Percentage 250% 250%
Death Benefit $150,000 $187,500
The death benefit for Policy I is equal to $150,000 since the death benefit
is the greatest of Specified Amount plus Accumulated Value ($100,000 + $50,000 =
$150,000) or the Accumulated Value multiplied by the death benefit percentage
($50,000 x 250% = $125,000). In contrast, in Policy II, the Accumulated Value
multiplied by the death benefit percentage ($75,000 x 250% = $187,500) is
greater than the Specified Amount plus Accumulated Value ($100,000 + $75,000 =
$175,000), so the death benefit is equal to the higher value.
All calculations of death benefit will be made as of the end of the
Valuation Period during which the Insured dies. Death benefit proceeds may be
paid to a Beneficiary in a lump sum or under a payment plan offered under the
Policy. The Policy should be consulted for details.
CHANGES IN SPECIFIED AMOUNT
A Policyowner may request an increase or decrease in the Specified Amount
under a Policy after the first Policy Year subject to approval from Security
Benefit. A change in Specified Amount may only be made once per Policy Year.
Increasing the Specified Amount could increase the death benefit under a Policy,
and decreasing the Specified Amount could decrease the death benefit. The amount
of change in the death benefit will depend, among other things, upon the degree
to which the death benefit under a Policy exceeds the Specified Amount prior to
the change. Changing the Specified Amount could affect the subsequent level of
the death benefit while the Policy is in force and the subsequent level of
Policy values. An increase in Specified Amount may increase the net amount at
risk under a Policy, which will increase a Policyowner's cost of insurance
charge. Conversely, a decrease in Specified Amount may decrease the net amount
at risk, which will decrease a Policyowner's cost of insurance charge. An
increase in Specified Amount made while the Guaranteed Death Benefit provision
is in effect will increase the premium requirements for this benefit. An
increase will also increase the Planned Periodic Premium.
Any request for an increase or decrease in Specified Amount must be made by
written application to Security Benefit's Home Office. It will become effective
on the Monthly Payment Date on or next following Security
- --------------------------------------------------------------------------------
14
<PAGE>
Benefit's acceptance of the request. If the Policyowner is not the Insured,
Security Benefit will also require the consent of the Insured before accepting a
request.
INCREASES. Additional evidence of insurability satisfactory to Security
Benefit will be required for an increase in Specified Amount. No charge is
currently made in connection with an increase in Specified Amount.
DECREASES. Any decrease in Specified Amount will first be applied to the
most recent increases, then the next most recent increases successively, and
finally to the original Specified Amount. A decrease will not be permitted if
the Specified Amount would fall below $10,000, although Security Benefit
reserves the right to waive the minimum Specified Amount under certain
circumstances, such as for group or sponsored arrangements. No charge is
currently made in connection with a decrease. If a decrease in the Specified
Amount would result in total premiums paid exceeding the premium limitations
prescribed under tax law to qualify the Policy as a life insurance contract,
Security Benefit will refund the Policyowner the amount of such excess above the
premium limitations.
Security Benefit reserves the right to disallow a requested decrease, and
will not permit a requested decrease, among other reasons, (1) if compliance
with the guideline premium limitations under tax law resulting from the
requested decrease would result in immediate termination of the Policy, or (2)
if, to effect the requested decrease, payments to the Policyowner would have to
be made from Accumulated Value for compliance with the guideline premium
limitations, and the amount of such payments would exceed the Net Cash Surrender
Value under the Policy.
POLICY VALUES
ACCUMULATED VALUE. The Accumulated Value is the sum of the amounts under
the Policy held in each Variable Account of the Separate Account and the Fixed
Account, as well as the amount set aside in Security Benefit's Loan Account to
secure any Policy Debt.
On each Valuation Date, the portion of the Accumulated Value allocated to
any particular Variable Account will be adjusted to reflect the investment
experience of that Variable Account and deduction of the administrative and
mortality and expense risk charges from that Variable Account. On each Monthly
Payment Date, the portion of the Accumulated Value allocated to a particular
Variable Account also will be adjusted to reflect the assessment of the monthly
deduction. See "Determination of Accumulated Value," below. No minimum amount of
Accumulated Value is guaranteed. A Policyowner bears the risk for the investment
experience of Accumulated Value allocated to the Variable Accounts.
CASH SURRENDER VALUE. The Cash Surrender Value of the Policy equals the
Accumulated Value less the surrender charge. Thus, the Accumulated Value will
exceed the Policy's Cash Surrender Value by the amount of the surrender charge.
Once the surrender charge has expired, the Accumulated Value will equal the Cash
Surrender Value.
NET CASH SURRENDER VALUE. The Net Cash Surrender Value of the Policy equals
the Cash Surrender Value less any outstanding Policy Debt. The Owner can
surrender a Policy at any time while the Insured is living and receive its Net
Cash Surrender Value. See "Surrender," page 16.
DETERMINATION OF ACCUMULATED VALUE
Although the death benefit under a Policy can never be less than the
Policy's Specified Amount, the Accumulated Value will vary to a degree that
depends upon several factors, including investment performance of the Variable
Accounts to which Accumulated Value has been allocated, payment of premiums, the
amount of any outstanding Policy Debt, Partial Withdrawals, and the charges
assessed in connection with the Policy. There is no guaranteed minimum
Accumulated Value and the Policyowner bears the entire investment risk relating
to the investment performance of Accumulated Value allocated to the Variable
Accounts.
The amounts allocated to the Variable Accounts will be invested in shares
of the corresponding Series of the Fund. The investment performance of the
Variable Accounts will reflect increases or decreases in the net asset value per
share of the corresponding Series and any dividends or distributions declared by
a Series. Any dividends or distributions from any Series of the Fund will be
automatically reinvested in shares of the same Series, unless Security Benefit,
on behalf of the Separate Account, elects otherwise.
Assets in the Variable Accounts are divided into accumulation units, which
are a measure of value used for bookkeeping purposes. When a Policyowner
allocates net premiums to a Variable Account, the Policy is credited with
accumulation units. In addition, other transactions including loans, a
surrender, Partial Withdrawals, transfers, and assessment of charges against the
Policy affect the number of accumulation units credited to a Policy. The number
of units credited or debited in connection with any such transaction is
determined by dividing the dollar amount of such transactions by the unit value
of the affected Variable Account. The unit value of each Variable Account is
determined on each Valuation Date. The number of units credited will not change
because of subsequent changes in unit value.
The accumulation unit value of each Variable Account's unit initially was
$10. The unit value of a Variable Account on any Valuation Date is calculated by
adjusting the unit value from the previous Valuation Date for (1) the investment
performance of the Variable Account, which is based upon the investment
performance of the corresponding Series of the Fund, (2) any dividends or
distributions paid by the corresponding Series, (3) the charges, if any, that
may be assessed by Security Benefit for
- --------------------------------------------------------------------------------
15
<PAGE>
income taxes attributable to the operation of the average daily net assets of
the Variable Account, (4) the mortality and expense risk charge deducted from
the average daily net assets of the Variable Account and (5) the administrative
charge deducted from the average daily net assets of the Variable Account.
POLICY LOANS
The Policyowner may borrow money from Security Benefit using the Policy as
the only security for the loan by submitting a proper written request to
Security Benefit's Home Office. A loan may be taken any time a Policy is in
force. The minimum loan that can be taken at any time is $1,000. The maximum
amount that can be borrowed at any time is 75 percent of Cash Surrender Value.
The Policyowner may borrow an amount in excess of 75 percent of Cash Surrender
Value on Policies issued in certain states, as required by applicable state law.
When a Policyowner takes a loan, an amount equal to the loan is transferred
out of the Policyowner's Accumulated Value in the Variable Accounts and the
Fixed Account into the Loan Account to secure the loan. Unless otherwise
requested by the Policyowner, loan amounts will be deducted from the Variable
Accounts and the Fixed Account in the proportion that each bears to the Net Cash
Surrender Value.
For Policy Debt outstanding during the first ten Policy Years, the Policy
loan interest rate is 8.0 percent per year and for Policy Debt outstanding
thereafter is currently 6.0 percent per year (Security Benefit reserves the
right to charge up to 6.5 percent per year), which is equivalent to an annual
effective rate of 8.0 percent and 6.0 percent, respectively. Security Benefit
will credit interest monthly on amounts held in the Loan Account to secure the
loan at an annual rate of 6.0 percent.
The Owner may repay all or part of the loan at any time while the Policy is
in force. The minimum repayment amount is the lesser of $50 or the amount of
Policy Debt. Interest on a loan is accrued daily, and is due for the prior year
on each Policy Anniversary. If interest is not paid when due, it will be added
to the amount of the loan principal and interest will begin accruing thereon
from that date. An amount equal to the loan interest charged will be transferred
to the Loan Account from the Variable Accounts and Fixed Account on a
proportional basis.
Upon receipt of any loan repayment, an amount equal to the repayment will
be transferred from the Loan Account into the Variable Accounts and Fixed
Account in accordance with the most recent premium allocation instructions
unless otherwise requested. In addition, any interest earned on the loan balance
held in the Loan Account will be transferred to each of the Variable Accounts
and Fixed Account in accordance with the Policyowner's most recent premium
allocation instructions.
While the amount to secure the loan is held in the Loan Account, the
Policyowner forgoes the investment experience of the Variable Accounts and the
current interest rate of the Fixed Account on the loaned amount. Thus a loan,
whether or not repaid, will have a permanent effect on the Policy's values and
may have an effect on the amount and duration of the death benefit. If not
repaid, the Policy Debt will be deducted from the amount of death benefit paid
upon the death of the Insured, the Accumulated Value paid upon surrender or
maturity, or the refund of premium upon exercise of the Free-Look Right.
A loan may affect the length of time the Policy remains in force. The
Policy will lapse when Net Cash Surrender Value is insufficient to cover the
monthly deduction against the Policy's Accumulated Value on any Monthly Payment
Date, and the minimum payment required is not made during the Grace Period.
Moreover, the Policy may enter the Grace Period more quickly when a loan is
outstanding, because the loaned amount is not available to cover the monthly
deduction. Additional payments or repayment of a portion of Policy Debt may be
required to keep the Policy in force. See "Lapse," page 17.
A loan will not be treated as a distribution from the Policy, and will not
result in taxable income to the Policyowner unless the Policy is a Modified
Endowment Contract, in which case a loan will be treated as a distribution that
may give rise to taxable income.
For information on the tax treatment of loans, see "Federal Income Tax
Considerations," page 20.
BENEFITS AT MATURITY
If the Insured is living on the Policy Anniversary next following the
Insured's Age 95, Security Benefit will pay to the Policyowner, as an endowment
benefit, the Net Cash Surrender Value. Payment ordinarily will be made within
seven days of the Policy Anniversary, although payments may be postponed in
certain circumstances. See "Payments," page 26.
SURRENDER
A Policyowner may fully surrender a Policy at any time during the life of
the Insured. The amount received in the event of a full surrender is the
Policy's Net Cash Surrender Value, which is equal to its Accumulated Value less
any surrender charge and any outstanding Policy Debt.
A Policyowner may surrender a Policy by sending a written request together
with the Policy to Security Benefit's Home Office. The proceeds will be
determined as of the end of the Valuation Period during which the request for a
surrender is received. A Policyowner may elect to have the proceeds paid in cash
or applied under a payment plan offered under the Policy. See "Payment Plan,"
page 27. For information on the tax effects of a surrender of a Policy, see
"Federal Income Tax Considerations," page 20.
- --------------------------------------------------------------------------------
16
<PAGE>
PARTIAL WITHDRAWAL BENEFITS
Security Benefit offers a partial surrender benefit by which the
Policyowner can obtain a portion of the Net Cash Surrender Value: the Partial
Withdrawal Benefit. The Partial Withdrawal Benefit may be exercised up to four
times during any Policy Year and is available at any time the Policy is in
force. A Partial Withdrawal must be for at least $500, may not exceed 75 percent
of Net Cash Surrender Value, and the Policy's Net Cash Surrender Value after the
withdrawal must be at least $1,000. A Policyowner may withdraw an amount in
excess of 75 percent of Net Cash Surrender Value from Policies issued in certain
states, as required by applicable state law.
The Policyowner may make a Partial Withdrawal by submitting a proper
written request to Security Benefit's Home Office. As of the effective date of
any withdrawal, the Policyowner's Accumulated Value and Net Cash Surrender Value
will be reduced by the amount of the withdrawal. The amount of the withdrawal
will be allocated proportionately to the Policyowner's Value in the Variable
Accounts and the Fixed Account unless otherwise requested by the Policyowner. If
the Insured dies after the request for a withdrawal is sent to Security Benefit
and prior to the withdrawal being effected, the amount of the withdrawal will be
deducted from the death benefit proceeds, which will be determined without
taking into account the withdrawal. No fee is currently charged for a Partial
Withdrawal.
A Partial Withdrawal will not change the Specified Amount of a Policy.
However, assuming that the death benefit is not equal to Accumulated Value times
a death benefit percentage, the Partial Withdrawal will reduce the death benefit
by the amount of the Partial Withdrawal. To the extent the death benefit is
based upon the Accumulated Value times the death benefit percentage applicable
to the Insured, a Partial Withdrawal may cause the death benefit to decrease by
an amount greater than the amount of the Partial Withdrawal. See "Death
Benefit," page 25.
For information on the tax treatment of Partial Withdrawals, see "Federal
Income Tax Considerations," page 20.
RIGHT TO EXAMINE A POLICY--FREE LOOK RIGHT
The Policyowner has a Free-Look Right, under which the Policy may be
returned within 20 days after the Policyowner receives it, or within 45 days
after the Owner completes the application for insurance, whichever is later. To
exercise the Free-Look Right, the Policy can be mailed or delivered to Security
Benefit or its agent. The returned Policy will be treated as if Security Benefit
never issued it, and Security Benefit will promptly refund the full amount of
the premium paid. If the Owner has taken a loan during a Free-Look Period, the
Policy Debt will be deducted from the amount refunded. During the Free-Look
Period, net premiums will be allocated to the Money Market Variable Account,
which invests in Series C of the Fund (except for amounts allocated to the Loan
Account to secure a Policy loan). See "Allocation of Net Premiums," page 12.
LAPSE
The Policy will lapse only when the Net Cash Surrender Value is
insufficient to cover the current monthly deduction against the Policy's
Accumulated Value on any Monthly Payment Date, and a Grace Period expires
without the Policyowner making a sufficient payment. If Net Cash Surrender Value
is insufficient to cover the current monthly deduction on a Monthly Payment
Date, the Owner must pay during the Grace Period a minimum of three times the
full monthly deduction due on the Monthly Payment Date when the insufficiency
occurred to avoid termination of the Policy. Security Benefit will not accept
any payment if it would cause the Policyowner's total premium payments to exceed
the maximum permissible premium for the Policy's Specified Amount under the
Internal Revenue Code. This is unlikely to occur unless the Policyowner has
outstanding Policy Debt, in which case he or she could repay a sufficient
portion of the Policy Debt to avoid termination. In this instance, the
Policyowner may wish to repay a portion of Policy Debt to avoid recurrence of
the potential lapse. If premium payments have not exceeded the maximum
permissible premiums for the Policy's Specified Amount, the Policyowner may wish
to make larger or more frequent premium payments to avoid recurrence of the
potential lapse.
If Net Cash Surrender Value is insufficient to cover the monthly deduction
on a Monthly Payment Date, Security Benefit will deduct the amount that is
available. Security Benefit will notify the Policyowner (and any assignee of
record) of the payment required to keep the Policy in force. The Policyowner
will then have a "Grace Period" of 61 days, measured from the date the notice is
sent, to make the required payment. The Policy will remain in force through the
Grace Period. Failure to make the required payment within the Grace Period will
result in termination of coverage under the Policy, and the Policy will lapse
with no value. If the required payment is made during the Grace Period, any
premium paid will be allocated among the Variable Accounts of the Separate
Account and the Fixed Account in accordance with the Policyowner's current
premium allocation instructions. Any monthly deduction due will be charged to
the Variable Accounts and the Fixed Account on a proportionate basis. If the
Insured dies during the Grace Period, the death benefit proceeds will equal the
amount of the death benefit immediately prior to the commencement of the Grace
Period, reduced by any unpaid monthly deductions and any Policy Debt, unless the
Guaranteed Death Benefit Premium provision is in effect, in which case, the
death benefit will not be reduced by any unpaid monthly deductions.
- --------------------------------------------------------------------------------
17
<PAGE>
REINSTATEMENT
Security Benefit will reinstate a lapsed Policy (but not a Policy which has
been surrendered for its Net Cash Surrender Value) at any time within three
years after the end of the Grace Period, but before the Maturity Date provided
Security Benefit receives the following: (1) a written application from the
Policyowner; (2) evidence of insurability satisfactory to Security Benefit; (3)
payment of all monthly deductions that were due and unpaid during the Grace
Period (not required for reinstatement of Policies issued in Virginia); and (4)
payment of a premium at least sufficient to keep the Policy in force for three
months after the date of reinstatement.
When the Policy is reinstated, the Accumulated Value will be equal to the
Accumulated Value on the date of the lapse subject to the following: If the
Policy is reinstated after the first Monthly Payment Date following lapse, the
Accumulated Value will be reduced by the amount of Policy Debt on the date of
lapse and no Policy Debt will exist on the date of the reinstatement. If the
Policy is reinstated on the Monthly Payment Date next following lapse, any
Policy Debt on the date of lapse will also be reinstated. No interest on amounts
held in Security Benefit's Loan Account to secure Policy Debt will be paid or
credited between lapse and reinstatement. Reinstatement will be effective as of
the Monthly Payment Date on or next following the date of approval by Security
Benefit, and Accumulated Value minus, if applicable, Policy Debt will be
allocated among the Variable Accounts and the Fixed Account in accordance with
the Policyowner's most recent premium allocation instructions.
CHARGES AND DEDUCTIONS
PREMIUM TAX
A premium tax is deducted from each premium payment under a Policy prior to
allocation of the net premium to the Policyowner's Accumulated Value. The
premium tax consists of the following item:
STATE AND LOCAL PREMIUM TAX CHARGE. A charge is assessed against each
premium to pay applicable state and local premium taxes. Premium taxes vary from
state to state, and in some instances, among municipalities. Premium tax rates
currently range from .75 percent to 5 percent, but are subject to change by a
governmental entity.
DEDUCTIONS FROM ACCUMULATED VALUE
A charge called the monthly deduction is deducted from a Policy's
Accumulated Value in the Variable Accounts and Fixed Account beginning on the
Monthly Payment Date on or next following the date Security Benefit first
becomes obligated under the Policy, and on each Monthly Payment Date thereafter.
The monthly deduction consists of the following item:
COST OF INSURANCE. This monthly charge compensates Security Benefit for the
anticipated cost of paying death benefits in excess of Accumulated Value to
Beneficiaries of Insureds who die. The amount of the charge is equal to a
current cost of insurance rate multiplied by the net amount at risk under a
Policy at the beginning of the Policy Month. The net amount at risk for these
purposes is equal to the amount of death benefit payable at the end of the
Policy Month divided by 1.0032737 (a discount factor to account for return
deemed to be earned during the month) less the Accumulated Value at the
beginning of the Policy Month.
In reviewing applications for Policies, Security Benefit may use the
simplified method of underwriting on certain applications. Simplified
underwriting involves no medical or paramedical examination of the Insured.
