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File No. 33-83238
File No. 811-8724
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. [_]
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Post-Effective Amendment No. 10 [X]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 11 [X]
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(Check appropriate box or boxes)
T. ROWE PRICE VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)
Security Benefit Life Insurance Company
(Name of Depositor)
700 SW Harrison Street, Topeka, Kansas 66636-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, Including Area Code:
(785) 431-3000
Amy J. Lee
Associate General Counsel and Vice President
Security Benefit Group, Inc.
700 SW Harrison Street, Topeka, KS 66636-0001
(Name and address of Agent for Service)
It is proposed that this filing will become effective:
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 2000, pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on May 1, 2000, pursuant to paragraph (a)(1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_] on May 1, 2000, pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of securities being registered: Interests in a separate account under
individual flexible premium deferred variable annuity contracts and individual
single premium immediate variable annuity contracts (collectively, the
"Contract").
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VARIABLE ANNUITY PROSPECTUS
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T. ROWE PRICE NO-LOAD VARIABLE ANNUITY
An Individual Flexible Premium
Deferred Variable Annuity Contract
May 1, 2000
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ISSUED BY: MAILING ADDRESS:
Security Benefit T. Rowe Price Variable
Life Insurance Company Annuity Service Center
700 SW Harrison Street P.O. Box 750440
Topeka, Kansas 66636-0001 Topeka, Kansas 66675-0440
1-800-888-2461 1-800-469-6587
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INTRODUCTION
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* THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THE PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
* THIS PROSPECTUS IS ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE T. ROWE
PRICE EQUITY SERIES, INC., THE T. ROWE PRICE FIXED INCOME SERIES, INC.
AND THE T. ROWE PRICE INTERNATIONAL SERIES, INC. YOU SHOULD READ THE
PROSPECTUSES CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
This Prospectus describes the T. Rowe Price No-Load Variable Annuity--a
flexible premium deferred variable annuity contract (the "Contract") issued
by Security Benefit Life Insurance Company (the "Company"). The Contract is
available for individuals as a non-tax qualified retirement plan. The
Contract is also available as an individual retirement annuity ("IRA")
qualified under Section 408, or a Roth IRA qualified under Section 408A, of
the Internal Revenue Code. The Contract is designed to give you flexibility
in planning for retirement and other financial goals.
You may allocate your purchase payments to one or more of the Subaccounts
that comprise a separate account of the Company called the T. Rowe Price
Variable Annuity Account, or to the Fixed Interest Account of the Company.
Each Subaccount invests in a corresponding Portfolio of the T. Rowe Price
Equity Series, Inc., the T. Rowe Price Fixed Income Series, Inc., or the T.
Rowe Price International Series, Inc. (the "Funds"). Each Portfolio is
listed under its respective Fund below.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price New America Growth Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
The investments made by the Funds at any given time are not expected to be
the same as the investments made by other mutual funds sponsored by T. Rowe
Price Associates, Inc., including other mutual funds with investment
objectives and policies similar to those of the Portfolios. Different
performance will result due to differences in cash flows into and out of the
Portfolios, different fees and expenses and differences in portfolio size
and positions.
Amounts that you allocate to the Subaccounts will vary based on investment
performance of the Subaccounts. The Company does not guarantee any minimum
amount of Account Value in the Subaccounts.
Amounts that you allocate to the Fixed Interest Account will accrue interest
at rates that are paid by the Company as described in "The Fixed Interest
Account," page 28. The Company guarantees Account Value in the Fixed
Interest Account.
When you are ready to begin receiving annuity payments, the Contract
provides several options for annuity payments (see "Annuity Options," page
25.)
You may return a Contract according to the terms of its Free-Look Right (see
"Free-Look Right," page 21). This Prospectus concisely sets forth
information about the Contract and the T. Rowe Price Variable Annuity
Account that you should know before purchasing the Contract. The "Statement
of Additional Information," dated May 1, 2000, which has been filed with the
Securities and Exchange Commission (the "SEC") contains certain additional
information. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference into this
Prospectus and is available at no charge, by writing the T. Rowe Price
Variable Annuity Service Center, P.O. Box 750440, Topeka, Kansas 66675-0440,
or by calling 1-800-469-6587. The table of contents of the Statement of
Additional Information is set forth on page 42 of this Prospectus.