Because the health information obtained on many Insureds is limited when the
simplified underwriting method is used, this method presents additional
mortality risks for Security Benefit. As a result, in determining the guaranteed
rates for the cost of insurance, Security Benefit has assumed less favorable
mortality experience than that provided in the 1980 Commissioners Standard
Ordinary ("CSO") Mortality Tables, and has established guaranteed rates that are
130 percent of the Unisex 1980 CSO, Mortality Table B in all states, except
those states discussed below. If the guaranteed rates are in effect, Insureds in
a standard underwriting classification will pay a higher cost of insurance than
if they had been medically underwritten in an otherwise identical policy, which
may be viewed as charging substandard rates for Insureds in a standard
underwriting classification. However, the current cost of insurance rates are
lower (i.e., less expensive) than the guaranteed rates. These current rates are
less than or equal to 100 percent of the Unisex 1980 CSO, Mortality Table B in
all states, except those states discussed below. The cost of insurance rate
generally increases with the Age of the Insured.
The cost of insurance rates for Policies issued in Illinois, New Jersey,
Oregon and Texas are different than the rates discussed above as required by the
insurance laws of those states. In those states the guaranteed cost of insurance
rates are 130 percent of the Male and Female 1980 CSO, and the current rates are
less than or equal to 100 percent of the Male and Female 1980 CSO.
If there have been increases in the Specified Amount, then for purposes of
calculating the cost of insurance charge, the Accumulated Value will first be
applied to the initial Specified Amount. If the Accumulated Value exceeds the
initial Specified Amount divided by 1.0032737, the excess will then be applied
to any increase in Specified Amount in the order of the increases. If the death
benefit equals Accumulated Value multiplied by the applicable death benefit
percentage, any increase in Accumulated Value will cause an automatic increase
in the death benefit. The underwriting class, if applicable, and duration for
such increase will be the same as that used for the most recent
- --------------------------------------------------------------------------------
18
<PAGE>
increase in Specified Amount (that has not been eliminated through a subsequent
decrease in Specified Amount).
DEDUCTIONS FROM THE VARIABLE ACCOUNTS
ADMINISTRATIVE CHARGE. Security Benefit deducts a daily administrative
charge equal to an annual rate of .35 percent of the average daily net assets of
each Variable Account. The administrative charge is assessed to reimburse
Security Benefit for the expenses associated with administration and maintenance
of the Policies. Security Benefit does not expect to profit from this charge.
MORTALITY AND EXPENSE RISK CHARGE. Security Benefit deducts a daily
mortality and expense risk charge equal to .90 percent of the average daily net
assets of each Variable Account for mortality and expense risks assumed by
Security Benefit.
The mortality and expense risk charge is assessed to compensate Security
Benefit for assuming certain mortality and expense risks under the Policies. The
mortality risk assumed is that Insureds, as a group, may live for a shorter
period of time than estimated and, therefore, the cost of insurance charges
specified in the Policy will be insufficient to meet actual claims. The expense
risk assumed is that other expenses incurred in issuing and administering the
Policies and operating the Separate Account will be greater than the charges
assessed for such expenses. Security Benefit will realize a gain from this
charge to the extent it is not needed to provide the mortality benefits and
expenses under the Policies, and will realize a loss to the extent the charge is
not sufficient. Security Benefit may use any profit derived from this charge for
any lawful purpose, including promotional expenses.
SURRENDER CHARGE. Security Benefit will assess a surrender charge against
Accumulated Value upon surrender of a Policy during the first 14 Policy Years.
The surrender charge is a percentage of the lesser of the Policy's annual
Planned Periodic Premium or the total premium payments made to the date of
surrender. The percentage will vary based upon the Insured's Age on the date the
Policy is issued and the Policy Year in which the surrender is made. The
surrender charge percentage assessed upon surrenders is set forth below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Insured's
Age at Policy Year
Issuance
of
Policy 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-1 18.00% 17.10% 16.20% 15.30% 14.40% 13.50% 12.60% 11.70% 10.80% 9.90% 9.00% 7.20% 5.40% 3.60% 0%
2-10 19.00% 18.05% 17.10% 16.15% 15.20% 14.25% 13.30% 12.35% 11.40% 10.45% 9.50% 7.60% 5.70% 3.80% 0%
11-18 20.00% 19.00% 18.00% 17.00% 16.00% 15.00% 14.00% 13.00% 12.00% 11.00% 10.00% 8.00% 6.00% 4.00% 0%
19-25 21.00% 19.95% 18.90% 17.85% 16.80% 15.75% 14.70% 13.65% 12.60% 11.55% 10.50% 8.40% 6.30% 4.20% 0%
26-32 22.00% 20.90% 19.80% 18.70% 17.60% 16.50% 15.40% 14.30% 13.20% 12.10% 11.00% 8.80% 6.60% 4.40% 0%
33-38 23.00% 21.85% 20.70% 19.55% 18.40% 17.25% 16.10% 14.95% 13.80% 12.65% 11.50% 9.20% 6.90% 4.60% 0%
39-45 24.00% 22.80% 21.60% 20.40% 19.20% 18.00% 16.80% 15.60% 14.40% 13.20% 12.00% 9.60% 7.20% 4.80% 0%
46-52 25.00% 23.75% 22.50% 21.25% 20.00% 18.75% 17.50% 16.25% 15.00% 13.75% 12.50% 10.00% 7.50% 5.00% 0%
53-59 26.00% 24.70% 23.40% 22.10% 20.80% 19.50% 18.20% 16.90% 15.60% 14.30% 13.00% 10.40% 7.80% 5.20% 0%
60-67 27.00% 25.65% 24.30% 22.95% 21.60% 20.25% 18.90% 16.85% 14.20% 11.90% 9.85% 8.05% 6.50% 5.20% 0%
68-75 28.00% 24.50% 20.25% 16.60% 13.45% 10.70% 8.40% 6.50% 4.90% 3.70% 2.70% 1.90% 1.30% 0.90% 0%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following example illustrates the surrender charge calculation assuming
(i) a Planned Periodic Premium of $200 per month, (ii) an Insured Age 40 on the
date of issuance of the Policy, and (iii) a surrender in the sixth Policy Month.
The surrender charge percentage of 24 percent is applied to the lesser of the
annual Planned Periodic Premium of $2,400 ($200 per month times 12 Policy
Months) or premium payments made to the date of the surrender. Assuming that
premium payments made to the date of surrender totaled $800, the surrender
charge would be $192 ($800 x 24%).
If the surrender in the above example were made one year later, the
surrender charge percentage for a surrender in the second Policy Year would be
22.8 percent per the surrender charge table above. The Policy's annual Planned
Periodic Premium would be $2,400 ($200 x 12 Policy Months). Assuming that
premium payments made to the date of the surrender exceeded the Planned Periodic
Premium, the surrender charge would be $547.20 ($2,400 x 22.8%).
The purpose of the surrender charge is to reimburse Security Benefit for
some of the expenses of distributing the Policies. Security Benefit may reduce
or waive the surrender charge on Policies sold to directors or employees (and
their spouses and minor children) of Security Benefit and its affiliates.
CORPORATE AND OTHER PURCHASERS
The Policy is available for individuals and for corporations and other
institutions. Security Benefit may reduce the amount of the surrender charge, or
other charges where the expenses associated with the sale of the Policy of
Policies, or the underwriting or other administrative costs
- --------------------------------------------------------------------------------
19
<PAGE>
associated with the Policy or Policies are reduced. Sales, underwriting or other
administrative expenses may be reduced for reasons such as expected economies
resulting from a corporate purchase or a group or sponsored arrangement, from
the amount of the initial premium payment or payments, or the amount of
projected premium payments.
OTHER CHARGES
Security Benefit may charge the Variable Accounts for federal income taxes
incurred by Security Benefit that are attributable to the Separate Account and
its Variable Accounts. No such charge is currently assessed. See "Charge for
Security Benefit Income Taxes," page 22. Security Benefit will bear the direct
operating expenses of the Separate Account.
Each Variable Account purchases shares of the corresponding Series of the
underlying Fund. Each Series incurs certain charges including the investment
advisory fee and certain operating expenses. The Fund is a corporation that is
governed by its Board of Directors. The Fund's advisory fees and its expenses
are not fixed or specified under the terms of the Policy. The advisory fees and
other expenses are more fully described in the prospectus of the Fund.
GUARANTEE OF CERTAIN CHARGES
Security Benefit guarantees that certain charges will not increase. This
includes the charge for mortality and expense risks, the administrative charge,
the guaranteed cost of insurance rates and the surrender charge.
OTHER INFORMATION
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion provides a general description of the federal
income tax considerations relating to the Policy. This discussion is based upon
Security Benefit's understanding of the present federal income tax laws as they
are currently interpreted by the Internal Revenue Service ("IRS"). This
discussion is not intended as tax advice. Because of the inherent complexity of
such laws, and the fact that tax results will vary according to the particular
circumstances of the individual involved, tax advice may be needed by a person
contemplating the purchase of the Policy. It should, therefore, be understood
that these comments concerning federal income tax consequences are not an
exhaustive discussion of all tax questions that might arise under the Policy,
and that special rules which are not discussed herein may apply in certain
situations. Moreover, no representation is made as to the likelihood of
continuation of federal income tax or estate or gift tax laws, or of the current
interpretations by the IRS or the courts. Future legislation may adversely
affect the tax treatment of life insurance policies or other tax rules described
in this discussion or that relate directly or indirectly to life insurance
policies. Finally, these comments do not take into account any state or local
income tax considerations which may be involved in the purchase of the Policy.
Security Benefit believes that the Policy meets the statutory definition of
life insurance, and hence will receive federal income tax treatment consistent
with that of fixed life insurance. Thus, the death benefit thereunder should be
excludable from the gross income of the Beneficiary (whether the Beneficiary is
a corporation, individual or other entity) under Section 101(a)(1) of the
Internal Revenue Code ("IRC") for purposes of the regular federal income tax and
the Owner generally should not be deemed to be in constructive receipt of the
cash values, including increments thereof, under the Policy until a full
surrender thereof, maturity of the Policy, or Partial Withdrawal. In addition,
certain Policy Loans may be taxable in the case of Policies that are Modified
Endowment Contracts. Prospective Policyowners that intend to use Policies to
fund deferred compensation arrangements for their employees are urged to consult
their tax advisors with respect to the tax consequences of such arrangements.
Prospective corporate Owners should consult their tax advisors about the
treatment of life insurance in their particular circumstances for purposes of
the alternative minimum tax applicable to corporations and the environmental tax
under IRC Section 59A.
DIVERSIFICATION REQUIREMENTS. To comply with regulations under Section
817(h) of the IRC, each Series of the Fund is required to diversify its
investments. Generally, a Series is required to diversify its investments so
that on the last day of each quarter of a calendar year, no more than 55 percent
of the value of its assets is represented by any one investment, no more than 70
percent is represented by any two investments, no more than 80 percent is
represented by any three investments, and no more than 90 percent is represented
by any four investments. Securities of a single issuer generally are treated for
purposes of Section 817(h) as a single investment. However, for this purpose,
each U.S. Government agency or instrumentality is treated as a separate issuer,
and any security issued, guaranteed, or insured (to the extent so guaranteed or
insured) by the U.S. or by an agency or instrumentality of the U.S. is treated
as a security issued by the U.S. Government or its agency or instrumentality,
whichever is applicable.
While there should be no question that, for federal income tax purposes,
the Series' shares underlying the Policies are owned by Security Benefit and not
by a Policyowner or any Beneficiary, no representation is or can be made
regarding the likelihood of the continuation of current interpretations by the
IRS.
TAX TREATMENT OF POLICIES. The Technical and Miscellaneous Revenue Act of
1988 established a new class of life insurance contracts referred to as Modified
Endowment Contracts. With the enactment of this legislation, the Policies will
be treated for tax purposes in
- --------------------------------------------------------------------------------
20
<PAGE>
one of two ways. Policies that are not classified as Modified Endowment
Contracts will be taxed as conventional life insurance contracts, as described
below. Taxation of pre-death distributions from Policies that are classified as
Modified Endowment Contracts and that are entered into on or after June 21,
1988, is somewhat different, as described below.
A life insurance contract becomes a "Modified Endowment Contract" if, at
any time during the first seven contract years, the sum of actual premiums paid
exceeds the sum of the "seven-pay premium." Generally, the "seven-pay premium"
is the level annual premium, such that if paid for each of the first seven
years, will fully pay for all future death and endowment benefits under a
contract. For example, if the "seven-pay premiums" were $1,000, the maximum
premiums that could be paid during the first seven years to avoid "Modified
Endowment" treatment would be $1,000 in the first year, $2,000 through the first
two years, and $3,000 through the first three years, etc. Under this test, a
Policy may or may not be a Modified Endowment Contract, depending on the amount
of premium paid during each of the Policy's first seven contract years. Changes
in death benefits may require "retesting" of a Policy to determine if it is to
be classified as a Modified Endowment Contract.
CONVENTIONAL LIFE INSURANCE POLICIES. If a Policy is not a Modified
Endowment Contract, upon full surrender or maturity of a Policy for its Net Cash
Surrender Value, the excess, if any, of the Net Cash Surrender Value plus any
outstanding Policy Debt over the cost basis under a Policy will be treated as
ordinary income for federal income tax purposes. Such a Policy's cost basis will
usually equal the premiums paid less any premiums previously recovered in
Partial Withdrawals. (Under Section 7702 of the IRC, if a Partial Withdrawal
occurring within 15 years of the Policy Date is accompanied by a reduction in
benefits under the Policy, special rules apply to determine whether part or all
of the cash received is paid out of the income of the Policy and is taxable.)
Cash distributed to a Policyowner on Partial Withdrawals occurring more than 15
years after the Policy Date will be taxable as ordinary income to the
Policyowner to the extent that it exceeds the cost basis under a Policy.
Security Benefit also believes that loans received under Policies that are
not Modified Endowment Contracts will be treated as indebtedness of the Owner,
and that no part of any loan under the Policy will constitute income to the
Owner unless the Policy is surrendered or upon maturity of the Policy. Interest
paid (or accrued by an accrual basis taxpayer) on a loan under a Policy that is
not a Modified Endowment Contract may be deductible, subject to several
limitations, depending on the use to which the proceeds are put and the tax
rules applicable to the Policyowner. If, for example, the loan proceeds are used
by an individual for business or investment purposes, all or part of the
interest expense may be deductible. Generally, if the Policy Loan is used for
personal purposes by an individual, the interest expense is not deductible. The
deductibility of loan interest (whether incurred under a Policy Loan or on other
indebtedness) also may be subject to other limitations. For example, where the
interest is paid (or accrued by an accrual basis taxpayer) on a loan under a
Policy covering the life of an officer, employee, or person financially
interested in the trade or business of the Policyowners, the interest may be
deductible to the extent that the interest is attributable to the first $50,000
of the Policy Debt. Other tax law provisions may limit the deduction of interest
payable on loan proceeds that are used to purchase or carry certain life
insurance policies.
MODIFIED ENDOWMENT CONTRACTS. Pre-death distributions from Modified
Endowment Contracts may give rise to taxable income. Upon full surrender or
maturity of the Policy, the Policyowner would recognize ordinary income for
federal income tax purposes equal to the amount by which the Net Cash Surrender
Value plus Policy Debt exceeds the investment in the Policy (usually the
premiums paid plus certain pre-death distributions that were taxable less any
premiums previously recovered that were excludable from gross income). Upon
Partial Withdrawals and Policy Loans, the Policyowner would recognize ordinary
income to the extent allocable to income (which includes all previously
non-taxed gains) on the Policy. The amount allocated to income is the amount by
which the Accumulated Value of the Policy exceeds investment in the Policy
immediately before the distribution. Under a tax law provision, if two or more
policies which are classified as Modified Endowment Contracts are purchased from
any one insurance company, including Security Benefit, during any calendar year,
all such policies will be aggregated for purposes of determining the portion of
the pre-death distribution allocable to income on the policies and the portion
allocable to investment in the policies.
Amounts received under a Modified Endowment Contract that are included in
gross income are subject to an additional tax equal to 10 percent of the amount
included in gross income, unless an exception applies. The 10 percent additional
tax does not apply to any amount received: (i) when the taxpayer is at least 59
1/2 years old; (ii) which is attributable to the taxpayer becoming disabled; or
(iii) which is part of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the taxpayer and his
or her beneficiary.
If a Policy was not originally a Modified Endowment Contract but becomes
one, under Treasury Department regulations which are yet to be prescribed,
pre-death distributions received in anticipation of a failure of a Policy to
meet the seven-pay premium test are to be treated as pre-death distributions
from a Modified Endowment Contract (and, therefore, are to be taxable as
described above) even though, at the time of the distribution(s) the Policy was
not yet a Modified Endowment Contract. For this purpose, pursuant to the IRC,
any distribution made within two years before the Policy is classified as a
Modified Endowment
- --------------------------------------------------------------------------------
21
<PAGE>
Contract shall be treated as being made in anticipation of the Policy's failing
to meet the seven-pay premium test.
It is unclear whether interest paid (or accrued by an accrual basis
taxpayer) on Policy Debt with respect to a Modified Endowment Contract
constitutes interest for federal income tax purposes. If it does constitute
interest, it may be deductible, subject to several limitations, depending on the
use to which the proceeds are put and the tax rules applicable to the
Policyowner. If, for example, the loan proceeds are used by an individual for
business or investment purposes, all or part of the interest expense may be
deductible. Generally, if the Policy Loan is used for personal purposes by an
individual, the interest expense is not deductible. The deductibility of loan
interest (whether incurred under a Policy Loan or on other indebtedness) also
may be subject to other limitations. For example, where the interest is paid (or
accrued by an accrual basis taxpayer) on a loan under a Policy covering the life
of an officer, employee, or person financially interested in the trade or
business of the Policyowners, the interest may be deductible to the extent that
the interest is attributable to the first $50,000 of the Policy Debt. Other tax
law provisions may limit the deduction of interest payable on loan proceeds that
are used to purchase or carry certain life insurance policies.
REASONABLENESS REQUIREMENT FOR CHARGES. Another provision of the tax law
deals with allowable charges for mortality costs and other expenses that are
used in making calculations to determine whether a contract qualifies as life
insurance for federal income tax purposes. For life insurance policies entered
into on or after October 21, 1988, these calculations must be based upon
reasonable mortality charges and other charges reasonably expected to be
actually paid. The Treasury Department is expected to promulgate regulations
governing reasonableness standards for mortality charges. Security Benefit
believes that the mortality costs and other expenses used in making calculations
to determine whether the Policy qualifies as life insurance meet the current
requirements. It is possible that future regulations will contain standards that
would require Security Benefit to modify its mortality charges used for the
purposes of the calculations in order to retain the qualification of the Policy
as life insurance for federal income tax purposes, and Security Benefit reserves
the right to make any such modifications.
OTHER. Federal estate and gift and state and local estate, inheritance, and
other tax consequences of ownership or receipt of Policy proceeds depend on the
jurisdiction and the circumstances of each Owner or Beneficiary.
For complete information on federal, state, local and other tax
considerations, a qualified tax adviser should be consulted.
SECURITY BENEFIT DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY
POLICY.
CHARGE FOR SECURITY BENEFIT INCOME TAXES
For federal income tax purposes, variable life insurance generally is
treated in a manner consistent with fixed life insurance. Security Benefit will
review the question of a charge to the Separate Account for Security Benefit's
federal income taxes periodically. A charge may be made for any federal income
taxes incurred by Security Benefit that are attributable to the Separate
Account. This might become necessary if the tax treatment of Security Benefit is
ultimately determined to be other than what Security Benefit currently believes
it to be, if there are changes made in the federal income tax treatment of
variable life insurance at the insurance company level, or if there is a change
in Security Benefit's tax status.
Under current laws, Security Benefit may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, Security Benefit reserves the right to charge the Account for such taxes,
if any, attributable to the Account.
VOTING OF FUND SHARES
In accordance with its view of present applicable law, Security Benefit
will exercise voting rights attributable to the shares of each Series of the
Fund held in the Variable Accounts at any regular and special meetings of the
shareholders of the Fund on matters requiring shareholder voting under the
Investment Company Act of 1940. Security Benefit will exercise these voting
rights based on instructions received from persons having the voting interest in
corresponding Variable Accounts of the Separate Account. However, if the
Investment Company Act of 1940 or any regulations thereunder should be amended,
or if the present interpretation thereof should change, and as a result Security
Benefit determines that it is permitted to vote the shares of the Fund in its
own right, it may elect to do so.
The person having the voting interest under a Policy is the Policyowner.
Unless otherwise required by applicable law, the number of votes as to which a
Policyowner will have the right to instruct will be determined by dividing a
Policyowner's Accumulated Value in a Variable Account by the net asset value per
share of the corresponding Series of the Fund. Fractional votes will be counted.
The number of votes as to which a Policyowner will have the right to instruct
will be determined as of the date coincident with the date established by the
Fund for determining shareholders eligible to vote at the meeting of the Fund.
If required by the Securities and Exchange Commission, Security Benefit reserves
the right to determine in a different fashion the voting rights attributable to
the shares of the Fund based upon the instructions received from Policyowners.
Voting instructions may be cast in person or by proxy.
Voting rights attributable to the Policyowner's Accumulated Value held in
each Variable Account for
- --------------------------------------------------------------------------------
22
<PAGE>
which no timely voting instructions are received will be voted by Security
Benefit in the same proportion as the voting instructions which are received in
a timely manner for all Policies participating in that Variable Account.
Security Benefit will also exercise the voting rights from assets in each
Variable Account which are not otherwise attributable to Policyowners, if any,
in the same proportion as the voting instructions which are received in a timely
manner for all Policies participating in that Variable Account and generally
will exercise voting rights attributable to shares of Series of the Fund held in
its General Account, if any, in the same proportion as votes cast with respect
to shares of Series of the Fund held by the Separate Account and other separate
accounts of Security Benefit, in the aggregate.
DISREGARD OF VOTING INSTRUCTIONS
Security Benefit may, when required by state insurance regulatory
authorities, disregard voting instructions if the instructions require that
voting rights be exercised so as to cause a change in the subclassification or
investment objective of a Series or to approve or disapprove an investment
advisory contract. In addition, Security Benefit itself may disregard voting
instructions of changes initiated by Policyowners in the investment policy or
the investment adviser (or portfolio manager) of a Series, provided that
Security Benefit's disapproval of the change is reasonable and is based on a
good faith determination that the change would be contrary to state law or
otherwise inappropriate, considering the Series' objectives and purpose, and
considering the effect the change would have on Security Benefit. In the event
Security Benefit does disregard voting instructions, a summary of that action
and the reasons for such action will be included in the next report to
Policyowners.
REPORT TO OWNERS
A statement will be sent at least annually to each Policyowner, setting
forth a summary of the transactions which occurred during the year and
indicating the death benefit, Specified Amount, Accumulated Value, Net Cash
Surrender Value, and any Policy Debt. In addition, the statement will indicate
the allocation of Accumulated Value among the Fixed Account and the Variable
Accounts and any other information required by law. Confirmations will be sent
out upon premium payments, transfers, loans, loan repayments, withdrawals, and
surrenders. Confirmations will be sent quarterly upon certain premium payments,
loan repayments, withdrawals, and transfers made on a periodic basis, for
example transfers made pursuant to the Dollar Cost Averaging and Asset
Reallocation options and premiums deducted by Security Benefit from the Owner's
checking account.
Each Policyowner will also receive an annual and a semiannual report
containing financial statements for the Fund, which will include a list of the
portfolio securities of the Fund, as required by the Investment Company Act of
1940, and/or such other reports as may be required by federal securities law.
SUBSTITUTION OF INVESTMENTS
Security Benefit reserves the right, subject to compliance with the law as
then in effect, to make additions to, deletions from, or substitutions for the
securities that are held by the Separate Account or any Variable Account or that
the Separate Account or any Variable Account may purchase. If shares of any or
all of the Series of the Fund should no longer be available for investment, or
if, in the judgment of Security Benefit's management, further investment in
shares of any or all Series of the Fund should become inappropriate in view of
the purposes of the Policies, Security Benefit may substitute shares of another
Series of the Fund or of a different fund for shares already purchased, or to be
purchased in the future under the Policies.
Where required, Security Benefit will not substitute any shares
attributable to a Policyowner's interest in a Variable Account or the Separate
Account without notice, Policyowner approval, or prior approval of the
Securities and Exchange Commission and without following the filing or other
procedures established by applicable state insurance regulators.
Security Benefit also reserves the right to establish additional Variable
Accounts of the Separate Account, each of which would invest in a new Series of
the Fund, or in shares of another investment company, a series thereof, or
suitable investment vehicle, with a specified investment objective. New Variable
Accounts may be established when, in the sole discretion of Security Benefit,
marketing needs or investment conditions warrant, and any new Variable Accounts
will be made available to existing Policyowners on a basis to be determined by
Security Benefit. Security Benefit may also eliminate one or more Variable
Accounts if, in its sole discretion, marketing, tax, or investment conditions so
warrant.
In the event of any such substitution or change, Security Benefit may, by
appropriate endorsement, make such changes in this and other policies as may be
necessary or appropriate to reflect such substitution or change. If deemed by
Security Benefit to be in the best interests of persons having voting rights
under the Policies, the Separate Account may be operated as a management
investment company under the Investment Company Act of 1940 or any other form
permitted by law, it may be deregistered under that Act in the event such
registration is no longer required, or it may be combined with other separate
accounts of Security Benefit or an affiliate thereof. Subject to compliance with
applicable law, Security Benefit also may combine one or more Variable Accounts
and may establish a committee, board, or other group to manage one or more
aspects of the operation of the Separate Account.
- --------------------------------------------------------------------------------
23
<PAGE>
CHANGES TO COMPLY WITH LAW
Security Benefit reserves the right to make any change without consent of
Policyowners to the provisions of the Policy to comply with, or give
Policyowners the benefit of, any Federal or State statute, rule, or regulation,
including but not limited to, requirements for life insurance contracts under
the Internal Revenue Code, under regulations of the United States Treasury
Department or any state.
PERFORMANCE INFORMATION
Performance information for the Variable Accounts of the Separate Account
may appear in advertisements, sales literature, or reports to Policyowners or
prospective purchasers. Performance information in advertisements or sales
literature may be expressed in any fashion permitted under applicable law, which
may include presentation of a change in a Policyowner's Accumulated Value
attributable to the performance of one or more Variable Accounts, or as a change
in Policyowner's death benefit. Performance quotations may be expressed as a
change in a Policyowner's Accumulated Value over time or in terms of the average
annual compounded rate of return on the Policyowner's Accumulated Value, based
upon a hypothetical Policy in which premiums have been allocated to a particular
Variable Account over certain periods of time that will include one, five and
ten years, or from the commencement of operation of the Variable Account if less
than one, five, or ten years. Performance information based upon a hypothetical
Policy may also be quoted for periods beginning prior to the availability of the
Policies based upon performance of the Fund and the charges under the Policies.
Any such quotations may reflect the deduction of all applicable charges to the
Policy including premium tax, the cost of insurance, the administrative charge,
and the mortality and expense risk charge. Performance information for the Fund
may be simultaneously shown.
Performance information for a Variable Account may be compared, in
advertisements, sales literature, and reports to Policyowners to, among other
things: (i) other variable life separate accounts or investment, savings or
insurance products tracked by research firms, rating services, companies,
publications, or persons who rank separate accounts or investment products on
overall performance or other criteria; and (ii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from the purchase of a
Policy. Reports and promotional literature may also contain Security Benefit's
rating or a rating of Security Benefit's claim-paying ability as determined by
firms that analyze and rate insurance companies and by nationally recognized
statistical rating organizations, and may show the effects of tax-deferred
compounding on a Policyowner's rate of return on Accumulated Value or returns in
general, and may include a comparison at various points in time of the return on
the Policy or tax-deferred returns in general with the return on a taxable
basis.
Performance information for any Variable Account of the Separate Account
reflects only the performance of a hypothetical Policy whose Accumulated Value
is allocated to the Variable Account during a particular time period on which
the calculations are based. Performance information should be considered in
light of the investment objectives and policies, characteristics and quality of
the Series of the Fund in which the Variable Account invests, and the market
condition during the given period of time, and should not be considered as
representative of what may be achieved in the future.
THE FIXED ACCOUNT
Policyowners may allocate all or a portion of their net premium payments
and transfer Accumulated Value to the Fixed Account of Security Benefit. Amounts
allocated to the Fixed Account become part of the "General Account" of Security
Benefit, which supports insurance and annuity obligations. Because of exemptive
and exclusionary provisions, interests in the Fixed Account have not been
registered under the Securities Act of 1933, and the Fixed Account has not been
registered as an investment company under the Investment Company Act of 1940.
Accordingly, neither the Fixed Account nor any interest therein is generally
subject to the provisions of these Acts and, as a result, the staff of the
Securities and Exchange Commission has not reviewed the disclosure in this
prospectus relating to the Fixed Account. Disclosures regarding the Fixed
Account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in the prospectus. For more details regarding the Fixed Account,
see the Policy itself.
GENERAL DESCRIPTION
Amounts allocated to the Fixed Account become part of the General Account
of Security Benefit, which consists of all assets owned by Security Benefit,
other than those in the Separate Account and other separate accounts of Security
Benefit. Subject to applicable law, Security Benefit has sole discretion over
the investment of the assets of its General Account.
The Policyowner may elect to allocate net premium payments to the Fixed
Account, the Separate Account, or both. The Policyowner may also transfer
Accumulated Value from the Variable Accounts of the Separate Account to the
Fixed Account, or from the Fixed Account to the Variable Accounts, subject to
the limitations described below. Security Benefit guarantees that the
Accumulated Value in the Fixed Account will be credited with a minimum interest
rate of .32737 percent per month, compounded monthly, for a minimum effective
annual rate of 4 percent. Such interest will be paid regardless of the actual
investment experience of the Fixed Account. In addition, Security Benefit may in
its sole discretion pay interest at a rate
- --------------------------------------------------------------------------------
24
<PAGE>
("Current Rate") that exceeds 4 percent. (The portion of a Policyowner's
Accumulated Value that has been used to secure Policy Debt will be credited with
an interest rate of .48676 percent per month, compounded monthly, for an
effective annual rate of 6 percent.)
Accumulated Value that is 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 Policyowner's Accumulated Value allocated
to the Fixed Account may be earning interest at different Current Rates,
depending upon the month during which such portions were originally allocated or
transferred to the Fixed Account. Security Benefit bears the full investment
risk for the Accumulated Value allocated to the Fixed Account.
DEATH BENEFIT
The death benefit under the Policy will be determined in the same fashion
for a Policyowner who has Accumulated Value in the Fixed Account as for a
Policyowner who has Accumulated Value in the Variable Accounts. The death
benefit will be equal to the Face Amount of the Policy plus the Accumulated
Value or, if greater, Accumulated Value multiplied by a death benefit
percentage. See "Death Benefit," page 14.
POLICY CHARGES
The mortality and expense risk and administrative charges will not be
assessed against Accumulated Value allocated to the Fixed Account. Other Policy
charges will be the same for Policyowners who allocate net premiums or transfer
Accumulated Value to the Fixed Account as for Policyowners who allocate net
premiums to the Variable Accounts. These charges consist of the premium tax,
consisting of the state and local premium tax charge, and the deductions from
Accumulated Value, including the charges for the cost of insurance. Any amounts
that Security Benefit pays for income taxes allocable to the Variable Accounts
will not be charged against the Fixed Account. In addition, the operating
expenses of the Variable Accounts, as well as the investment advisory fee
charged by the Fund, will not be paid directly or indirectly by Policyowners to
the extent the Accumulated Value is allocated to the Fixed Account; however,
such Policyowners will not participate in the investment experience of the
Variable Accounts.
TRANSFERS, SURRENDERS, WITHDRAWALS, AND POLICY LOANS
Amounts may be transferred after the Free-Look Period from the Variable
Accounts to the Fixed Account and from the Fixed Account to the Variable
Accounts, subject to the following limitations. The Policyowner may transfer
from the Fixed Account to the Variable Accounts in any Policy Year not more than
the greater of one third of the Accumulated Value invested in the Fixed Account
at the time of the transfer, $5,000 or 120 percent of the Accumulated Value
transferred from the Fixed Account during the previous Policy Year. Accumulated
Value in the Fixed Account may be transferred pursuant to the Dollar Cost
Averaging and Asset Reallocation Options, subject to this limitation. The
minimum amount that may be transferred is $500, except this minimum does not
apply to transfers under the Dollar Cost Averaging and Asset Reallocation
Options. Currently, there is no charge imposed upon transfers; however, Security
Benefit reserves the right to assess a charge of $25 per transfer in the future
to the extent transfers exceed six in any Policy Year and to impose other
limitations on the number of transfers, the amount of transfers, and the amount
remaining in the Fixed Account or Variable Accounts after a transfer.
The Policyowner may also make full surrenders and Partial Withdrawals to
the same extent as a Policyowner who has invested in the Variable Accounts. See
"Surrender," page 16, and "Partial Withdrawal Benefits," page 17. Policyowners
allocating Accumulated Value in the Fixed Account may borrow up to 75 percent of
the Net Cash Surrender Value. See "Policy Loans," page 16. Transfers,
surrenders, and withdrawals payable from the Fixed Account, and Policy loans
made from Contract Value allocated to the Fixed Account, may be delayed for up
to six months.
MORE ABOUT THE POLICY
OWNERSHIP
The Policyowner is the individual named as such in the application or in
any later change shown in Security Benefit's records. While the Insured is
living, the Policyowner alone has the right to receive all benefits and exercise
all rights that the Policy grants or Security Benefit allows.
JOINT OWNERS. If more than one person is named as Policyowner, they are
joint owners. Any Policy transaction requires the signature of all persons named
jointly. Unless otherwise provided, if a joint owner dies, ownership passes to
the surviving joint owner(s). When the last joint owner dies, ownership passes
through that person's estate, unless otherwise provided.
BENEFICIARY
The Beneficiary is the individual named as such in the application or any
later change shown in Security Benefit's records. The Policyowner may change the
Beneficiary at any time during the life of the Insured by written request on
forms provided by Security Benefit, which must be received by Security Benefit
at its Home Office. The change will be effective as of the date this form is
signed. Contingent and/or concurrent Beneficiaries may be designated. The
Policyowner may designate a permanent Beneficiary, whose
- --------------------------------------------------------------------------------
25
<PAGE>
rights under the Policy cannot be changed without his or her consent. Unless
otherwise provided, if no designated Beneficiary is living upon the death of the
Insured, the Policyowner or the Policyowner's estate is the Beneficiary.
Security Benefit will pay the death benefit proceeds to the Beneficiary.
Unless otherwise provided, in order to receive proceeds at the Insured's death,
the Beneficiary must be living at the time of the Insured's death.
EXCHANGE OF INSURED
After the first Policy Year and subject to approval from Security Benefit,
the Policyowner may exchange the named Insured on the Policy upon written
application, evidence of insurability satisfactory to Security Benefit, and
payment of a charge of $100. The exchange is effective the first Monthly Payment
Date on or after the exchange is approved. Coverage on the new Insured will
become effective on the exchange date. Coverage on the current Insured will
terminate on the day preceding the exchange date. The Policy Date will not be
changed unless the new Insured was born after the Policy Date. In such case, the
Policy Date will be changed to the Policy anniversary on or next following the
birth date of the new Insured. The cost of insurance charge will be based on the
new Insured's Age and underwriting class.
Security Benefit reserves the right to disallow a requested exchange of the
named Insured, and will not permit a requested exchange, among other reasons,
(1) if compliance with the guideline premium limitations under tax law resulting
from the exchange of Insured would result in the immediate termination of the
Policy, or (2) if, to effect the requested exchange of Insured, payments to the
Policyowner would have to be made from Accumulated Value for compliance with the
guideline premium limitations, and the amount of such payments would exceed the
Net Cash Surrender Value under the Policy.
A fee of $100 will be charged to cover the costs of processing the exchange
of Insured. This amount will not be credited to or deducted from Accumulated
Value, but must be paid directly to Security Benefit by the Policyowner before
the request for an exchange of Insured will be processed.
EXCHANGE OF POLICY DURING FIRST 24 MONTHS
Policies issued in Maryland and North Carolina provide that during the
first 24 months following the Policy Date, if the Policy has not lapsed, the
Policyowner may exchange the Policy for a fixed-benefit life insurance policy
issued and made available for exchange by Security Benefit. The exchange will be
made without evidence of insurability, and the new policy will have the same
Specified Amount, Policy Date, Age, and, if the medical or paramedical
underwriting method is used, underwriting class for the Insured as the exchanged
Policy.
An exchange will be effective on the Monthly Payment Date following
Security Benefit's receipt of written notice of the Policyowner's request to
exchange in proper form. Any outstanding Policy Debt must be repaid on or before
the effective date of the exchange.
THE CONTRACT
This Policy is a contract between the Owner and Security Benefit. The
entire contract consists of the Policy, a copy of the initial application, all
subsequent applications to change the Policy, and endorsements, all Riders, and
all additional Policy information sections (Specifications Pages) added to the
Policy.
PAYMENTS
Security Benefit will pay death benefit proceeds, Net Cash Surrender Value
on surrender, Partial Withdrawals, and loan proceeds based on allocations made
to the Variable Accounts, and will effect a transfer between Variable Accounts
or from a Variable Account to the Fixed Account within seven days after Security
Benefit receives all the information needed to process a payment.
However, Security Benefit can postpone the calculation or payment of such a
payment or transfer of amounts based on investment performance of the Variable
Accounts if:
* The New York Stock Exchange is closed on other than customary weekend and
holiday closing or trading on the New York Stock Exchange is restricted as
determined by the SEC; or
* An emergency exists, as determined by the SEC, as a result of which
disposal of securities is not reasonably practicable or it is not reasonably
practicable to determine the value of the Account's net assets; or
* The SEC by order permits postponement for the protection of Policyowners.
ASSIGNMENT
The Policyowner may assign a Policy as collateral security for a loan or
other obligation. No assignment will bind Security Benefit unless the original,
or a copy, is received at Security Benefit's Home Office, and will be effective
only when recorded by Security Benefit. An assignment does not change the
ownership of the Policy. However, after an assignment, the rights of any
Policyowner or Beneficiary will be subject to the assignment. The entire Policy,
including any attached payment option or Rider, will be subject to the
assignment. Security Benefit will rely solely on the assignee's statement as to
the amount of the assignee's interest. Security Benefit will not be responsible
for the validity of any assignment. Unless otherwise provided, the assignee may
exercise all rights this Policy grants except (a) the right to change the
Policyowner or Beneficiary; and (b) the right to elect a payment option.