Date: May 1, 2000
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CONTENTS
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* YOU MAY NOT BE ABLE TO PURCHASE THE CONTRACT IN YOUR STATE. YOU SHOULD
NOT CONSIDER THIS PROSPECTUS TO BE AN OFFERING IF THE CONTRACT MAY NOT
BE LAWFULLY OFFERED IN YOUR STATE. YOU SHOULD ONLY RELY UPON INFORMATION
CONTAINED IN THIS PROSPECTUS OR THAT WE HAVE REFERRED YOU TO. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
Definitions 5
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Summary 7
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Expense Table 9
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Condensed Financial Information 11
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Information About the Company, the Separate Account, and the Funds 12
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The Contract 14
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Charges and Deductions 22
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Annuity Payments 23
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The Fixed Interest Account 28
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More About the Contract 30
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Federal Tax Matters 31
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Other Information 38
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Performance Information 41
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Additional Information 41
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DEFINITIONS
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* VARIOUS TERMS COMMONLY USED IN THIS PROSPECTUS ARE DEFINED AS FOLLOWS:
ACCOUNT VALUE The total value of a Contract, which includes amounts
allocated to the Subaccounts and the Fixed Interest Account. The Company
determines Account Value as of each Valuation Date prior to the Annuity
Payout Date and on and after the Annuity Payout Date under Annuity Options 5
through 7.
ACCUMULATION PERIOD The period commencing on the Contract Date and ending on
the Annuity Payout Date or, if earlier, when the Contract is terminated
through a full withdrawal, payment of charges, or payment of the death
benefit proceeds.
ACCUMULATION UNIT A unit of measure used to calculate Account Value.
ANNUITANT The person or persons on whose life annuity payments depend under
Annuity Options 1 through 4. If Joint Annuitants are named in the Contract,
"Annuitant" means both Annuitants unless otherwise stated. The Annuitant
receives Annuity Payments during the Annuity Period.
ANNUITY A series of periodic income payments made by the Company to an
Annuitant, Joint Annuitant, or Beneficiary during the period specified in
the Annuity Option.
ANNUITY OPTIONS or OPTIONS Options under the Contract that prescribe the
provisions under which a series of Annuity Payments are made.
ANNUITY PAYMENTS Payments made beginning on the Annuity Payout Date
according to the provisions of the Annuity Option selected. Annuity Payments
are made on the same day of each month, on a monthly, quarterly, semiannual
or annual basis depending upon the Annuity Option selected.
ANNUITY PERIOD The period beginning on the Annuity Payout Date during which
annuity payments are made.
ANNUITY PAYOUT DATE The date when Annuity Payments are scheduled to begin.
AUTOMATIC INVESTMENT PROGRAM A program pursuant to which purchase payments
are automatically paid from your checking account on a specified day of the
month, on a monthly, quarterly, semiannual or annual basis, or a salary
reduction arrangement.
CONTRACT DATE The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually
the date that the initial purchase payment is credited to the Contract.
CONTRACTOWNER or OWNER The person entitled to the ownership rights under the
Contract and in whose name the Contract is issued.
CONTRACT YEAR Each 12-month period measured from the Contract Date.
DESIGNATED BENEFICIARY The person having the right to the death benefit, if
any, payable upon the death of the Owner or the Joint Owner during the
Accumulation Period or the death of the Annuitant during the Annuity Period.
The Designated Beneficiary is the first person on the following list who is
alive on the date of death of the Owner or the Joint Owner: the Owner; the
Joint Owner; the Primary Beneficiary; the Secondary Beneficiary; the
Annuitant; or if none of the above is alive, the Owner's Estate.
FIXED INTEREST ACCOUNT An account that is part of the Company's General
Account in which all or a portion of the Account Value may be held for
accumulation at fixed rates of interest (which may not be less than 3%)
declared by the Company periodically at its discretion.
FUNDS T. Rowe Price Equity Series, Inc., T. Rowe Price Fixed Income Series,
Inc., and T. Rowe Price International Series, Inc. The Funds are
diversified, open-end management investment companies commonly referred to
as mutual funds.
GENERAL ACCOUNT All assets of the Company other than those allocated to the
Separate Account or to any other separate account of the Company.