Assignment of a Policy that is a Modified Endowment
- --------------------------------------------------------------------------------
26
<PAGE>
Contract may generate taxable income. (See "Federal Income Tax Considerations,"
page 20.)
ERRORS ON THE APPLICATION
If the Age or sex of the Insured has been misstated, the death benefit
under this Policy will be the greater of that which would be purchased by the
most recent cost of insurance charge at the correct Age or sex, if applicable,
or the death benefit derived by multiplying Accumulated Value by the death
benefit percentage for the correct Age. If the Insured's Age or sex is misstated
in the application, the Accumulated Value will be modified by recalculating all
prior cost of insurance charges and other monthly deductions based on the
correct Age or sex, if applicable. Because unisex cost of insurance rates apply
in most states, an adjustment will be made for a misstatement of sex only for
policies issued in Illinois, New Jersey, Oregon and Texas. See "Cost of
Insurance," page 18.
INCONTESTABILITY
Security Benefit may contest the validity of this Policy if any material
misstatements are made in the application. However, this Policy will be
incontestable after the expiration of the following: the initial Face Amount
cannot be contested after the Policy has been in force during the Insured's
lifetime for two years from the date the Policy was issued; if the Insured is
changed, the Policy cannot be contested after it has been in force during the
new Insured's lifetime for two years from the effective date of the exchange;
and an increase in the Face Amount cannot be contested after the increase has
been in force during an Insured's lifetime for two years from its effective
date.
PAYMENT IN CASE OF SUICIDE
If the Insured dies by suicide, while sane or insane, within two years from
the Policy Date, Security Benefit will limit the death benefit proceeds to the
premium payments less any withdrawal amounts and less any Policy Debt. If the
Insured has been changed and the new Insured dies by suicide, while sane or
insane, within two years of the exchange date, the death benefit proceeds will
be limited to the Net Cash Surrender Value as of the exchange date, plus the
premiums paid since the exchange date, less the sum of any increases in Debt,
withdrawal amounts, and any dividends paid in cash since the exchange date. If
an Insured dies by suicide, while sane or insane, within two years of the
effective date of any increase in the Face Amount, Security Benefit will refund
the cost of insurance charges made with respect to such increase.
PARTICIPATING
The Policy 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. Any dividends that do
become payable will be paid in cash.
POLICY ILLUSTRATIONS
Upon request, Security Benefit will send the Policyowner an illustration of
future benefits under the Policy based on both guaranteed and current cost
factor assumptions. However, Security Benefit reserves the right to charge a fee
for requests for illustrations in excess of one per Policy year.
PAYMENT PLAN
Maturity, surrender, or withdrawal benefits may be used to purchase a
payment plan providing monthly income for the lifetime of the Insured, and death
benefit proceeds may be used to purchase a payment plan providing monthly income
for the lifetime of the Beneficiary. The monthly payments consisting of proceeds
plus interest will be paid in equal installments for at least ten years. The
purchase rates for the payment plan are guaranteed not to exceed those shown in
the Policy, but current rates that are lower (i.e., providing greater income)
may be established by Security Benefit from time to time. This benefit is not
available if the income would be less than $25 a month. Maturity, surrender, or
withdrawal benefits or death benefit proceeds may be used to purchase any other
payment plan that Security Benefit makes available at that time.
DISTRIBUTION OF THE POLICY
Security Distributors, Inc. ("SDI") is principal underwriter (distributor)
of the Policies. SDI is registered as a broker/dealer with the SEC and is a
member of the National Association of Securities Dealers ("NASD"). Security
Benefit pays SDI for acting as principal underwriter under a Distribution
Agreement.
Security Benefit and SDI have agreements with various broker/dealers under
which the broker/dealers are authorized to make available to their customers the
Policy. The registered representatives are required to be authorized under
applicable state regulations to sell Variable Life Insurance. The broker/dealers
are required to be registered with the SEC and members of the NASD. The
compensation payable to broker/dealers under these agreements may vary, but is
not expected to exceed 15 percent of premium paid in the first Policy Year and
4.5 percent of premium paid thereafter. Broker/dealers may also receive annual
renewal compensation of up to .20 percent of Accumulated Value less Policy Debt,
depending upon the circumstances. The annual renewal compensation will be
computed and payable monthly. In addition, Security Benefit may also pay
override payments, expense allowances, bonuses, wholesaler fees, and training
allowances. Registered representatives earn commissions from the broker/dealers
- --------------------------------------------------------------------------------
27
<PAGE>
with whom they are affiliated for selling Security Benefit's Policies.
Compensation arrangements vary among broker/dealers. In addition, registered
representatives who meet specified production levels may qualify, under sales
incentive programs adopted by Security Benefit, to receive non-cash compensation
such as expense-paid trips, expense-paid educational seminars and merchandise.
Security Benefit makes no separate deductions, other than previously described,
from premiums to pay sales commissions or sales expenses.
MORE ABOUT SECURITY BENEFIT
MANAGEMENT
The directors and officers of Security Benefit are listed below, together
with information as to their principal occupations during the past five years
and certain other current affiliations. Unless otherwise indicated, the business
address of each director and officer is c/o Security Benefit Life Insurance
Company, 700 SW Harrison Street, Topeka, Kansas 66636-0001.
NAME AND POSITION PRINCIPAL OCCUPATION LAST FIVE YEARS
Howard R. Fricke Chairman of the Board, President, Chief
Chairman of the Board, President, Executive Officer and Director,
Chief Executive Officer and Director Security Benefit Life Insurance Company
from February 1988 to the present.
Thomas R. Clevenger Consultant, Investments, Wichita,
Director Kansas since 1990; President, Fourth
P.O. Box 8514 Financial Corporation, Topeka, Kansas
Wichita, KS 67208 prior to 1990.
Sister Loretto Marie Colwell President and Chief Executive Officer,
Director St. Francis Hospital and Medical
1700 SW 7th Street Center, Topeka, Kansas since 1991;
Topeka, KS 66606 various senior management and marketing
positions, St. James Community
Hospital, Butte, Montana prior to 1991.
John C. Dicus Chairman of the Board, Capitol Federal
Director Savings and Loan Association,
700 Kansas Avenue Topeka, Kansas.
Topeka, KS 66603
Melanie S. Fannin President, Kansas Southwestern Bell
Director Telephone, Topeka, Kansas, since 1994;
220 SE 6th Street various legal positions, Southwestern
Topeka, KS 66603 Bell Telephone Companies prior to 1994.
William W. Hanna Director, Chief Operating Officer and
Director President, Koch Industries, Inc.,
P.O. Box 2256 Wichita, Kansas.
Wichita, KS 67201
John E. Hayes Chairman of the Board, President and
Director Chief Executive Officer, Western
818 Kansas Avenue Resources, Inc., Topeka, Kansas since
Topeka, KS 66612 1989; Chairman, President and Chief
Executive Officer, Southwestern Bell
Telephone Company, Topeka, Kansas prior
to 1989.
Laird G. Noller President, Noller Automotive Group,
Director Topeka, Kansas.
2245 Topeka Boulevard
Topeka, KS 66611
Frank C. Sabatini Chairman of the Board, Capital City
Director Bank, Topeka, Kansas.
120 SW 6th Street
Topeka, KS 66603
- --------------------------------------------------------------------------------
28
<PAGE>
Robert C. Wheeler President, Hill's Pet Nutrition, Inc.,
Director Topeka, Kansas.
P.O. Box 148
Topeka, KS 66601
T. Gerald Lee Senior Vice President, Administration,
Senior Vice President, Administration Security Benefit Life Insurance
Company since July 1989; Executive Vice
President and Chief Operating Officer,
Anchor National Life and Anchor
National Financial Services, Phoenix,
Arizona prior to July 1989.
Jeffrey B. Pantages Senior Vice President and Chief
Senior Vice President and Chief Investment Officer, Security Benefit
Investment Officer Life Insurance Company since April
1992; Managing Director, Capital
Management Group of The Prudential
prior to April 1992.
Malcolm E. Robinson Senior Vice President and Assistant to
Senior Vice President and the President, Security Benefit Life
Assistant to the President Insurance Company.
Richard K Ryan Senior Vice President, Sales, Security
Senior Vice President, Annuity Benefit Life Insurance Company.
Marketing and Sales
Donald J. Schepker Senior Vice President and Chief
Senior Vice President and Financial Officer, Security Benefit
Chief Financial Officer Life Insurance Company.
Roger K. Viola Senior Vice President, General Counsel
Senior Vice President, General Counsel and Secretary, Security Benefit
Life Insurance Company.
James L. Woods Senior Vice President, Investments,
Senior Vice President Security Benefit Life Insurance Company
Donald E. Caum Senior Vice President and Chief
Senior Vice President and Marketing Officer, Security Benefit
Chief Marketing Officer Life Insurance Company since May 1994;
Senior Vice President, Sales and
Marketing, Kemper Life Insurance
Companies, Chicago, Illinois, from 1990
to 1994; President and Chief Operating
Officer, American Founders Life
Insurance Company, Phoenix, Arizona,
from 1989 to 1990.
John D. Cleland President and Director, Security Mutual
Senior Vice President and Funds since 1995 and Senior Vice
Chief Investment Strategist President and Director, Security
Management Company
OFFICERS AND DIRECTORS OF SBL WHO ARE ALSO CONNECTED WITH THE FUND OR ITS
AFFILIATED PERSONS:
Jeffrey B. Pantages President and Director, Security
Management Company.
Donald E. Caum Director, Security Management Company.
James L. Woods Senior Vice President, Security
Management Company
John D. Cleland Senior Vice President and Director,
Security Management Company
No officer or director listed above receives any compensation from the
Separate Account. No separately allocable compensation has been paid by Security
Benefit or any of its affiliates to any person listed for services rendered to
the Account.
STATE REGULATION
Security Benefit is subject to the laws of the State of Kansas governing
insurance companies, and to regulation by the Commissioner of Insurance of the
State of Kansas. In addition, it is subject to the insurance laws and
regulations of the other states and jurisdictions in which it is licensed or may
become licensed to operate. An Annual Statement in a prescribed form must be
filed with the Kansas Commissioner of Insurance and with regulatory authorities
of other states on or before March 1 in each year. This statement covers the
operations of Security Benefit for the preceding year and its financial
condition as of December 31 of that year. Security Benefit's affairs are subject
to review and examination at any time by the Commissioner of Insurance
- --------------------------------------------------------------------------------
29
<PAGE>
or his or her agents, and subject to full examination of Security Benefit's
operations at periodic intervals.
TELEPHONE TRANSFER PRIVILEGES
A Policyowner may request a transfer of Accumulated 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 Policy Account
Number and the Owner's Tax Identification Number, and such instructions must be
received on a recorded line.
Telephone instructions received by Security Benefit by 3:00 p.m. Central
time on any Valuation Date will be effected as of the end of that Valuation Date
in accordance with the Policyowner's instructions (presuming that the Free-Look
Period has expired). Security Benefit reserves the right to deny any telephone
transfer or request. If all telephone lines are busy (which might occur, for
example, during periods of substantial market fluctuations), Policyowners might
not be able to request transfers and loans by telephone, and would have to
submit written requests.
By authorizing telephone transfers, a Policyowner authorizes Security
Benefit to accept and act upon telephonic instructions for transfers involving
the Policyowner's Policy, and agrees that neither Security Benefit, nor any of
its affiliates will be liable for any loss, damages, cost, or expense (including
attorney's fees) arising out of any requests effected, provided that Security
Benefit complied with its procedures. As a result of this policy on telephone
requests, the Policyowner may bear the risk of loss arising from the telephone
transfer privileges. Security Benefit may discontinue, modify, or suspend the
telephone transfer privilege at any time.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Separate Account is a
party, or which would materially affect the Separate Account.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Policies
described in this Prospectus and the organization of Security Benefit, its
authority to issue the Policies under Kansas law, and the validity of the forms
of the Policies under Kansas law have been passed on by Amy J. Lee, Associate
General Counsel of Security Benefit.
Legal matters relating to the federal securities laws in connection with
the Separate Account and to federal income tax laws have been passed upon by
Dechert Price & Rhoads, Washington, D.C.
REGISTRATION STATEMENT
A Registration Statement under the Securities Act of 1933 has been filed
with the SEC relating to the offering described in this Prospectus. This
Prospectus does not include all of the information set forth in the Registration
Statement, as portions have been omitted pursuant to the rules and regulations
of the SEC. The omitted information may be obtained at the SEC's principal
office in Washington, D.C., upon payment of the SEC's prescribed fees.
EXPERTS
The Financial Statements for Security Benefit and Security Varilife Account
in this Prospectus and in the Registration Statement have been audited by Ernst
& Young LLP, independent auditors, for the period indicated in their reports
thereon, appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
FINANCIAL STATEMENTS
Financial Statements of the Separate Account for the year ended December
31, 1995, and for the period from August 15, 1994 (inception) to December 31,
1994, and the Financial Statements of Security Benefit at December 31, 1995, and
1994 and for each of the three years in the period ended December 31, 1995, are
set forth herewith starting on page 31. The most current financial statements of
Security Benefit are those as of the end of the most recent fiscal year.
Security Benefit does not prepare financial statements on a basis consistent
with and comparable to its annual statements on an interim basis and believes
that any incremental benefit to prospective policyholders that may result from
preparing and delivering more current financial statements, though unaudited,
does not justify the additional cost that would be incurred. In addition,
Security Benefit represents that there have been no adverse changes in the
financial condition or operations of Security Benefit between the end of the
most current fiscal year and the date of this Prospectus.
The Financial Statements of Security Benefit have been audited by Ernst &
Young LLP. The Financial Statements of Security Benefit should be distinguished
from the Financial Statements of the Separate Account, and should be considered
only as bearing upon the ability of Security Benefit to meet its obligations
under the Policies.
- --------------------------------------------------------------------------------
30
<PAGE>
Report of Independent Auditors
The Contract Owners of Security Varilife
Account and The Board of Directors of
Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of Security Varilife Account (the
Company) as of December 31, 1995, and the related statements of operations and
changes in net assets for the year then ended and for the period from August 15,
1994 (inception) to December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments owned as of December 31, 1995, by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Varilife Account at
December 31, 1995, and the results of its operations and changes in its net
assets for the year then ended and for the period from August 15, 1994
(inception) to December 31, 1994, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 2, 1996
- --------------------------------------------------------------------------------
31
<PAGE>
Security Varilife Account
Balance Sheet
December 31, 1995
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 9,542 shares at net asset value of
$21.03 per share (cost, $188,265) $200,674
Series B (Growth-Income Series) - 1,786 shares at net asset
value of $33.95 per share (cost, $51,626) 60,637
Series C (Money Market Series) - 11,884 shares at net asset
value of $12.34 per share (cost, $146,444) 146,644
Series D (Worldwide Equity Series) - 3,050 shares at net
asset value of $5.56 per share (cost, $16,409) 16,956
Series E (High Grade Income Series) - 3,030 shares at net
asset value of $12.86 per share (cost, $37,070) 38,971
Series S (Social Awareness Series) - 194 shares at net asset
value of $16.49 per share (cost, $3,172) 3,191
Series J (Emerging Growth Series) - 3,310 shares at net asset
value of $16.06 per share (cost, $53,075) 53,164
Series M (Specialized Asset Allocation Series) - 121 shares at net
asset value of $10.71 per share (cost, $1,282) 1,296
--------
Total assets $521,533
========
- --------------------------------------------------------------------------------
32
<PAGE>
Security Varilife Account
Balance Sheet
December 31, 1995
LIABILITIES AND NET ASSETS
Mortality guarantee payable $ 3,864
Net assets are represented by (NOTE 3):
NUMBER UNIT
OF UNITS VALUE
-------------------------------------
Growth Series:
Accumulation units 15,410 $13.03 200,788
Growth-Income Series:
Accumulation units 4,874 12.41 60,488
Money Market Series:
Accumulation units 13,609 10.51 143,030
Worldwide Equity Series:
Accumulation units 1,630 10.38 16,923
High Grade Income Series:
Accumulation units 3,324 11.72 38,952
Social Awareness Series:
Accumulation units 256 12.45 3,191
Emerging Growth Series:
Accumulation units 4,518 11.73 53,001
Specialized Asset Allocation Series:
Accumulation units 122 10.63 1,296
--------
Total liabilities and net assets $521,533
========
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
33
<PAGE>
Security Varilife Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1995
<TABLE>
<CAPTION>
HIGH SPECIALIZED
GROWTH- MONEY WORLDWIDE GRADE SOCIAL EMERGING ASSET
GROWTH INCOME MARKET EQUITY INCOME AWARENESS GROWTH ALLOCATION
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions $ 517 $ 696 $ 745 $ 6 $ 130 $ -- $ -- $ --
Expenses (NOTE 2):
Mortality and expense risk fee (3,396) (2,008) (5,196) (1,312) (526) (31) (2,876) (50)
Administrative fee (173) (118) (95) (54) (28) (3) (106) (1)
-----------------------------------------------------------------------------------
Net investment loss (3,052) (1,430) (4,546) (1,360) (424) (34) (2,982) (51)
Capital gains distributions 2,178 -- -- 363 -- -- -- --
Realized gain on investments 4,625 673 680 1,866 46 2 6,854 --
Unrealized appreciation
(depreciation) on investments 12,377 9,011 (41) 544 1,900 19 58 14
-----------------------------------------------------------------------------------
Net realized and unrealized gain on
investments 19,180 9,684 639 2,773 1,946 21 6,912 14
-----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 16,128 8,254 (3,907) 1,413 1,522 (13) 3,930 (37)
Net assets at beginning of year 1,277 -- 98,819 885 774 -- 804 --
Variable account deposits
(NOTES 2 AND 3) 203,389 54,110 596,751 44,727 36,669 3,718 92,563 1,333
Terminations and withdrawals
(NOTES 2 AND 3) (20,006) (1,876) (548,633) (30,102) (13) (514) (44,296) --
-----------------------------------------------------------------------------------
Net assets at end of year $200,788 $60,488 $143,030 $16,923 $38,952 $3,191 $53,001 $1,296
===================================================================================
</TABLE>
- --------------------------------------------------------------------------------
34
<PAGE>
Security Varilife Account
Statement of Operations and Changes in Net Assets
Period from August 15, 1994 (inception) to December 31, 1994
<TABLE>
<CAPTION>
MONEY WORLDWIDE HIGH GRADE EMERGING
GROWTH MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expenses (NOTE 2):
Mortality and expense risk fee $ (4) $ (92) $ (4) $ (2) $ (1)
Administrative fee (10) (236) (10) (4) (4)
--------------------------------------------------------------
Net investment loss (14) (328) (14) (6) (5)
Realized gain on investments - 6 - - -
Unrealized appreciation on investments 32 241 3 1 31
--------------------------------------------------------------
Net realized and unrealized gain on
investments 32 247 3 1 31
--------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 18 (81) (11) (5) 26
Net assets at beginning of period - - - - -
Variable account deposits (NOTES 2 AND 3) 1,259 98,900 896 779 778
==============================================================
Net assets at end of period $1,277 $98,819 $885 $774 $804
==============================================================
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
35
<PAGE>
Security Varilife Account
Notes to Financial Statements
December 31, 1995 and 1994
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Security Varilife Account (the Account) is a separate account of Security
Benefit Life Insurance Company (SBL). The Account is registered as a unit
investment trust under the Investment Company Act of 1940, as amended. All
activity in the account relates to Security Elite Benefit, a variable life
product sold by SBL. All deposits received by the Account have been invested in
the SBL Fund, a mutual fund not otherwise available to the public. As directed
by the owners, amounts deposited may be invested in shares of Series A (Growth
Series - emphasis on capital appreciation), Series B (Growth-Income Series -
emphasis on capital appreciation with secondary emphasis on income), Series C
(Money Market Series - emphasis on capital preservation while generating
interest income), Series D (Worldwide Equity Series - emphasis on long-term
capital growth through investment in foreign and domestic common stocks and
equivalents), Series E (High Grade Income Series - emphasis on current income
with security of principal), Series S (Social Awareness Series - emphasis on
high total return), Series J (Emerging Growth Series - emphasis on capital
appreciation), and the following new series introduced on June 1, 1995:
Series K (Global Aggressive Bond Series), with emphasis on high current
income and secondary emphasis on capital appreciation by investing in a
combination of foreign and domestic high yield securities.
Series M (Specialized Asset Allocation Series), with emphasis on high total
return consisting of capital appreciation and current income through
investment in a wide range of investment categories and market sectors, both
domestic and foreign.
Series N (Managed Asset Allocation Series), with emphasis on high level of
total return by investing primarily in a diversified portfolio of debt and
equity securities.
Series O (Equity Income Series), with emphasis on substantial dividend
income and capital appreciation by investing primarily in dividend-paying
common stocks of established companies.
- --------------------------------------------------------------------------------
36
<PAGE>
Security Varilife Account
Notes to Financial Statements
December 31, 1995 and 1994
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company (SMC), a
wholly-owned subsidiary of Security Benefit Group, Inc., which is a wholly-owned
subsidiary of SBL. SMC has engaged Lexington Management Corporation to provide
sub-advisory services for the Worldwide Equity Series and Global Aggressive Bond
Series and has engaged T. Rowe Price Associates, Inc. to provide sub-advisory
services for the Managed Asset Allocation Series and the Equity Income Series.
SMC has also entered into agreements with Templeton Quantitative Advisors, Inc.
and Meridian Investment Management Corporation to provide certain quantitative
research services with respect to the Specialized Asset Allocation Series.
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 during the
year ended December 31, 1995 and the period from August 15, 1994 (inception) to
December 31, 1994 were as follows:
1995 1994
----------------------------------------------------------
COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
----------------------------------------------------------
Series A $205,969 $ 23,574 $ 1,260 $ 15
Series B 54,955 4,002 - -
Series C 601,111 553,925 102,311 3,739
Series D 45,130 31,469 897 15
Series E 36,818 567 778 5
Series S 3,718 548 - -
Series J 92,726 47,278 778 5
Series M 1,334 52 - -
- --------------------------------------------------------------------------------
37
<PAGE>
Security Varilife Account
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINVESTMENT OF DIVIDENDS
Dividend and capital gains distributions paid by the mutual fund to the Account
are reinvested in additional shares of each respective Fund. Dividend income and
capital gains distributions are recorded as income on the ex-dividend date.
FEDERAL INCOME TAXES
Under current law, no federal income taxes are payable with respect to the
Account.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. SECURITY VARILIFE ACCOUNT CONTRACT CHARGES
SBL deducts a daily administrative charge equal to an annual rate of .35% of the
average daily net assets of each account. Mortality and expense risks assumed by
SBL are compensated for by a fee equivalent to an annual rate of .90% of the
average daily net assets of each account.
A deduction for cost of insurance and cost of any riders is also made monthly
and is equal to a current cost of insurance rate multiplied by the net amount at
risk under a policy at the beginning of the policy month. The net amount at risk
for these purposes is equal to the amount of death benefit payable at the
beginning of the policy month divided by 1.0032737 less the accumulated value at
the beginning of the month. These charges were insignificant during 1995 and
1994.
When applicable, an amount for state and local premium taxes is deducted from
each premium payment, as provided by pertinent state law.
- --------------------------------------------------------------------------------
38
<PAGE>
Security Varilife Account
Notes to Financial Statements (continued)
3. SUMMARY OF UNIT TRANSACTIONS
Unit transactions for the year ended December 31, 1995 and for the period from
August 15, 1994 (inception) to December 31, 1994 were as follows:
1995 1994
-------------------------
Growth Series:
Account deposits 16,861 132
Terminations and withdrawals 1,583 -
Growth-Income Series:
Account deposits 5,030 -
Terminations and withdrawals 156 -
Money Market Series:
Account deposits 40,855 7,847
Terminations and withdrawals 35,093 -
Worldwide Equity Series:
Account deposits 4,059 93
Terminations and withdrawals 2,522 -
High Grade Income Series:
Account deposits 3,285 77
Terminations and withdrawals 38 -
Social Awareness Series:
Account deposits 299 -
Terminations and withdrawals 43 -
Emerging Growth Series:
Account deposits 5,148 81
Terminations and withdrawals 711 -
Specialized Asset Allocation Series:
Account deposits 126 -
Terminations and withdrawals 4 -
- --------------------------------------------------------------------------------
39
<PAGE>
Report of Independent Auditors
The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying balance sheets of Security Benefit Life
Insurance Company (the Company) as of December 31, 1995 and 1994, and the
related statements of operations, surplus and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Benefit Life Insurance
Company at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles and with reporting
practices prescribed or permitted by the Kansas Insurance Department.
Ernst & Young LLP
Kansas City, Missouri
February 2, 1996
- --------------------------------------------------------------------------------
40
<PAGE>
Security Benefit Life Insurance Company
Balance Sheets
DECEMBER 31
1995 1994
------------------------
(IN THOUSANDS)
ASSETS
Investments (NOTES 2 AND 5):
Fixed maturities, at amortized cost (fair value:
1995 - $2,340,910; 1994 - $1,987,040) $2,294,802 $2,160,550
Equity securities:
Preferred stock, at cost (fair value: 1995 - $4,490;
1994 - $6,423) 4,044 5,979
Common stock, at fair value (cost: 1995 - $8,309;
1994 - $2,509) 8,346 3,071
------------------------
12,390 9,050
Affiliated entities 29,590 21,028
Mortgage loans 70,777 90,509
Real estate, less accumulated depreciation
(1995 - $10,864; 1994 - $10,821):
Home office properties 10,027 9,953
Investment properties 11,591 14,576
------------------------
21,618 24,529
Policy loans 100,452 92,130
Short-term investments 992 50,406
Other invested assets 40,309 27,402
------------------------
Total investments 2,570,930 2,475,604
Cash and certificates of deposit 12,059 10,820
Premiums deferred and uncollected 856 9,101
Investment income due and accrued 30,577 25,857
Other assets 16,894 14,088
Separate account assets (NOTE 3) 2,065,306 1,517,627
------------------------
$4,696,622 $4,053,097
========================
- --------------------------------------------------------------------------------
41
<PAGE>
DECEMBER 31
1995 1994
------------------------
(IN THOUSANDS)
LIABILITIES AND SURPLUS
Policy reserves (NOTE 6):
Life $ 337,289 $ 355,338
Annuity 2,006,799 1,963,066
Accident and health 1,067 1,204
Policy proceeds left at interest 17,849 19,600
------------------------
2,363,004 2,339,208
Policy and contract claims 9,602 8,058
Other policyholders' funds:
Dividend accumulations 19,525 19,697
Dividends payable in subsequent year 2,604 2,787
Premium deposit funds and other 1,331 2,446
------------------------
23,460 24,930
Other liabilities, including income taxes of
$9,851 in 1995 and $3,111 in 1994 19,275 17,762
Net transfers due from separate accounts (NOTE 3) (38,615) (40,034)
Asset valuation reserve 33,478 27,834
Interest maintenance reserve 13,443 6,986
Separate account liabilities (NOTE 3) 2,065,306 1,517,627
------------------------
Total liabilities 4,488,953 3,902,371
Commitments and contingencies (NOTES 6 AND 9)
Surplus:
Contingency surplus 900 900
Unassigned surplus 206,769 149,826
------------------------
Total surplus 207,669 150,726
------------------------
$4,696,622 $4,053,097
========================
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
42
<PAGE>
Security Benefit Life Insurance Company
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Annuity considerations and deposits $484,907 $530,530 $467,396
Individual life premiums (NOTE 6) (15,177) 49,837 59,373
Group life and health premiums 18,936 18,435 15,632
Reinsurance premiums 694 944 988
Amortization of interest maintenance reserve 1,394 1,077 804
Net investment income (NOTE 2) 185,605 173,391 172,879
Other income 32,722 27,972 26,431
-----------------------------------
Total revenues 709,081 802,186 743,503
Benefits and expenses:
Death benefits 32,164 29,368 34,990
Annuity benefits 36,902 36,587 41,743
Accident and health and disability benefits 2,053 2,177 2,912
Surrender benefits 352,206 275,283 229,554
Increase in reserves and funds for all policies 164,517 333,749 319,457
Other benefits 13,811 12,126 13,407
Commissions 34,979 39,059 41,116
Other insurance operating expenses 32,699 31,994 29,226
-----------------------------------
Total benefits and expenses 669,331 760,343 712,405
-----------------------------------
Gain from operations before dividends to
policyholders, federal income taxes and net
realized losses 39,750 41,843 31,098
Dividends to policyholders 2,391 2,689 2,725
-----------------------------------
Gain from operations before federal income
taxes and net realized losses 37,359 39,154 28,373
Federal income taxes (NOTE 7) 7,520 10,678 4,569
-----------------------------------
Gain from operations before net realized
losses 29,839 28,476 23,804
Net realized losses (NOTE 2) (1,083) (1,122) (3,280)
-----------------------------------
Net income $ 28,756 $ 27,354 $ 20,524
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
43
<PAGE>
Security Benefit Life Insurance Company
Statements of Surplus
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $150,726 $128,785 $106,000
Add (deduct):
Net income 28,756 27,354 20,524
Increase in asset valuation (5,644) (2,958) (4,854)
Unrealized gain on investments 2,571 546 6,027
Reinsurance transaction, net of tax (NOTE 6) 33,270 --- ---
Other (2,010) (3,001) 1,088
-----------------------------------
56,943 21,941 22,785
-----------------------------------
Balance at end of year $207,669 $150,726 $128,785
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
44
<PAGE>
Security Benefit Life Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 28,756 $ 27,354 $ 20,524
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in investment income due and
accrued (4,720) (577) (4,147)
Increase in policy reserves 23,796 163,700 138,931
Accretion of discount on investments (3,400) (3,580) (5,135)
Amortization of premium on investments 9,725 15,623 16,440
Reinsurance transaction, net of tax 33,270 --- ---
Other 8,399 1,529 (16,820)
-----------------------------------
Net cash provided by operating activities 95,826 204,049 149,793
INVESTING ACTIVITIES
Investments sold or matured:
Fixed maturities 566,887 460,070 1,251,398
Equity securities 10,242 3,830 2,103
Mortgage loans 22,953 20,432 16,969
Real estate 3,173 2,782 1,293
Short-term investments 229,871 834,082 2,416,685
Other invested assets 22,053 3,602 2,458
-----------------------------------
855,179 1,324,798 3,690,906
Acquisition of investments:
Fixed maturities 706,581 606,368 1,403,541
Equity securities 19,500 4,627 741
Mortgage loans 2,939 33,516 12,021
Real estate 1,511 554 448
Short-term investments 180,259 854,833 2,426,336
Other invested assets 30,654 17,036 875
-----------------------------------
941,444 1,516,934 3,843,962
Net increase in policy loans (8,322) (5,579) (2,212)
-----------------------------------
Net cash used in investing activities (94,587) (197,715) (155,268)
-----------------------------------
Increase (decrease) in cash and certificates
of deposit 1,239 6,334 (5,475)
Cash and certificates of deposit at beginning
of year 10,820 4,486 9,961
-----------------------------------
Cash and certificates of deposit at end of
year $ 12,059 $ 10,820 $ 4,486
===================================
</TABLE>
- --------------------------------------------------------------------------------
45
<PAGE>
Security Benefit Life Insurance Company
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for federal income taxes $ 9,055 $ 8,851 $ 6,284
===================================
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Conversion of mortgage loans to
real estate owned $ --- $ 2,350 $ 673
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
46
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Security Benefit Life Insurance Company (the Company) is a Kansas-domiciled
mutual life insurance company licensed to sell insurance products in 49 states.
The Company offers a diversified portfolio of individual and group annuities,
ordinary life, and mutual fund products through multiple distribution channels.
In recent years, the Company's new business activities have increasingly been
concentrated in the individual flexible premium variable annuity markets.
BASIS OF PRESENTATION
The financial statements have been prepared on the basis of accounting practices
prescribed or permitted by the National Association of Insurance Commissioners
(NAIC) and the Kansas Insurance Department. "Prescribed" statutory accounting
practices include state laws, regulations and general administrative rules, as
well as a variety of publications of the NAIC. "Permitted" statutory accounting
practices encompass all accounting practices that are not prescribed; such
practices may differ from state to state, may differ from company to company
within a state, and may change in the future. The NAIC is currently in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of prescribed statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1997,
will likely change, to some extent, prescribed statutory accounting practices,
and may result in changes to the accounting practices that the Company uses to
prepare its statutory financial statements. Statutory accounting practices
presently are regarded as generally accepted accounting principles for mutual
life insurance companies.
In April 1993, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." Under this
Interpretation, financial statements of mutual life insurance companies prepared
on the basis of statutory accounting principles no longer will be considered to
be prepared in conformity with generally accepted accounting principles. In
January 1995, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 120, "Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating Contracts," and
the American Institute of Certified Public Accountants issued its Statement of
Position No. 95-1, "Accounting for Certain Insurance
- --------------------------------------------------------------------------------
47
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Activities of Mutual Life Insurance Enterprises," which define generally
accepted accounting principles for mutual life insurance enterprises.
Interpretation No. 40, SFAS No. 120 and Statement of Position No. 95-1 are
concurrently effective for fiscal years beginning after December 15, 1995.
The Company has not yet determined whether it will continue to file statutory
financial statements with the Securities and Exchange Commission as currently
permitted by Regulation S-X, Rule 7-02(b) or file financial statements prepared
in accordance with all applicable authoritative accounting pronouncements that
define generally accepted accounting principles for all enterprises. The Company
has assessed the impact of FASB Interpretation No. 40, SFAS No. 120 and
Statement of Position No. 95-1, and estimates the adoption will result in an
increase to surplus of approximately $100 million.
INVESTMENTS
Investments are valued as prescribed by the NAIC.
Fixed maturities are reported at cost, adjusted for amortization of discount or
premium using the effective interest method. For mortgage-backed fixed
maturities, anticipated prepayments are considered using market consensus
prepayment speeds when determining the amortization of discount or premium.
Adjustments to discount or premium resulting when actual prepayments differ
substantially from estimates are determined using the retrospective method.
Preferred stocks in good standing are carried at cost. Bonds and preferred
stocks not in good standing are carried at market value. Common stocks are
valued at market except investments in stocks of unconsolidated subsidiaries,
which are carried at cost adjusted to reflect subsequent operating results. Home
office property (including the portion reported as investment real estate) is
reported at 1989 appraised value less accumulated depreciation as permitted by
the Kansas Insurance Department. Investment real estate or property acquired in
satisfaction of debt is reported at the lower of depreciated cost, less
encumbrances, or estimated market value. Other investments are reported on the
equity basis. Policy loans are stated at the aggregate unpaid balance. Mortgage
loans on real estate are carried at the aggregate unpaid balance adjusted for
any unamortized discount or premium.
- --------------------------------------------------------------------------------
48
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Asset Valuation Reserve (AVR) is computed in accordance with the formula
prescribed by the NAIC and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, and other invested
assets. Changes to the AVR are charged or credited directly to unassigned
surplus.
Realized gains and losses are determined on a specific identification basis and
are reported in income net of related federal income tax. Under a formula
prescribed by the NAIC, the Company reports an Interest Maintenance Reserve
(IMR) that represents the net accumulated unamortized realized capital gains and
losses on sales of fixed income investments, principally bonds and mortgage
loans, attributable to changes in the general level of interest rates. Such
gains or losses are amortized into income on a straight-line basis over the
remaining period to maturity based on groupings of individual securities sold in
five-year bands.
The investment in Security Benefit Group, Inc. (SBG), a wholly-owned subsidiary,
is reported on an equity basis, as permitted by the Kansas Insurance Department.
Changes in SBG's equity are reflected as unrealized gains (losses) on
investments and are accounted for through surplus and investment reserves as
described above. Dividends received from SBG are recorded as investment income
when received.
RESERVES FOR LIFE AND ANNUITY POLICIES
The reserves for life and annuity policies are developed by actuarial methods,
and the life reserves are established and maintained on the basis of published
mortality tables. Life and annuity reserves are computed using assumed interest
rates and valuation methods that will provide, in the aggregate, reserves that
are greater than the minimum valuation required by law and greater than the
guaranteed policy cash values.
For life policies, the 1941, 1958 and 1980 CSO mortality tables have been used
principally, and interest assumptions range from 2% to 5 1/2%. For annuity
contracts, the PAT, 1971 IAM, 1983a, and 1980 CSO mortality tables have been
used principally, and interest assumptions range from 2 1/2% to 11 1/2%.
- --------------------------------------------------------------------------------
49
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF PREMIUM REVENUES AND ACQUISITION COSTS
For life and annuity contracts, premiums are recognized as revenues over the
premium paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and certificates of deposits, short-term investments: The carrying
amounts reported in the balance sheet for these instruments approximate
their fair values.
Investment securities: The fair values for fixed maturity securities are
based on quoted market prices, where available. For fixed maturity
securities not actively traded, fair values are estimated using values
obtained from independent pricing services or estimated by discounting
expected future cash flows using a current market rate applicable to the
yield, credit quality and maturity of the investments. The fair values for
equity securities are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans and
policy loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for similar loans to borrowers with
similar credit ratings. Loans with similar characteristics are aggregated
for purposes of the calculations.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using the assumption
reinsurance method, whereby the amount of statutory profit the assuming
company would realize from the business is calculated. Those amounts are
then discounted at a rate of return commensurate with the rate presently
offered by the Company on similar contracts.
USE OF ESTIMATES
The preparation of the financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
- --------------------------------------------------------------------------------
50
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1994 and 1993 financial statements have been reclassified
to conform to the 1995 presentation.