PAYMENT UNIT A unit of measure used to calculate Annuity Payments under
Options 1 through 4 and 8.
PURCHASE PAYMENT The amounts paid to the Company as consideration for the
Contract.
SEPARATE ACCOUNT The T. Rowe Price Variable Annuity Account, a separate
account of the Company. Account Value may be allocated to Subaccounts of the
Separate Account for variable accumulation.
SUBACCOUNT A division of the Separate Account of the Company which invests
in a separate Portfolio of one of the Funds. Currently, seven Subaccounts
are available under the Contract.
T. ROWE PRICE VARIABLE ANNUITY SERVICE CENTER P.O. Box 750440, Topeka,
Kansas 66675-0440, 1-800-469-6587.
VALUATION DATE Each date on which the Separate Account is valued, which
currently includes each day that the T. Rowe Price Variable Annuity Service
Center and the New York Stock Exchange are both open for trading. The T.
Rowe Price Variable Annuity Service Center and the New York Stock Exchange
are closed on weekends and on the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
VALUATION PERIOD A period used in measuring the investment experience of
each Subaccount. The Valuation Period begins at the close of one Valuation
Date and ends at the close of the next succeeding Valuation Date.
WITHDRAWAL VALUE The amount a Contractowner receives upon full withdrawal of
the Contract, which is equal to Account Value less any premium taxes due and
paid by the Company. The Withdrawal Value during the Annuity Period under
Option 8 is the present value of future annuity payments commuted at the
assumed interest rate less any premium taxes due and paid by the Company.
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SUMMARY
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This summary provides a brief overview of the more significant aspects of
the Contract. Further detail is provided in this Prospectus, the Statement
of Additional Information, and the Contract. Unless the context indicates
otherwise, the discussion in this summary and the remainder of the
Prospectus relate to the portion of the Contract involving the Separate
Account. The Fixed Interest Account is briefly described under "The Fixed
Interest Account," page 28 and in the Contract.
PURPOSE OF THE CONTRACT
The flexible premium deferred variable annuity contract ("Contract")
described in this Prospectus is designed to give you flexibility in planning
for retirement and other financial goals.
You may purchase the Contract as a non-tax qualified retirement plan for an
individual ("Non-Qualified Plan"). If you are eligible, you may also
purchase the Contract as an individual retirement annuity ("IRA") qualified
under Section 408, or a Roth IRA qualified under Section 408A, of the
Internal Revenue Code of 1986, as amended ("Qualified Plan"). See the
discussion of IRAs and Roth IRAs under "Section 408 and Section 408A," page
36.
THE SEPARATE ACCOUNT AND THE FUNDS
You may allocate your purchase payments to the T. Rowe Price Variable
Annuity Account (the "Separate Account"). See "Separate Account," page 12.
The Separate Account is currently divided into seven divisions referred to
as Subaccounts. Each Subaccount invests exclusively in shares of a specific
Portfolio of one of the Funds. Each of the Funds' Portfolios has a different
investment objective or objectives. Each Portfolio is listed under its
respective Fund below.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price New America Growth Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
Amounts that you allocate to the Subaccounts will increase or decrease in
dollar value depending on the investment performance of the corresponding
Portfolio in which such Subaccount invests. The Contractowner bears the
investment risk for amounts allocated to a Subaccount.
FIXED INTEREST ACCOUNT
You may allocate all or part of your purchase payments to the Fixed Interest
Account, which is part of the Company's General Account. Amounts that you
allocate to the Fixed Interest Account earn interest at rates determined at
the discretion of the Company and that are guaranteed to be at least an
effective annual rate of 3%. See "The Fixed Interest Account," page 28.
PURCHASE PAYMENTS
If you are purchasing a Contract as a Non-Qualified Plan, the minimum
initial purchase payment is $10,000 ($5,000 if made pursuant to an Automatic
Investment Program). If you are purchasing a Contract as a Qualified Plan,
the minimum initial purchase payment is $2,000 ($25 if made pursuant to an
Automatic Investment Program). Thereafter, you may choose the amount and
frequency of purchase payments, except that the minimum subsequent purchase
payment is $1,000 ($200 if made pursuant to an Automatic Investment Program)
for a Non-Qualified Plan or $500 ($25 if made pursuant to an Automatic
Investment Program) for a Qualified Plan. See "Purchase Payments," page 15.