2. INVESTMENTS
Information as to the amortized cost, gross unrealized gains and losses and fair
values of the Company's portfolio of fixed maturities at December 31, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 1,192 $ 206 $ --- $ 1,398
Obligations of states and political
subdivisions 90,353 1,725 140 91,938
Corporate securities 1,044,051 36,090 13,189 1,066,952
Mortgage-backed securities 1,159,206 23,299 1,883 1,180,622
----------------------------------------------------
Totals $2,294,802 $61,320 $ 15,212 $2,340,910
====================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 10,490 $ 55 $ 622 $ 9,923
Obligations of states and political
subdivisions 21,147 --- 2,615 18,532
Corporate securities 773,714 1,809 64,494 711,029
Mortgage-backed securities 1,355,199 200 107,843 1,247,556
----------------------------------------------------
Totals $2,160,550 $ 2,064 $175,574 $1,987,040
====================================================
</TABLE>
- --------------------------------------------------------------------------------
51
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of debt securities at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
AMORTIZED FAIR
COST VALUE
--------------------------
(IN THOUSANDS)
Due in one year or less $ 12,575 $ 12,716
Due after one year through five years 239,718 244,165
Due after five years through 10 years 292,943 301,247
Due after 10 years 590,360 602,160
--------------------------
1,135,596 1,160,288
Mortgage-backed securities 1,159,206 1,180,622
==========================
$2,294,802 $2,340,910
==========================
The cost and the fair values of the Company's equity securities at December 31,
1995 and 1994 are as follows:
DECEMBER 31, 1995
----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN THOUSANDS)
Preferred stock $ 4,044 $ 446 $--- $ 4,490
Common stock 8,309 123 86 8,346
----------------------------------------------
$12,353 $ 569 $ 86 $12,836
==============================================
- --------------------------------------------------------------------------------
52
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
DECEMBER 31, 1994
----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN THOUSANDS)
Preferred stock $ 5,979 $ 568 $124 $ 6,423
Common stock 2,509 599 37 3,071
----------------------------------------------
$ 8,488 $1,167 $161 $ 9,494
==============================================
Proceeds from sales of fixed maturities and related realized gains and losses,
including valuation adjustments, are as follows:
1995 1994 1993
----------------------------------
(IN THOUSANDS)
Proceeds from sales $293,864 $119,773 $891,044
Gross realized gains 4,294 4,966 35,955
Gross realized losses 2,971 4,813 21,375
The composition of the Company's portfolio of fixed maturity securities by
quality rating at December 31, 1995 is as follows:
QUALITY RATING AMOUNT %
------------------- -------------- ------
(IN THOUSANDS)
AAA $1,248,468 54.4%
AA 119,533 5.2
A 314,283 13.7
BBB 431,147 18.8
Noninvestment grade 181,371 7.9
-------------- ------
$2,294,802 100.0%
============== ======
The Company has a diversified portfolio of commercial and residential mortgage
loans outstanding in 26 states. The loans are somewhat geographically
concentrated in the midwestern and southwestern United States with the largest
outstanding balances at December 31, 1995 being in the states of Kansas (36%)
and Texas (13%).
- --------------------------------------------------------------------------------
53
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Major categories of net investment income are summarized as follows:
1995 1994 1993
-------------------------------------
(IN THOUSANDS)
Interest on fixed maturities $165,742 $151,688 $150,930
Interest on mortgage loans 7,656 7,552 7,835
Real estate income 3,524 3,563 3,451
Interest on policy loans 5,934 5,446 5,174
Dividends from subsidiary (NOTE 5) 4,200 5,200 8,300
Other 4,749 5,857 2,705
-------------------------------------
Total investment income 191,805 179,306 178,395
Investment expenses 6,200 5,915 5,516
-------------------------------------
Net investment income $185,605 $173,391 $172,879
=====================================
The Company did not hold any investments that individually exceeded 10% of
surplus at December 31, 1995 except for securities guaranteed by the U.S.
government or an agency of the U.S. government.
Net realized losses consist of the following:
1995 1994 1993
-------------------------------------
(IN THOUSANDS)
Fixed maturities $ 1,323 $ 153 $14,580
Equity securities 607 (62) (5,179)
Other 566 (2,401) (1,934)
-------------------------------------
Total realized gains (losses) 2,496 (2,310) 7,467
Income tax expense (benefit) (4,272) (3,593) 1,937
-------------------------------------
6,768 1,283 5,530
Transferred to interest maintenance
reserve, net of tax 7,851 (2,405) (8,810)
-------------------------------------
$(1,083) $(1,122) $(3,280)
=====================================
- --------------------------------------------------------------------------------
54
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The Company's principal objective in holding derivatives for purposes other than
trading is asset-liability management. The operations of the Company are subject
to risk of interest rate fluctuations to the extent that there is a difference
between the amount of the Company's interest-earning assets and interest-bearing
liabilities that mature in specified periods. The principal objective of the
Company's asset-liability management activities is to provide maximum levels of
net interest income while maintaining acceptable levels of interest rate and
liquidity risk and facilitating the funding needs of the Company. To achieve
that objective, the Company uses financial futures instruments and interest rate
exchange agreements. Financial futures contracts are commitments to either
purchase or sell a financial instrument at a specific future date for a
specified price and may be settled in cash or through delivery of the financial
instrument. Interest rate exchange agreements generally involve the exchange of
fixed and floating rate interest payments, without an exchange of the underlying
principal.
If a financial futures contract that is used to manage interest rate risk is
terminated early or results in a single payment based on the change in value of
an underlying asset, any resulting gain or loss is deferred and amortized as an
adjustment to yield of the designated asset over its remaining life. Deferred
losses totaling $3.9 million and deferred gains totaling $1.8 million at
December 31, 1995 and 1994, respectively, resulting from terminated and expired
futures contracts are included in fixed maturities and will be amortized as an
adjustment to interest income. The notional amount of outstanding agreements to
sell securities was $79 million and $51 million at December 31, 1995 and 1994,
respectively.
For interest rate exchange agreements, the differential of interest to be paid
or received is accrued as interest rates change and recognized as an adjustment
to interest income. The related amount payable to or receivable from
counterparties is included in investment income due and accrued. These amounts
were insignificant to the Company. There were no closed or terminated agreements
during 1995 or 1994. The fair values of the interest rate exchange agreements
are not recognized in the financial statements. The notional amount of
outstanding agreements was $50 million at December 31, 1995. Also, as of
December 31, 1995, these agreements have maturities ranging from March 1997 to
June 2005. Under these agreements, the Company receives variable rates based on
the one- and three-month LIBOR and pays fixed rates ranging from 6.430% to
7.215%.
- --------------------------------------------------------------------------------
55
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
3. SEPARATE ACCOUNT TRANSACTIONS
The separate accounts are established in conformity with Kansas Insurance Laws
and are not chargeable with liabilities that arise from any other business of
the Company. Premiums designated for investment in the separate accounts are
included in income with corresponding liability increases included in benefits.
Separate account surplus created through the use of Commissioners' Annuity
Reserve Valuation Method is reported as an unsettled transfer from the separate
account to the general account. Assets and liabilities of the separate accounts,
representing net deposits and accumulated net investment earnings held primarily
for the benefit of contract holders, are shown as separate captions in the
balance sheet. Assets held in the separate accounts are carried at quoted market
values, or where quoted market values are not available, at fair market value as
determined by the fund investment managers. Security Management Company, a
wholly-owned subsidiary of SBG, serves as the investment manager for the SBL
fund separate account assets. T. Rowe Price separate account assets are managed
by T. Rowe Price Associates, Inc. (or an affiliated company) and the Parkstone
separate account assets are managed by First of America Investment Corporation.
The Company receives administrative and risk fees relating to amounts invested
in the separate accounts.
The statement of operations includes the following separate account
transactions, which have no effect on net income:
1995 1994 1993
----------------------------------
(IN THOUSANDS)
Annuity considerations and deposits $275,257 $256,061 $235,624
==================================
Benefits:
Benefits and other charges $127,205 $ 83,933 $ 52,283
Net transfers to separate accounts 148,052 172,128 183,341
----------------------------------
$275,257 $256,061 $235,624
==================================
- --------------------------------------------------------------------------------
56
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLANS
Substantially all Company employees are covered by a qualified, noncontributory
defined benefit pension plan sponsored by the Company and certain of its
affiliates. Benefits are based on years of service and an employee's average
compensation during the last five years of service. The Company's policy has
been to contribute funds to the plan in amounts required to maintain sufficient
plan assets to provide for accrued benefits. In applying this general policy,
the Company considers, among other factors, the recommendations of its
independent consulting actuaries, the requirements of federal pension law and
the limitations on deductibility imposed by federal income tax law.
The Company records pension cost in accordance with the provisions of SFAS No.
87, "Employers' Accounting for Pensions." Pension cost for the year is allocated
to each sponsoring company based on the ratio of salary costs for each company
to total salary cost. Pension cost allocated to the Company for 1995, 1994 and
1993 was $151,000, $218,000, and $139,000, respectively.
Separate information disaggregated by sponsoring employer company is not
available on the components of the net pension cost or on the funded status of
the plan. Pension cost for the total plan for 1995, 1994 and 1993 is summarized
as follows:
1995 1994 1993
------------------------------
(IN THOUSANDS)
Service cost $ 528 $ 679 $ 571
Interest cost 508 535 483
Actual return on plan assets (1,568) 310 (966)
Net amortization and deferral 900 (949) 277
==============================
Net pension cost $ 368 $ 575 $ 365
==============================
- --------------------------------------------------------------------------------
57
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of the total plan as of December 31, 1995 and 1994 was as
follows:
DECEMBER 31
1995 1994
---------------------
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefit obligation $(5,243) $(4,589)
Non-vested benefit obligation (165) (157)
---------------------
Accumulated benefit obligation (5,408) (4,746)
Excess of projected benefit obligation over
accumulated benefit obligation (2,865) (2,405)
---------------------
Projected benefit obligation (8,273) (7,151)
Plan assets at fair market value 8,342 6,514
---------------------
Plan assets greater than (less than) projected
benefit obligation 69 (637)
Unrecognized net loss 1,560 1,971
Unrecognized prior service cost 758 815
Unrecognized net asset established at the date
of initial application (2,025) (2,209)
=====================
Net prepaid (accrued) pension expense $ 362 $ (60)
=====================
Assumptions were as follows:
1995 1994 1993
----------------------
Weighted average discount rate 7.5% 8.5% 7.5%
Weighted average compensation rate for
participants age 45 and older 4.5 4.5 4.5
Weighted average expected long-term return
on plan assets 9.0 9.0 9.0
Compensation rates that vary by age for participants under age 45 were used in
determining the actuarial present value of the projected benefit obligation in
1995. Plan assets are invested in a diversified portfolio of affiliated mutual
funds that invest in equity and debt securities.
- --------------------------------------------------------------------------------
58
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
In addition to the Company's defined benefit pension plan, the Company and
certain of its affiliates provide certain medical and life insurance benefits to
full-time employees who have retired after the age of 55 with five years of
service. The plan is contributory, with retiree contributions adjusted annually,
and contains other cost-sharing features, such as deductibles and coinsurance.
Contributions vary based on the employee's years of service earned after age 40.
The Company and its affiliates' portion of the costs is frozen after 1996 with
all future cost increases passed on to the retirees. Retirees in the plan prior
to July 1, 1993 are covered 100% by the Company.
The Company records net periodic cost for non-pension postretirement benefits in
accordance with the provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The net periodic cost is allocated
among the Company and its affiliates based on the number of eligible employees.
The net periodic cost allocated to the Company was $198,000, $171,000 and
$166,000 for 1995, 1994 and 1993, respectively.
Separate information disaggregated by sponsoring employer company is not
available on the components of the net retiree medical care and life insurance
costs or on the funded status of the plan. Retiree medical care and life
insurance costs for the total plan for 1995, 1994 and 1993 are summarized as
follows:
1995 1994 1993
----------------------
(IN THOUSANDS)
Service cost $151 $116 $118
Interest cost 305 275 233
----------------------
$456 $391 $351
======================
- --------------------------------------------------------------------------------
59
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of the total plan as of December 31, 1995 and 1994 was as
follows:
DECEMBER 31
1995 1994
---------------------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees $(2,514) $(2,418)
Active participants:
Retirement eligible (632) (620)
Others (1,035) (706)
---------------------
(4,181) (3,744)
Unrecognized net (gain) loss 67 (30)
---------------------
Accrued postretirement benefit cost $(4,114) $(3,774)
=====================
The annual assumed rate of increase in the per capita cost of covered benefits
is 11% for 1995 and is assumed to decrease gradually to 5% for 2001 and remain
at that level thereafter. The health care cost trend rate has a significant
effect on the amount reported. For example, increasing the assumed health care
cost trend rates by one percentage point each year would increase the
accumulated postretirement benefit obligation as of December 31, 1995 by
$233,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1995 by $60,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5%, 8.5% and 7.5% at December 31, 1995, 1994 and 1993,
respectively.
The Company has a profit-sharing and savings plan for which substantially all
employees are eligible after one year of employment with the Company.
Contributions for profit sharing are based on a formula established by the Board
of Directors with pro rata allocation among employees based on salaries. The
savings plan is a tax-deferred 401(k) retirement plan. Employees may contribute
up to 10% of their eligible compensation. The Company matches 50% of the first
6% of the employee contributions. Employee contributions are fully vested, and
Company contributions are vested over a five-year period. Company contributions
to the profit-sharing and savings plan charged to operations were $721,000,
$371,000 and $463,000 for 1995 1994 and 1993, respectively.
- --------------------------------------------------------------------------------
60
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
5. RELATED-PARTY TRANSACTIONS
SBG provides certain management and administrative services to the Company.
During 1995, 1994 and 1993, the Company incurred $18,654,000, $16,852,000 and
$14,729,000, respectively, for such services. The Company leases certain office
space to SBG for which annual rent income of $1,133,000 was recorded in 1995,
1994 and 1993. Additionally, in 1995, 1994 and 1993, the Company paid
commissions of $2,546,000, $2,700,000, $2,985,000, respectively, to Security
Distributors, Inc., a wholly-owned subsidiary of SBG.
Effective January 2, 1995, the Company acquired, pursuant to an assumption
reinsurance agreement from Pioneer National Life Insurance Company (PNL), then a
wholly-owned subsidiary of SBG, substantially all of PNL's life insurance
business. Concurrent with the assumption reinsurance agreement, the Company
entered into a 100% coinsurance agreement with PNL reinsuring the remaining
business. The Company did not recognize any gain or loss on the above
transactions. The Company received $2.9 million of assets as consideration for
the liabilities assumed by the Company in the assumption reinsurance and
coinsurance agreement. Assumed premiums and claims related to this business were
not significant to the Company during 1995. PNL was subsequently merged with
First Security Benefit Life Insurance and Annuity Company of New York (FSBL), a
newly formed wholly-owned subsidiary of SBG.
During 1995, the Company purchased an SBG note for the principal amount of $17
million. The note is due May 24, 2000 and provides for semiannual interest
payments at 7.35% per annum commencing on November 24, 1995. The note has been
registered with the NAIC and is included in fixed maturities in the accompanying
balance sheet. SBG used $12 million of the proceeds to purchase Company-issued
annuity contracts for the purpose of funding new investment options within the
Company's separate account. The account balance of these contracts totaled
$13,005,000 at December 31, 1995. The remaining $5 million of proceeds were used
to purchase shares in new mutual funds managed by Security Management Company, a
wholly-owned subsidiary of SBG. The net asset value of these shares totaled
$5,364,000 at December 31, 1995.
At December 31, 1995 and 1994, the Company's investment in SBG was $29,590,000
and $21,028,000, respectively. The Company recorded cash dividends of
$4,200,000, $5,200,000 and $8,300,000 from SBG during 1995, 1994 and 1993,
respectively.
- --------------------------------------------------------------------------------
61
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
5. RELATED-PARTY TRANSACTIONS (CONTINUED)
Condensed financial information related to SBG is as follows:
Balance Sheets:
1995 1994
---------------------
(IN THOUSANDS)
Cash and investments $45,221 $19,456
Property and equipment 8,138 8,736
Other assets 7,594 7,910
---------------------
$60,953 $36,102
=====================
Accounts payable and other liabilities $14,363 $15,074
Note payable to parent 17,000 ---
Stockholder's equity 29,590 21,028
---------------------
$60,953 $36,102
=====================
Statements of Operations:
1995 1994 1993
---------------------------------
(IN THOUSANDS)
Revenues:
Management fees $18,654 $16,852 $14,729
Mutual fund fees 24,266 22,058 21,352
Other 3,226 2,373 7,287
---------------------------------
46,146 41,283 43,368
General, administrative and other expenses 36,488 32,390 30,080
Income taxes 3,927 3,430 5,233
Cumulative effect of SFAS No. 106 --- --- 1,735
---------------------------------
Net income $ 5,731 $ 5,463 $ 6,320
=================================
- --------------------------------------------------------------------------------
62
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
6. REINSURANCE
The Company is involved in both the cession and assumption of reinsurance with
other companies. The Company's maximum retention on any one life is $500,000.
Risks are reinsured with other companies to permit recovery of a portion of
direct losses.
Principal reinsurance transactions are summarized as follows:
1995 1994 1993
--------------------------------------
(IN THOUSANDS)
Reinsurance assumed:
Premiums received $ 866 $ 1,276 $ 1,359
======================================
Commissions paid $ 144 $ 239 $ 96
======================================
Claims paid $ 1,597 $ 1,469 $ 7,290
======================================
Reinsurance ceded:
Premiums paid $ 73,916 $ 12,018 $ 4,194
======================================
Commissions received $ 230 $ 1,443 $ 148
======================================
Claim recoveries $ 3,089 $ 2,485 $ 2,231
======================================
Reinsurance in force (at December 31):
Assumed policies $ 25,438 $ 30,814 $ 39,730
======================================
Ceded policies $3,932,146 $1,150,828 $1,081,591
======================================
The liabilities for policy reserves and policy and contract claims include the
following amounts for reinsurance assumed: $354,000 and $2,790,000 at December
31, 1995 and $120,000 and $3,187,000 at December 31, 1994.
The ceding of insurance through reinsurance agreements does not discharge the
primary liability of the original underwriters to the insured. However,
statutory accounting practices treat risks that have been reinsured, to the
extent of reinsurance, as though they were not risks for which the original
insurer is liable. Therefore, in financial statement presentations, policy
reserves and policy and contract claim liabilities are presented net of that
portion of risk reinsured. Accordingly, policy reserves and policy and contract
claim liabilities have been shown net of reinsurance credits of $77,908,000 and
$968,000 at December 31, 1995 and $11,048,000 and $459,000 at December 31, 1994.
- --------------------------------------------------------------------------------
63
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
6. REINSURANCE (CONTINUED)
In 1995, the Company transferred, through a 100% coinsurance agreement, $66.9
million in policy reserves and claim liabilities. The agreement related to a
block of whole life and decreasing term life insurance business. The Company
recorded a pretax gain of $42.6 million which represented the initial ceding
commission. This gain, net of tax, was recorded as an increase to unassigned
surplus.
In prior years, the Company was involved in litigation arising out of its
participation from 1986 to 1990 in a reinsurance pool. The litigation related to
the pool manager and a reinsurance intermediary placing major medical business
in the pool without authorization. During 1993, the Company settled the major
medical portion of the pool's activity with no significantly adverse effect on
the Company. The nonmajor medical business placed in the pool has experienced
significant losses. At December 31, 1995, the Company believes adequate
provision has been made for such losses.
7. INCOME TAXES
The Company files a life/nonlife consolidated federal income tax return with
SBG. Income taxes are allocated to the Company on the basis of its filing a
separate tax return. The Company is taxed at usual corporate rates as defined by
the applicable income tax laws for mutual life insurance companies. These laws
provide for differences in the recognition of certain income and expenses, and
provide for deductions that may result in a provision for income taxes that does
not have the customary relationship of taxes to income. The provision for income
taxes differs from the amount computed at the statutory federal rate due
primarily to the dividends received deduction and tax credits.
During the year ended December 31, 1993, the Company began establishing deferred
income taxes on its tax-basis deferred policy acquisition costs. Prior to this
time, no deferred income taxes had been established on any difference between
the financial statement and income tax bases of assets and liabilities, and, at
December 31, 1995, this remains the only item to which deferred income tax
accounting has been applied. The Company's policy is to nonadmit any resulting
deferred tax asset; accordingly, this practice has no impact on surplus. The
cumulative effect of adopting this change as of January 1, 1993 amounted to
$3,464,000 and was reflected as a nonadmitted asset at that time. The effect of
the new method increased income tax expense by $115,000 for 1995 and decreased
income tax expense by $927,000 and $1,444,000 for 1994 and 1993, respectively.
- --------------------------------------------------------------------------------
64
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
8. CONDENSED FAIR VALUE INFORMATION
SFAS No. 107, "Disclosures about Fair Values of Financial Instruments," requires
disclosures of fair value information about financial instruments, whether
recognized or not recognized in a company's balance sheet, for which it is
practicable to estimate that value. The methods and assumptions used by the
Company to estimate the following fair value disclosures for financial
instruments are set forth in NOTE 1.
SFAS No. 107 excludes certain insurance liabilities and other nonfinancial
instruments from its disclosure requirements. However, the liabilities under all
insurance contracts are taken into consideration in the Company's overall
management of interest rate risk, which minimizes exposure to changing interest
rates through the matching of investment maturities with amounts due under
insurance contracts. The fair value amounts presented herein do not include an
amount for the value associated with customer or agent relationships, the
expected interest margin (interest earnings over interest credited) to be earned
in the future on investment-type products, or other intangible items.
Accordingly, the aggregate fair value amounts presented herein do not
necessarily represent the underlying value of the Company; likewise, care should
be exercised in deriving conclusions about the Company's business or financial
condition based on the fair value information presented herein.
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------------------- -----------------------
(IN THOUSANDS)
Fixed maturities (NOTE 2) $2,294,802 $2,340,910 $2,160,550 $1,987,040
Equity securities (NOTE 2) 12,390 12,836 9,050 9,494
Mortgage loans 70,777 76,610 90,509 88,894
Policy loans 100,452 104,077 92,130 91,492
Short-term investments 992 992 50,406 50,406
Cash and certificates of deposit 12,059 12,059 10,820 10,820
Investment income due and accrued 30,577 30,577 25,857 25,857
Futures contracts --- (737) --- 240
Interest rate exchange agreements --- (2,291) --- ---
Supplementary contracts
without life contingencies 34,363 35,387 41,239 39,771
Individual and group annuities 1,922,901 1,774,642 1,828,753 1,690,693
----------------------- -----------------------
$4,479,313 $4,385,062 $4,309,314 $3,994,707
======================= =======================
- --------------------------------------------------------------------------------
65
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
9. COMMITMENTS AND CONTINGENCIES
The Company has a $75.5 million line of credit facility from the Federal Home
Loan Bank of Topeka. Any borrowings in connection with this facility bear
interest at .1% over the Federal Funds rate. At December 31, 1995, there were no
borrowings outstanding under this facility.
The economy and other factors have caused an increase in the number of insurance
companies that have required regulatory supervision. This circumstance is
expected to result in an increase in assessments by state guaranty funds, or
voluntary payments by solvent insurance companies, to cover losses to
policyholders of insolvent or rehabilitated companies. Mandatory assessments can
be partially recovered through a reduction in future premium taxes in some
states. The Company records these assessments on a cash basis and has paid
$2,014,000, $2,270,000 and $2,077,000 for the years ended December 31, 1995,
1994 and 1993, respectively. The ultimate amounts or the ultimate effect of any
such increased assessments or voluntary payments on the Company's financial
position and results of operations are not currently determinable. The
accompanying financial statements do not include any provision for any such
potential assessments.
10. ANNUITY AND DEPOSIT LIABILITIES
The withdrawal characteristics of the liability for future policy benefits for
annuities and supplementary contracts and deposits as of December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
GENERAL SEPARATE
ACCOUNT ACCOUNT TOTAL PERCENT
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal:
With market value adjustment $ 557 $ --- $ 557 ---%
At book value less current surrender
charge of 5% or more 572,902 652,843 1,225,745 30
----------------------------------------------------
Total with adjustment 573,459 652,843 1,226,302 30
Subject to discretionary withdrawal
at book value with minimal or no
charge or adjustment 1,394,680 1,360,750 2,755,430 67
Not subject to discretionary withdrawal 112,382 12,070 124,452 3
----------------------------------------------------
$2,080,521 $2,025,663 $4,106,184 100%
====================================================
</TABLE>
- --------------------------------------------------------------------------------
66
<PAGE>
APPENDIX
DEATH BENEFIT PERCENTAGES
AGE PERCENTAGE AGE PERCENTAGE AGE PERCENTAGE AGE PERCENTAGE
0-40 250% 50 185% 60 130% 70 115%
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 1 OF 14
- --------------------------------------------------------------------------------
67
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET, TOPEKA, KANSAS 66636
SECURITY VARILIFE
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
IMPORTANT INFORMATION ABOUT THIS ILLUSTRATION
Security Varilife is a flexible premium variable life insurance policy
offered by Security Benefit. Under the policy, net premiums and Accumulated
Value may be allocated among eleven underlying investment accounts ("Variable
Accounts") and the Fixed Account of Security Benefit.
THE PURPOSE OF THIS ILLUSTRATION IS TO SHOW HOW THE PERFORMANCE OF THE
VARIABLE ACCOUNTS COULD AFFECT THE DEATH BENEFITS, ACCUMULATED VALUES AND NET
CASH SURRENDER VALUES OF A HYPOTHETICAL POLICY OVER AN EXTENDED PERIOD OF TIME
ASSUMING HYPOTHETICAL RATES OF RETURN EQUIVALENT TO CONSTANT GROSS ANNUAL RATES
OF 0%, 6% AND 12% (AFTER ANY DEDUCTION FOR EXPENSES AND CHARGES SHOWN BELOW).
The rates of return shown on these tables are hypothetical and should not be
deemed a representation of past rates of return, or a projection or prediction
of future rates of return. Actual rates of return may be more or less than those
shown and will depend on a number of factors, including the premium allocation
chosen by the Policyowner. The policies illustrated include the following:
1. Male or Female, age 35, $2,700 annual premium (payable for 30 years), at
Current and Guaranteed Cost of Insurance Rates (pages 70, 71).
2. Male or Female, age 45, $3,300 annual premium (payable for 30 years), at
Current and Guaranteed Cost of Insurance Rates (pages 72, 73).
The cost of insurance rates for policies issued in Illinois, New Jersey,
Oregon and Texas are different than those imposed on policies issued in other
states as required by the insurance laws of Illinois, New Jersey, Oregon and
Texas. Accordingly, the following policies are illustrated using the male and
female rates applicable to policies issued in those states:
1. Male, age 35, $2,700 annual premium (payable for 30 years), at Current and
Guaranteed Cost of Insurance Rates (pages 74, 75).
2. Female, age 35, $2,700 annual premium (payable for 30 years), at Current and
Guaranteed Cost of Insurance Rates (pages 76, 77).
3. Male, age 45, $3,300 annual premium (payable for 30 years), at Current and
Guaranteed Cost of Insurance Rates (pages 78, 79).
4. Female, age 45, $3,300 annual premium (payable for 30 years), at Current and
Guaranteed Cost of Insurance Rates (pages 80, 81).
The values would be different from those shown if the gross annual
investment rates of return averaged 0%, 6% or 12% over a period of years, but
also fluctuated above or below those averages for individual policy years. No
representation can be made by Security Benefit that the assumed rates of return
can be achieved for any one year or sustained over any period of time. These
illustrations assume that all premiums are paid when due and that no policy
loans have been made. A POLICY MAY LAPSE DUE TO INSUFFICIENT PREMIUMS, EXCESSIVE
LOANS OR WITHDRAWALS, OR POOR FUND PERFORMANCE.
The third column of each table, labeled "Total Premiums Paid Plus Interest
at 5%," shows the amount that would accumulate if an amount equal to the annual
premium (after taxes) were invested to earn interest at 5% compounded annually.
These illustrations assume that no policy loans have been made.
The amounts shown for the Death Benefits, Accumulated Values and Net Cash
Surrender Values reflect the fact that the net investment return on the Variable
Accounts is lower than the gross investment return as a result of charges levied
against the assets of the Variable Accounts, including a daily administrative
charge at an annual rate of .35%, and a daily mortality and expense risk charge
at an annual rate of .90%, of the average daily net assets of each Variable
Account. These values also take into account the following: (i) a premium load
of 1% for policies issued in states other than Illinois, New Jersey, Oregon and
Texas and 2.4% for policies issued in those states, although the premium load
may be more or less than this amount depending on the state and municipality in
which the policy is issued; and (ii) a "Current" or "Guaranteed" monthly charge
for Cost of Insurance. (The illustrations based on "Current Cost of Insurance
Rates" assume that the rate currently charged by Security Benefit for Cost of
Insurance is charged throughout the life of the policy. The illustrations based
on "Guaranteed Cost of Insurance Rates" assume that the maximum monthly charge
for Cost of Insurance permitted under the policy is charged throughout the life
of the policy). In addition, the values reflect other charges that are paid by
the underlying Fund in which the Variable Accounts invest, including investment
advisory fees, which
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 1 OF 14
- --------------------------------------------------------------------------------
68
<PAGE>
are indirectly borne by the Variable Accounts. The expenses of the Fund are not
fixed or specified under the terms of the policy and are described in the Fund
Prospectus. The expenses of the Fund are assumed to be equal to an annual rate
of 0.90% of the aggregate average daily net assets of the Fund.
The assumed total Fund expense of .90% is a dollar weighted average of each
Series' expenses. For the year ended December 31, 1995, the total expenses of
each Series of the Fund were the following percentages of the average daily net
assets of the Series: 0.83% for Series A; 0.83% for Series B; 0.60% for Series
C; 1.31% for Series D; 0.85% for Series E; 0.86% for Series S; 0.84% for Series
J; 1.28% for Series K; 1.94% for Series M; 1.90% for Series N; and 1.40% for
Series O. Series K, M, N and O were not publicly offered until June 1, 1995 and
the expense ratios for these series are annualized. The assumed total Fund
expense of .90% was determined based on the average daily net assets of each
Series during 1995. Accordingly, existing Series established prior to 1995,
which have lower expenses, were given more weight in determining the amount of
the Fund's assumed expenses than were the new Series which have higher expenses.
The assumed Fund expense of .90% may be more or less than actual Fund expenses
incurred depending on the expenses of the Series underlying the Variable Account
to which Accumulated Value is allocated.
After deductions of the charges and Fund expenses described above, the
illustrated gross annual investment rates of return of 0%, 6%, and 12%
correspond to approximate net annual rates of -2.14%, 3.73%, and 9.60%. The
hypothetical values shown in the tables do not reflect any charges against the
Variable Accounts for income taxes that may be attributable to the Variable
Accounts in the future, since Security Benefit is not currently making these
charges. In the event that these charges are to be made, the gross annual
investment rate would have to exceed 0%, 6% or 12% by an amount sufficient to
cover the tax charges in order to produce the Death Benefits, Accumulated
Values, and Net Cash Surrender Values illustrated.
This illustration reflects Security Benefit's current interpretation of
Internal Revenue Code Section 7702 and 7702A and may not reflect a Policyowner's
actual tax consequences. Based upon comparison of annual premium and future
benefits under our current interpretation, this policy will not be subject to
tax treatment as a modified endowment contract if the premiums as illustrated
are paid when scheduled. The tests were done based on the values under the
illustration bases. Tests done under other bases may produce different results.
It is suggested that a Policyowner consult his or her professional tax advisor
regarding the interpretation of the current and proposed tax laws. Additional
information about the policy, including a description of death benefits,
transfers, partial withdrawal benefits, and policy loans, is contained under
"Summary of the Policy" and "The Policy" in this Prospectus.
Security Benefit will furnish upon request a comparable illustration
reflecting the proposed Insured's Age, Underwriting Class (where the medical or
paramedical underwriting method is used), Specified Amount and premium amounts
requested. In addition, upon request, illustrations will be furnished reflecting
allocation of premiums to specified Variable Accounts. Such illustrations will
reflect the expenses of the Series of the Fund in which the Variable Account
invests. Illustrations that use a hypothetical gross rate of return in excess of
12% are available to certain large institutional investors upon request.
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 2 OF 14
- --------------------------------------------------------------------------------
69
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male or Female, Age 35
Initial Face Amount: $88,063
Initial Annual Premium: $2,700
BASED ON CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROSS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ---------------------------- ----------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ------ --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36 $2,835 $2,461 $1,840 $90,524 $2,541 $1,920 $90,604 $2,618 $1,997 $90,681
2 37 $5,812 $4,858 $4,268 $92,921 $5,163 $4,573 $93,226 $5,475 $4,885 $93,538
3 38 $8,937 $7,190 $6,631 $95,253 $7,870 $7,311 $95,933 $8,591 $8,032 $96,654
4 39 $12,219 $9,455 $8,927 $97,518 $10,659 $10,132 $98,723 $11,990 $11,462 $100,053
5 40 $15,665 $11,653 $11,156 $99,716 $13,535 $13,038 $101,598 $15,694 $15,197 $103,757
6 41 $19,284 $13,783 $13,317 $101,846 $16,495 $16,030 $104,559 $19,732 $19,266 $107,795
7 42 $23,083 $15,845 $15,410 $103,908 $19,545 $19,110 $107,607 $24,134 $23,699 $112,197
8 43 $27,072 $17,838 $17,435 $105,901 $22,680 $22,277 $110,744 $28,933 $28,529 $116,996
9 44 $31,260 $19,764 $19,391 $107,827 $25,909 $25,537 $113,927 $34,166 $33,793 $122,229
10 45 $35,658 $21,621 $21,279 $109,684 $29,229 $28,888 $117,292 $39,872 $39,531 $127,935
15 50 $61,175 $29,859 $29,859 $117,922 $47,264 $47,264 $135,327 $77,181 $77,181 $165,244
20 55 $93,742 $36,155 $36,155 $124,218 $67,670 $67,670 $155,733 $134,762 $134,762 $222,825
25 60 $135,307 $40,061 $40,061 $128,124 $90,175 $90,175 $178,238 $223,554 $223,554 $311,617
30 65 $188,355 $40,899 $40,899 $128,962 $114,163 $114,163 $202,226 $360,564 $360,564 $448,627
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 3 OF 14
- --------------------------------------------------------------------------------
70
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male or Female, Age 35
Initial Face Amount: $88,063
Initial Annual Premium: $2,700
BASED ON GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ----------------------------- ----------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ------ --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36 $2,835 $2,407 $1,786 $90,470 $2,485 $1,864 $90,548 $2,561 $1,940 $90,624
2 37 $5,812 $4,747 $4,158 $92,810 $5,046 $4,456 $93,109 $5,350 $4,760 $93,413
3 38 $8,937 $7,020 $6,461 $95,082 $7,684 $7,125 $95,747 $8,389 $7,830 $96,452
4 39 $12,219 $9,222 $8,694 $97,285 $10,398 $9,871 $98,461 $11,697 $11,169 $99,760
5 40 $15,665 $11,352 $10,855 $99,415 $13,189 $12,692 $101,252 $15,296 $14,799 $103,359
6 41 $19,284 $13,409 $12,944 $101,472 $16,055 $15,590 $104,118 $19,212 $18,746 $107,275
7 42 $23,083 $15,394 $14,959 $103,457 $18,999 $18,564 $107,062 $23,472 $23,038 $111,535
8 43 $27,072 $17,304 $16,900 $105,367 $22,019 $21,616 $110,082 $28,109 $27,706 $116,172
9 44 $31,260 $19,141 $18,768 $107,204 $25,119 $24,747 $113,182 $33,157 $32,784 $121,220
10 45 $35,658 $20,902 $20,561 $108,965 $28,297 $27,956 $116,360 $38,650 $38,309 $126,713
15 50 $61,175 $28,552 $28,552 $116,615 $45,384 $45,384 $133,447 $74,374 $74,374 $162,437
20 55 $93,742 $33,992 $33,992 $122,055 $64,275 $64,275 $152,338 $129,020 $129,020 $217,083
25 60 $135,307 $36,605 $36,605 $124,668 $84,358 $84,358 $172,421 $212,480 $212,480 $300,543
30 65 $188,355 $35,482 $35,482 $123,545 $104,521 $104,521 $192,584 $340,018 $340,018 $428,081
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 4 OF 14
- --------------------------------------------------------------------------------
71
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male or Female, Age 45