CONTRACT BENEFITS
You may exchange Account Value among the Subaccounts and to and from the
Fixed Interest Account, subject to certain restrictions as described in "The
Contract," page 14, "Annuity Payments," page 23 and "The Fixed Interest
Account," page 28.
At any time before the Annuity Payout Date, you may surrender your Contract
for its Withdrawal Value and may make partial withdrawals, including
systematic withdrawals, from Account Value. On or after the Annuity Payout
Date, you may withdraw your Account Value under Annuity Options 5 through 8.
Withdrawals of Account Value allocated to the Fixed Interest Account are
subject to certain restrictions described in "The Fixed Interest Account,"
page 28. See "Full and Partial Withdrawals," page 19, "Annuity Payments,"
page 23 and "Federal Tax Matters," page 31 for more information about
withdrawals, including the 10% penalty tax that may be imposed upon full and
partial withdrawals (including systematic withdrawals) made prior to the
Owner attaining age 59 1/2.
The Contract provides for a death benefit upon the death of the Owner prior
to the Annuity Start Date. See "Death Benefit," page 21 for more
information. The Contract provides for several Annuity Options on either a
variable basis, a fixed basis, or both. The Company guarantees Annuity
Payments under the fixed Annuity Options. See "Annuity Payments," page 23.
FREE-LOOK RIGHT
You may return the Contract within the Free-Look Period, which is generally
a 10-day period beginning when you receive the Contract. In this event, the
Company will refund to you the amount of purchase payments allocated to the
Fixed Interest Account plus the Account Value in the Subaccounts. The
Company will refund purchase payments allocated to the Subaccounts rather
than the Account Value in those states and circumstances in which it is
required to do so. See "Free-Look Right," page 21.
CHARGES AND DEDUCTIONS
The Company does not deduct a sales load from purchase payments. The Company
will deduct certain charges in connection with the Contract as described
below.
* MORTALITY AND EXPENSE RISK CHARGE The Company deducts a daily charge
from the assets of each Subaccount for mortality and expense risks equal
to an annual rate of 0.55% of each Subaccount's average daily net
assets. See "Mortality and Expense Risk Charge," page 22.
* PREMIUM TAX CHARGE The Company assesses a premium tax charge to
reimburse itself for any premium taxes that it incurs with respect to
this Contract. This charge will usually be deducted when Annuity
Payments begin or upon full withdrawal if the Company incurs a premium
tax. Partial withdrawals, including systematic withdrawals, may be
subject to a premium tax charge if a premium tax is incurred on the
withdrawal by the Company and is not refundable. The Company reserves
the right to deduct such taxes when due or anytime thereafter. Premium
tax rates currently range from 0% to 3.5%. See "Premium Tax Charge,"
page 23.
* OTHER EXPENSES The Company pays the operating expenses of the Separate
Account. Investment management fees and operating expenses of the Funds
are paid by the Funds and are reflected in the net asset value of Fund
shares. For a description of these charges and expenses, see the
prospectus for the Funds.
CONTACTING THE COMPANY
You should direct all written requests, notices, and forms required by the
Contract, and any questions or inquiries to the T. Rowe Price Variable
Annuity Service Center, P.O. Box 750440, Topeka, Kansas 66675-0440,
1-800-469-6587.
EXPENSE TABLE
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The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly and indirectly if you
allocate Account Value to the Subaccounts. The table reflects any
contractual charges, expenses of the Separate Account, and charges and
expenses of the Portfolios. The table does not reflect premium taxes that
may be imposed by various jurisdictions. See "Premium Tax Charge," page 23.
The information contained in the table is not applicable to amounts
allocated to the Fixed Interest Account.
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," page 22. For a more complete description of each
Portfolio's costs and expenses, see the Funds' prospectus, which accompanies
this Prospectus.
TABLE 1
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CONTRACTOWNER TRANSACTION EXPENSES
Sales Load on Purchase Payments None
Annual Maintenance Fee None
ANNUAL SEPARATE ACCOUNT EXPENSES
Annual Mortality and Expense Risk Charge
(as a percentage of each Subaccount's average daily net assets) 0.55%
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Total Annual Separate Account Expenses 0.55%
ANNUAL PORTFOLIO EXPENSES (AS A PERCENTAGE OF EACH PORTFOLIO'S AVERAGE DAILY
DAILY NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER EXPENSES PORTFOLIO
FEE(1) EXPENSES
<S> <C> <C> <C>
T. Rowe Price New America Growth Portfolio .85% 0% .85%
T. Rowe Price International Stock Portfolio 1.05% 0% 1.05%
T. Rowe Price Mid-Cap Growth Portfolio .85% 0% .85%
T. Rowe Price Equity Income Portfolio .85% 0% .85%
T. Rowe Price Personal Strategy Balanced Portfolio .90% 0% .90%
T. Rowe Price Limited-Term Bond Portfolio .70% 0% .70%
T. Rowe Price Prime Reserve Portfolio .55% 0% .55%
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1 The management fee includes the ordinary expenses of operating the Funds.
EXAMPLES
The examples presented below show expenses that you would pay at the end of
one, three, five, or ten years. The examples show expenses based upon an
allocation of $1,000 to each of the Subaccounts and a hypothetical annual
return of 5%.
You should not consider the examples below a representation of past or
future expenses. Actual expenses may be greater or lesser than those shown.
The 5% return assumed in the examples is hypothetical and should not be
considered a representation of past or future actual returns, which may be
greater or lesser than the assumed amount.
EXAMPLE - You would pay the expenses shown below during the Accumulation
Period and during the Annuity Period:
<TABLE>
<CAPTION>
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
New America Growth Subaccount $14 $44 $77 $168
International Stock Subaccount $16 $50 $87 $190
Mid-Cap Growth Subaccount $14 $44 $77 $168
Equity Income Subaccount $14 $44 $77 $168
Personal Strategy Balanced Subaccount $15 $46 $79 $174
Limited-Term Bond Subaccount $13 $40 $69 $151
Prime Reserve Subaccount $11 $35 $61 $134
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</TABLE>
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CONDENSED FINANCIAL INFORMATION
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The following condensed financial information presents accumulation unit
values for the years ended December 31, 1999, 1998, 1997 and 1996, and the
period April 1, 1995 (date of inception), through December 31, 1995, as well
as ending accumulation units outstanding under each Subaccount.
<TABLE>
<CAPTION>
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1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NEW AMERICA GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period $22.72 $19.28 $16.00 $13.40 $10.00
End of period $24.91 $22.72 $19.28 $16.00 $13.40
Accumulation units:
Outstanding at the end of period 2,069,472 2,269,650 2,030,514 1,596,903 333,934
INTERNATIONAL STOCK SUBACCOUNT
Accumulation unit value:
Beginning of period $15.08 $13.09 $12.77 $11.19 $10.00
End of period $19.83 $15.08 $13.09 $12.77 $11.19
Accumulation units:
Outstanding at the end of period 1,556,280 1,554,164 1,562,428 1,124,821 218,427
EQUITY INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period $20.42 $18.84 $14.70 $12.37 $10.00
End of period $21.07 $20.42 $18.84 $14.70 $12.37
Accumulation units:
Outstanding at the end of period 3,159,785 3,428,903 3,450,047 1,902,935 365,712
PERSONAL STRATEGY BALANCED SUBACCOUNT
Accumulation unit value:
Beginning of period $18.04 $15.86 $13.51 $11.90 $10.00
End of period $19.44 $18.04 $15.86 $13.51 $11.90
Accumulation units:
Outstanding at the end of period 1,207,707 1,257,891 983,602 599,843 148,349
LIMITED TERM-BOND SUBACCOUNT
Accumulation unit value:
Beginning of period $12.38 $11.60 $10.93 $10.64 $10.00
End of period $12.28 $12.38 $11.60 $10.93 $10.64
Accumulation units:
Outstanding at the end of period 718,369 926,046 626,694 445,079 86,891
MID-CAP GROWTH SUBACCOUNT*
Accumulation unit value:
Beginning of period $14.34 $11.82 $10.00
End of period $17.47 $14.34 $11.82
Accumulation units:
Outstanding at the end of period 1,730,183 1,508,570 1,100,979
PRIME RESERVE SUBACCOUNT*
Accumulation unit value:
Beginning of period $10.97 $10.48 $10.00
End of period $11.44 $10.97 $10.48
Accumulation units:
Outstanding at the end of period 1,614,807 1,367,278 769,829
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</TABLE>
*The Mid-Cap Growth and Prime Reserve Subaccounts commenced operations on
January 2, 1997.