Initial Face Amount: $71,506
Initial Annual Premium: $3,300
BASED ON CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ----------------------------- ----------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ------ --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $3,465 $2,911 $2,119 $74,417 $3,004 $2,212 $74,510 $3,096 $2,304 $74,602
2 47 $7,103 $5,734 $4,981 $77,240 $6,094 $5,342 $77,600 $6,462 $5,710 $77,968
3 48 $10,923 $8,470 $7,757 $79,976 $9,272 $8,559 $80,778 $10,124 $9,411 $81,630
4 49 $14,935 $11,118 $10,445 $82,624 $12,539 $11,866 $84,045 $14,106 $13,433 $85,612
5 50 $19,146 $13,679 $13,045 $85,185 $15,895 $15,261 $87,401 $18,437 $17,803 $89,943
6 51 $23,569 $16,148 $15,554 $87,654 $19,339 $18,745 $90,845 $23,146 $22,552 $94,652
7 52 $28,212 $18,525 $17,971 $90,031 $22,871 $22,317 $94,377 $28,265 $27,711 $99,771
8 53 $33,088 $20,806 $20,292 $92,312 $26,488 $25,973 $97,994 $33,828 $33,313 $105,334
9 54 $38,207 $22,987 $22,512 $94,493 $30,187 $29,712 $101,693 $39,870 $39,395 $111,376
10 55 $43,582 $25,065 $24,630 $96,571 $33,967 $33,531 $105,473 $46,434 $45,998 $117,940
15 60 $74,770 $33,868 $33,868 $105,374 $54,043 $54,043 $125,549 $88,849 $88,849 $160,355
20 65 $114,574 $39,605 $39,605 $111,111 $75,685 $75,685 $147,191 $153,123 $153,123 $224,629
25 70 $165,374 $41,222 $41,222 $112,728 $97,629 $97,629 $169,135 $250,183 $250,183 $321,689
30 75 $230,211 $37,045 $37,045 $108,551 $117,575 $117,575 $189,081 $396,507 $396,507 $468,013
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 5 OF 14
- --------------------------------------------------------------------------------
72
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male or Female, Age 45
Initial Face Amount: $71,506
Initial Annual Premium: $3,300
BASED ON GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ----------------------------- ----------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ----- --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $3,465 $2,815 $2,023 $74,321 $2,906 $2,114 $74,411 $2,994 $2,202 $74,500
2 47 $7,103 $5,537 $4,785 $77,043 $5,885 $5,133 $77,391 $6,241 $5,489 $77,747
3 48 $10,923 $8,166 $7,453 $79,672 $8,941 $8,228 $80,447 $9,763 $9,050 $81,269
4 49 $14,935 $10,702 $10,028 $82,208 $12,072 $11,398 $83,578 $13,583 $12,910 $85,089
5 50 $19,146 $13,142 $12,508 $84,648 $15,277 $14,643 $86,783 $17,727 $17,093 $89,233
6 51 $23,569 $15,483 $14,889 $86,989 $18,554 $17,960 $90,060 $22,219 $21,625 $93,725
7 52 $28,212 $17,722 $17,167 $89,228 $21,899 $21,345 $93,405 $27,087 $26,533 $98,593
8 53 $33,088 $19,854 $19,340 $91,360 $25,309 $24,794 $96,815 $32,361 $31,846 $103,867
9 54 $38,207 $21,875 $21,400 $93,381 $28,778 $28,302 $100,284 $38,070 $37,595 $109,576
10 55 $43,582 $23,779 $23,343 $95,285 $32,300 $31,864 $103,806 $44,250 $43,814 $115,756
15 60 $74,770 $31,484 $31,484 $102,990 $50,628 $50,628 $122,134 $83,773 $83,773 $155,279
20 65 $114,574 $35,585 $35,585 $107,091 $69,426 $69,426 $140,932 $142,625 $142,625 $214,131
25 70 $165,374 $34,673 $34,673 $106,179 $86,736 $86,736 $158,242 $229,717 $229,717 $301,223
30 75 $215,948 $26,532 $26,532 $98,038 $99,184 $99,184 $170,690 $358,092 $358,092 $429,598
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 6 OF 14
- --------------------------------------------------------------------------------
73
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male, Age 35
Initial Face Amount: $82,746
Initial Annual Premium: $2,700
BASED ON CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ----------------------------- ----------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ----- --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36 $2,835 $2,428 $1,807 $85,174 $2,506 $1,885 $85,252 $2,582 $1,961 $85,328
2 37 $5,812 $4,791 $4,201 $87,537 $5,092 $4,502 $87,838 $5,399 $4,810 $88,145
3 38 $8,937 $7,090 $6,532 $89,836 $7,761 $7,202 $90,507 $8,473 $7,914 $91,219
4 39 $12,219 $9,325 $8,797 $92,071 $10,514 $9,986 $93,260 $11,824 $11,297 $94,570
5 40 $15,665 $11,494 $10,997 $94,240 $13,350 $12,853 $96,096 $15,479 $14,982 $98,225
6 41 $19,284 $13,596 $13,130 $96,342 $16,272 $15,806 $99,018 $19,463 $18,998 $102,209
7 42 $23,083 $15,631 $15,196 $98,377 $19,280 $18,845 $102,026 $23,807 $23,372 $106,553
8 43 $27,072 $17,599 $17,195 $100,345 $22,376 $21,972 $105,122 $28,542 $28,139 $111,288
9 44 $31,260 $19,499 $19,126 $102,245 $25,561 $25,188 $108,307 $33,705 $33,333 $116,451
10 45 $35,658 $21,331 $20,989 $104,077 $28,836 $28,494 $111,582 $39,334 $38,993 $122,080
15 50 $61,175 $29,446 $29,446 $112,192 $46,615 $46,615 $129,361 $76,125 $76,125 $158,871
20 55 $93,742 $35,610 $35,610 $118,356 $66,689 $66,689 $149,435 $132,861 $132,861 $215,607
25 60 $135,307 $39,306 $39,306 $122,052 $88,694 $88,694 $171,440 $220,202 $220,202 $302,948
30 65 $188,355 $39,799 $39,799 $122,545 $111,898 $111,898 $194,644 $354,710 $354,710 $437,456
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 7 OF 14
- --------------------------------------------------------------------------------
74
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male, Age 35
Initial Face Amount: $82,746
Initial Annual Premium: $2,700
BASED ON GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ----------------------------- ----------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ----- --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36 $2,835 $2,375 $1,754 $85,121 $2,451 $1,830 $85,197 $2,526 $1,905 $85,272
2 37 $5,812 $4,683 $4,093 $87,429 $4,977 $4,387 $87,723 $5,277 $4,687 $88,023
3 38 $8,937 $6,923 $6,364 $89,669 $7,579 $7,020 $90,325 $8,274 $7,715 $91,020
4 39 $12,219 $9,096 $8,568 $91,842 $10,257 $9,729 $93,003 $11,537 $11,009 $94,283
5 40 $15,665 $11,199 $10,702 $93,945 $13,011 $12,514 $95,757 $15,089 $14,592 $97,835
6 41 $19,284 $13,230 $12,764 $95,976 $15,840 $15,374 $98,586 $18,954 $18,488 $101,700
7 42 $23,083 $15,189 $14,755 $97,935 $18,746 $18,311 $101,492 $23,159 $22,724 $105,905
8 43 $27,072 $17,076 $16,673 $99,822 $21,728 $21,325 $104,474 $27,736 $27,332 $110,482
9 44 $31,260 $18,889 $18,516 $101,635 $24,787 $24,415 $107,533 $32,717 $32,344 $115,463
10 45 $35,658 $20,627 $20,285 $103,373 $27,923 $27,582 $110,669 $38,137 $37,796 $120,883
15 50 $61,175 $28,160 $28,160 $110,906 $44,767 $44,767 $127,513 $73,370 $73,370 $156,116
20 55 $93,742 $33,467 $33,467 $116,213 $63,335 $63,335 $146,081 $127,202 $127,202 $209,948
25 60 $135,307 $35,843 $35,843 $118,589 $82,897 $82,897 $165,643 $209,227 $209,227 $291,973
30 65 $188,355 $34,301 $34,301 $117,047 $102,197 $102,197 $184,943 $334,227 $334,227 $416,973
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 8 OF 14
- --------------------------------------------------------------------------------
75
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Female, Age 35
Initial Face Amount: $107,613
Initial Annual Premium: $2,700
BASED ON CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ---------------------------- ----------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ----- --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36 $2,835 $2,424 $1,803 $110,037 $2,502 $1,881 $110,115 $2,579 $1,958 $110,192
2 37 $5,812 $4,784 $4,194 $112,397 $5,085 $4,495 $112,698 $5,392 $4,802 $113,005
3 38 $8,937 $7,079 $6,520 $114,692 $7,748 $7,189 $115,361 $8,459 $7,900 $116,072
4 39 $12,219 $9,306 $8,778 $116,919 $10,493 $9,965 $118,106 $11,801 $11,274 $119,414
5 40 $15,665 $11,466 $10,969 $119,079 $13,319 $12,822 $120,932 $15,444 $14,947 $123,057
6 41 $19,284 $13,557 $13,091 $121,170 $16,227 $15,762 $123,840 $19,412 $18,947 $127,025
7 42 $23,083 $15,580 $15,145 $123,193 $19,221 $18,786 $126,834 $23,737 $23,303 $131,350
8 43 $27,072 $17,536 $17,132 $125,149 $22,300 $21,897 $129,913 $28,452 $28,048 $136,065
9 44 $31,260 $19,426 $19,054 $127,039 $25,471 $25,099 $133,084 $33,594 $33,222 $141,207
10 45 $35,658 $21,251 $20,909 $128,864 $28,734 $28,393 $136,347 $39,204 $38,862 $146,817
15 50 $61,175 $29,407 $29,407 $137,020 $46,527 $46,527 $154,140 $75,955 $75,955 $183,568
20 55 $93,742 $35,841 $35,841 $143,454 $66,881 $66,881 $174,494 $132,922 $132,922 $240,535
25 60 $135,307 $40,448 $40,448 $148,061 $89,978 $89,978 $197,591 $221,481 $221,481 $329,094
30 65 $188,355 $42,836 $42,836 $150,449 $115,740 $115,740 $223,353 $359,334 $359,334 $466,947
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 9 OF 14
- --------------------------------------------------------------------------------
76
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Female, Age 35
Initial Face Amount: $107,613
Initial Annual Premium: $2,700
BASED ON GUARANTEED COST OF INSURANCE RATES
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ---------------------------- ----------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ----- --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36 $2,835 $2,370 $1,749 $109,983 $2,446 $1,825 $110,059 $2,521 $1,900 $110,134
2 37 $5,812 $4,673 $4,083 $112,286 $4,967 $4,377 $112,580 $5,267 $4,677 $112,880
3 38 $8,937 $6,908 $6,349 $114,521 $7,562 $7,003 $115,175 $8,256 $7,697 $115,869
4 39 $12,219 $9,071 $8,543 $116,684 $10,229 $9,702 $117,842 $11,507 $10,979 $119,120
5 40 $15,665 $11,162 $10,665 $118,775 $12,970 $12,473 $120,583 $15,043 $14,546 $122,656
6 41 $19,284 $13,179 $12,714 $120,792 $15,782 $15,316 $123,395 $18,887 $18,421 $126,500
7 42 $23,083 $15,123 $14,689 $122,736 $18,669 $18,234 $126,282 $23,069 $22,634 $130,682
8 43 $27,072 $16,994 $16,590 $124,607 $21,630 $21,226 $129,243 $27,618 $27,215 $135,231
9 44 $31,260 $18,794 $18,422 $126,407 $24,671 $24,298 $132,284 $32,573 $32,200 $140,186
10 45 $35,658 $20,523 $20,182 $128,136 $27,791 $27,449 $135,404 $37,968 $37,626 $145,581
15 50 $61,175 $28,111 $28,111 $135,724 $44,654 $44,654 $152,267 $73,148 $73,148 $180,761
20 55 $93,742 $33,767 $33,767 $141,380 $63,584 $63,584 $171,197 $127,281 $127,281 $234,894
25 60 $135,307 $37,327 $37,327 $144,940 $84,568 $84,568 $192,181 $210,891 $210,891 $318,504
30 65 $188,355 $38,250 $38,250 $145,863 $107,194 $107,194 $214,807 $340,245 $340,245 $447,858
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 10 OF 14
- --------------------------------------------------------------------------------
77
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male, Age 45
Initial Face Amount: $67,128
Initial Annual Premium: $3,300
BASED ON CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ---------------------------- ----------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ----- --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $3,465 $2,871 $2,079 $69,999 $2,963 $2,171 $70,091 $3,053 $2,261 $70,181
2 47 $7,103 $5,654 $4,902 $72,782 $6,010 $5,257 $73,138 $6,373 $5,620 $73,501
3 48 $10,923 $8,351 $7,638 $75,479 $9,142 $8,429 $76,270 $9,982 $9,269 $77,110
4 49 $14,935 $10,961 $10,288 $78,089 $12,362 $11,688 $79,490 $13,907 $13,234 $81,035
5 50 $19,146 $13,483 $12,849 $80,611 $15,668 $15,034 $82,796 $18,174 $17,541 $85,302
6 51 $23,569 $15,915 $15,321 $83,043 $19,061 $18,467 $86,189 $22,814 $22,220 $89,942
7 52 $28,212 $18,254 $17,700 $85,382 $22,538 $21,984 $89,666 $27,855 $27,301 $94,983
8 53 $33,088 $20,497 $19,982 $87,625 $26,097 $25,582 $93,225 $33,332 $32,817 $100,460
9 54 $38,207 $22,639 $22,164 $89,767 $29,734 $29,259 $96,862 $39,278 $38,803 $106,406
10 55 $43,582 $24,677 $24,241 $91,805 $33,448 $33,012 $100,576 $45,734 $45,298 $112,862
15 60 $74,770 $33,235 $33,235 $100,363 $53,093 $53,093 $120,221 $87,367 $87,367 $154,495
20 65 $114,574 $38,626 $38,626 $105,754 $74,070 $74,070 $141,198 $150,236 $150,236 $217,364
25 70 $165,374 $39,762 $39,762 $106,890 $95,024 $95,024 $162,152 $244,858 $244,858 $311,986
30 75 $230,211 $34,850 $34,850 $101,978 $113,433 $113,433 $180,561 $386,937 $386,937 $454,065
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 11 OF 14
- --------------------------------------------------------------------------------
78
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Male, Age 45
Initial Face Amount: $67,128
Initial Annual Premium: $3,300
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ---------------------------- ---------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ------ --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $3,465 $2,777 $1,985 $69,905 $2,866 $2,074 $69,994 $2,954 $2,162 $70,082
2 47 $7,103 $5,461 $4,708 $72,589 $5,804 $5,052 $72,932 $6,155 $5,403 $73,283
3 48 $10,923 $8,052 $7,339 $75,180 $8,816 $8,103 $75,944 $9,627 $8,914 $76,755
4 49 $14,935 $10,550 $9,877 $77,678 $11,901 $11,228 $79,029 $13,392 $12,719 $80,520
5 50 $19,146 $12,953 $12,319 $80,081 $15,058 $14,425 $82,186 $17,474 $16,840 $84,602
6 51 $23,569 $15,258 $14,664 $82,386 $18,285 $17,691 $85,413 $21,899 $21,305 $89,027
7 52 $28,212 $17,459 $16,905 $84,587 $21,577 $21,023 $88,705 $26,691 $26,137 $93,819
8 53 $33,088 $19,554 $19,039 $86,682 $24,930 $24,415 $92,058 $31,880 $31,365 $99,008
9 54 $38,207 $21,535 $21,060 $88,663 $28,337 $27,862 $95,465 $37,494 $37,019 $104,622
10 55 $43,582 $23,398 $22,962 $90,526 $31,793 $31,358 $98,921 $43,568 $43,133 $110,696
15 60 $74,770 $30,838 $30,838 $97,966 $49,671 $49,671 $116,799 $82,295 $82,295 $149,423
20 65 $114,574 $34,537 $34,537 $101,665 $67,737 $67,737 $134,865 $139,669 $139,669 $206,797
25 70 $165,374 $33,042 $33,042 $100,169 $83,917 $83,917 $151,045 $224,143 $224,143 $291,271
30 75 $215,948 $23,982 $23,982 $91,110 $94,544 $94,554 $161,682 $347,867 $347,867 $414,995
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 12 OF 14
- --------------------------------------------------------------------------------
79
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Female, Age 45
Initial Face Amount: $87,394
Initial Annual Premium: $3,300
BASED ON CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ----------------------------- ----------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ----- --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $3,465 $2,867 $2,075 $90,261 $2,959 $2,167 $90,353 $3,049 $2,257 $90,443
2 47 $7,103 $5,651 $4,899 $93,045 $6,006 $5,254 $93,400 $6,369 $5,617 $93,763
3 48 $10,923 $8,353 $7,640 $95,747 $9,144 $8,431 $96,538 $9,983 $9,270 $97,377
4 49 $14,935 $10,972 $10,299 $98,366 $12,373 $11,700 $99,767 $13,918 $13,245 $101,312
5 50 $19,146 $13,509 $12,875 $100,903 $15,695 $15,061 $103,089 $18,202 $17,569 $105,596
6 51 $23,569 $15,962 $15,368 $103,356 $19,111 $18,517 $106,505 $22,867 $22,273 $110,261
7 52 $28,212 $18,330 $17,776 $105,724 $22,621 $22,067 $110,015 $27,946 $27,392 $115,340
8 53 $33,088 $20,612 $20,098 $108,006 $26,226 $25,711 $113,620 $33,475 $32,960 $120,869
9 54 $38,207 $22,806 $22,331 $110,200 $29,924 $29,449 $117,318 $39,493 $39,017 $126,887
10 55 $43,582 $24,912 $24,477 $112,306 $33,719 $33,283 $121,113 $46,045 $45,610 $133,439
15 60 $74,770 $34,201 $34,201 $121,595 $54,271 $54,271 $141,665 $88,822 $88,822 $176,215
20 65 $114,574 $41,120 $41,120 $128,514 $77,347 $77,347 $164,741 $154,661 $154,661 $242,055
25 70 $165,374 $44,640 $44,640 $132,034 $101,976 $101,976 $189,370 $255,282 $255,282 $342,676
30 75 $230,211 $43,302 $43,302 $130,696 $126,455 $126,455 $213,849 $408,718 $408,718 $496,112
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 13 OF 14
- --------------------------------------------------------------------------------
80
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 HARRISON, TOPEKA, KS 66636-0001
SECURITY VARILIFE
A Flexible Premium Variable Life Insurance Policy
Illustration for: Female, Age 45
Initial Face Amount: $87,394
Initial Annual Premium: $3,300
BASED ON CURRENT COST OF INSURANCE RATES
<TABLE>
<CAPTION>
TOTAL 0% HYPOTHETICAL GROSS 6% HYPOTHETICAL GROSS 12% HYPOTHETICAL GROS
PREMIUMS ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN ANNUAL INVESTMENT RETURN
PAID PLUS ---------------------------- ----------------------------- -----------------------------
END INTEREST NET CASH NET CASH NET CASH
OF AT 5% ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH ACCUM. SURRENDER DEATH
YEAR AGE (AFTER TAXES) VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ---- --- ------------- ----- --------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $3,465 $2,772 $1,980 $90,166 $2,860 $2,068 $90,254 $2,948 $2,156 $90,342
2 47 $7,103 $5,457 $4,705 $92,851 $5,800 $5,048 $93,194 $6,150 $5,398 $93,544
3 48 $10,923 $8,055 $7,342 $95,449 $8,818 $8,105 $96,212 $9,629 $8,916 $97,023
4 49 $14,935 $10,565 $9,891 $97,959 $11,916 $11,242 $99,310 $13,406 $12,733 $100,800
5 50 $19,146 $12,986 $12,353 $100,380 $15,093 $14,459 $102,487 $17,510 $16,876 $104,904
6 51 $23,569 $15,318 $14,724 $102,712 $18,350 $17,756 $105,744 $21,967 $21,373 $109,361
7 52 $28,212 $17,558 $17,004 $104,952 $21,685 $21,131 $109,079 $26,809 $26,255 $114,203
8 53 $33,088 $19,704 $19,189 $107,098 $25,097 $24,582 $112,491 $32,066 $31,551 $119,460
9 54 $38,207 $21,753 $21,277 $109,147 $28,583 $28,108 $115,977 $37,773 $37,298 $125,167
10 55 $43,582 $23,705 $23,269 $111,099 $32,145 $31,710 $119,539 $43,973 $43,538 $131,367
15 60 $74,770 $32,093 $32,093 $119,487 $51,202 $51,202 $138,596 $84,187 $84,187 $171,581
20 65 $114,574 $37,779 $37,779 $125,173 $71,998 $71,998 $159,392 $145,424 $145,424 $232,818
25 70 $165,374 $39,386 $39,386 $126,780 $92,960 $92,960 $180,354 $237,706 $237,706 $325,100
30 75 $215,948 $34,977 $34,977 $122,371 $111,499 $111,499 $198,893 $376,220 $376,220 $463,614
</TABLE>
ILLUSTRATION NOT APPLICABLE TO POLICIES ISSUED IN THE STATES OF ILLINOIS, NEW
JERSEY, OREGON AND TEXAS.
The annual premium is assumed to have been paid in equal monthly payments at the
beginning of each policy month.
This illustration assumes that no policy loans or withdrawals have been made.
- --------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE INTERPRETED AS A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT
ALLOCATIONS MADE TO VARIABLE ACCOUNTS BY THE OWNER AND THE EXPERIENCE OF THE
ACCOUNTS. NO REPRESENTATION CAN BE MADE BY SECURITY BENEFIT LIFE, THE SEPARATE
ACCOUNT OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- --------------------------------------------------------------------------------
THIS ILLUSTRATION IS VALID ONLY AS PART OF THE PROSPECTUS AND ONLY IF ALL PAGES
ARE INCLUDED
PAGE 14 OF 14
- --------------------------------------------------------------------------------
81