<PAGE>
INFORMATION ABOUT THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUNDS
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SECURITY BENEFIT LIFE INSURANCE COMPANY
The Company is a life insurance company organized under the laws of the
State of Kansas. It was organized originally as a fraternal benefit society
and commenced business February 22, 1892. It became a mutual life insurance
company under its present name on January 2, 1950. On July 31, 1998, the
Company converted from a mutual life insurance company to a stock life
insurance company ultimately controlled by Security Benefit Mutual Holding
Company, a Kansas mutual holding company. Membership interests of persons
who were Contractowners as of July 31, 1998 became membership interests in
Security Benefit Mutual Holding Company as of that date, and persons who
acquire policies from the Company after that date automatically become
members in the mutual holding company.
The Company 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 1999, the Company had total assets of approximately $8.3
billion. Together with its subsidiaries, the Company has total funds under
management of approximately $9.9 billion.
PUBLISHED RATINGS
The Company may from time to time publish in advertisements, sales
literature, and reports to Owners, the ratings and other information
assigned to it by one or more independent rating organizations such as A.M.
Best Company and Standard & Poor's. The purpose of the ratings is to reflect
the financial strength and/or claims-paying ability of the Company and
should not be considered as bearing on the investment performance of assets
held in the Separate Account. Each year the A.M. Best Company reviews the
financial status of thousands of insurers, culminating in the assignment of
Best's Ratings. These ratings reflect their current opinion of the relative
financial strength and operating performance of an insurance company in
comparison to the norms of the life/health insurance industry. In addition,
the claims-paying ability of the Company as measured by Standard & Poor's
Insurance Ratings Services may be referred to in advertisements or sales
literature or in reports to Owners. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of
its insurance and annuity policies in accordance with their terms. Such
ratings do not reflect the investment performance of the Separate Account or
the degree of risk associated with an investment in the Separate Account.
SEPARATE ACCOUNT
T. ROWE PRICE VARIABLE ANNUITY ACCOUNT
The Company established the T. Rowe Price Variable Annuity Account as a
separate account under Kansas law on March 28, 1994. The Contract provides
that the income, gains, or losses of the Separate Account, whether or not
realized, are credited to or charged against the assets of the Separate
Account without regard to other income, gains, or losses of the Company. The
Company owns the assets in the Separate Account and is required to maintain
sufficient assets in the Separate Account to meet all Separate Account
obligations under the Contract. Such Separate Account assets are not subject
to claims of the Company's creditors. The Company may transfer to its
General Account assets that exceed anticipated obligations of the Separate
Account. All obligations arising under the Contracts are general corporate
obligations of the Company. The Company may invest its own assets in the
Separate Account for other purposes, but not to support contracts other than
variable annuity contracts, and may accumulate in the Separate Account
proceeds from Contract charges and investment results applicable to those
assets.
The Separate Account is currently divided into seven Subaccounts. The
Contract provides that income, gains and losses, whether or not realized,
are credited to, or charged against, the assets of each Subaccount without
regard to the income, gains, or losses in the other Subaccounts. Each
Subaccount invests exclusively in shares of a specific Portfolio of one of
the Funds. The Company may in the future establish additional Subaccounts of
the Separate Account, which may invest in other Portfolios of the Funds or
in other securities, mutual funds, or investment vehicles. Under its
contract with the underwriter, T. Rowe Price Investment Services, Inc.
("Investment Services"), the Company cannot add new Subaccounts, or
substitute shares of another portfolio, without the consent of Investment
Services, unless (1) such change is necessary to comply with applicable
laws, (2) shares of any or all of the Portfolios should no longer be
available for investment, or (3) the Company receives an opinion from
counsel acceptable to Investment Services that substitution is in the best
interest of Contractowners and that further investment in shares of the
Portfolio(s) would cause undue risk to the Company. For more information
about the underwriter, see "Distribution of the Contract," page 40.
The Separate Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with
the SEC does not involve supervision by the SEC of the administration or
investment practices of the Separate Account or of the Company.
THE FUNDS
The T. Rowe Price Equity Series, Inc., the T. Rowe Price Fixed Income
Series, Inc., and the T. Rowe Price International Series, Inc. are
diversified, open-end management investment companies of the series type.
The Funds are registered with the SEC under the 1940 Act. Such registration
does not involve supervision by the SEC of the investments or investment
policy of the Funds. Together, the Funds currently have seven separate
Portfolios, each of which pursues different investment objectives and
policies.
In addition to the Separate Account, shares of the Funds are being sold to
variable life insurance and variable annuity separate accounts of other
insurance companies, including insurance companies affiliated with the
Company. In the future, it may be disadvantageous for variable annuity
separate accounts of other life insurance companies, or for both variable
life insurance separate accounts and variable annuity separate accounts, to
invest simultaneously in the Funds. Currently neither the Company nor the
Funds foresee any such disadvantages to either variable annuity owners or
variable life insurance owners. The management of the Funds intends to
monitor events in order to identify any material conflicts between or among
variable annuity owners and variable life insurance owners and to determine
what action, if any, should be taken in response. In addition, if the
Company believes that any Fund's response to any of those events or
conflicts insufficiently protects Owners, it will take appropriate action on
its own. For more information see the Funds' prospectus.
A summary of the investment objective of each Portfolio of the Funds is set
forth below. There can be no assurance that any Portfolio will achieve its
objective. More detailed information is contained in the accompanying
prospectus of the Funds, including information on the risks associated with
the investments and investment techniques of each Portfolio.
THE FUNDS' PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO
The investment objective of the New America Growth Portfolio is long-term
growth of capital through investments primarily in the common stocks of
companies operating in sectors T. Rowe Price believes will be the fastest
growing in the United States.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
The investment objective of the International Stock Portfolio is to seek
long-term growth of capital through investments primarily in common stocks
of established, non-U.S. companies.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO
The investment objective of the Mid-Cap Growth Portfolio is to provide
long-term capital appreciation by investing primarily in common stocks of
medium-sized growth companies.
T. ROWE PRICE EQUITY INCOME PORTFOLIO
The investment objective of the Equity Income Portfolio is to provide
substantial dividend income and also capital appreciation by investing
primarily in dividend-paying common stocks of established companies.
T. ROWE PRICE PERSONAL STRATEGY BALANCED PORTFOLIO
The investment objective of the Personal Strategy Balanced Portfolio is to
seek the highest total return over time consistent with an emphasis on both
capital appreciation and income.
T. ROWE PRICE LIMITED-TERM BOND PORTFOLIO
The investment objective of the Limited-Term Bond Portfolio is to seek a
high level of income consistent with moderate price fluctuation by investing
primarily in short- and intermediate-term investment grade debt securities.
T. ROWE PRICE PRIME RESERVE PORTFOLIO
The investment objectives of the Prime Reserve Portfolio are preservation of
capital, liquidity, and, consistent with these, the highest possible current
income, by investing primarily in high-quality money market securities.
THE INVESTMENT ADVISERS
T. Rowe Price Associates, Inc. ("T. Rowe Price"), located at 100 East Pratt
Street, Baltimore, Maryland 21202, serves as Investment Adviser to each
Portfolio, except the T. Rowe Price International Stock Portfolio. Rowe
Price-Fleming International, Inc. ("Price-Fleming"), an affiliate of T. Rowe
Price, serves as Investment Adviser to the T. Rowe Price International Stock
Portfolio. Price-Fleming's U.S. office is located at 100 East Pratt Street,
Baltimore, Maryland 21202. As Investment Adviser to the Portfolios, T. Rowe
Price and Price-Fleming are responsible for selection and management of
portfolio investments. T. Rowe Price and Price-Fleming are registered with
the SEC as investment advisers.
T. Rowe Price and Price-Fleming are not affiliated with the Company, and the
Company has no responsibility for the management or operations of the
Portfolios.
THE CONTRACT
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GENERAL
The Company issues the Contract offered by this Prospectus. It is a flexible
premium deferred variable annuity. To the extent that you allocate all or a
portion of your purchase payments to the Subaccounts, the Contract is
significantly different from a fixed annuity contract in that you assume the
risk of investment gain or loss rather than the Company. When you are ready
to begin receiving annuity payments, the Contract provides several Annuity
Options under which the Company will pay periodic annuity payments on a
variable basis, a fixed basis, or both, beginning on the Annuity Payout
Date. The amount that will be available for annuity payments will depend on
the investment performance of the Subaccounts to which you have allocated
Account Value and the amount of interest credited on Account Value that you
have allocated to the Fixed Interest Account.
The Contract is available for purchase by an individual as a non-tax
qualified retirement plan ("Non-Qualified Plan"). The Contract is also
eligible for purchase as an individual retirement annuity ("IRA") qualified
under Section 408, or a Roth IRA under Section 408A, of the Internal Revenue
Code ("Qualified Plan"). You may name Joint Owners only on a Contract issued
pursuant to a Non-Qualified Plan.
APPLICATION FOR A CONTRACT
If you wish to purchase a Contract, you may submit an application and an
initial purchase payment to the Company, as well as any other form or
information that the Company may require. The initial purchase payment may
be made by check or, if you own shares of one or more mutual funds
distributed by Investment Services ("T. Rowe Price Funds"), you may elect on
the application to redeem shares of that fund(s) and forward the redemption
proceeds to the Company. Any such transaction shall be effected by
Investment Services, the distributor of the T. Rowe Price Funds and the
Contract. If you redeem fund shares, it is a sale of shares for tax
purposes, which may result in a taxable gain or loss. You may obtain an
application by contacting the T. Rowe Price Variable Annuity Service Center.
The Company reserves the right to reject an application or purchase payment
for any reason, subject to the Company's underwriting standards and
guidelines and any applicable state or federal law relating to
nondiscrimination.
The maximum age of an Owner or Annuitant for which a Contract will be issued
is 85. If there are Joint Owners or Annuitants, the maximum issue age will
be determined by reference to the older Owner or Annuitant.
PURCHASE PAYMENTS
If you are purchasing a Contract as a Non-Qualified Plan, the minimum
initial purchase payment is $10,000 ($5,000 if made pursuant to an Automatic
Investment Program). If you are purchasing a Contract as a Qualified Plan,
the minimum initial purchase payment is $2,000 ($25 if made pursuant to an
Automatic Investment Program). Thereafter, you may choose the amount and
frequency of purchase payments, except that the minimum subsequent purchase
payment is $1,000 ($200 if made pursuant to an Automatic Investment Program)
for Non-Qualified Plans and $500 ($25 if made pursuant to an Automatic
Investment Program) for Qualified Plans. The Company may reduce the minimum
purchase payment requirements under certain circumstances, such as for group
or sponsored arrangements. Cumulative purchase payments exceeding $1 million
will not be accepted under a Contract without prior approval of the Company.
The Company will apply the initial purchase payment not later than the end
of the second Valuation Date after the Valuation Date it is received at the
T. Rowe Price Variable Annuity Service Center; provided that the purchase
payment is preceded or accompanied by an application that contains
sufficient information to establish an account and properly credit such
purchase payment. If the Company does not receive a complete application,
the Company will notify you that it does not have the necessary information
to issue a Contract. If you do not provide the necessary information within
five Valuation Dates after the Valuation Date on which the Company first
receives the initial purchase payment or if the Company determines it cannot
otherwise issue the Contract, the Company will return the initial purchase
payment to you unless you consent to the Company retaining the purchase
payment until the application is made complete.
The Company will credit subsequent purchase payments as of the end of the
Valuation Period in which they are received at the T. Rowe Price Variable
Annuity Service Center. You may make purchase payments after the initial
purchase payment at any time prior to the Annuity Payout Date, so long as
the Owner is living. Subsequent purchase payments under a Qualified Plan may
be limited by the terms of the plan and provisions of the Internal Revenue
Code. Subsequent purchase payments may be paid under an Automatic Investment
Program or, if you own shares of one or more T. Rowe Price Funds, you may
direct Investment Services to redeem shares of that fund(s) and forward the
redemption proceeds to the Company as a subsequent purchase payment. The
minimum initial purchase payment must be paid before the Company will accept
an Automatic Investment Program. If you redeem fund shares, it is a sale of
shares for tax purposes, which may result in a taxable gain or loss.
ALLOCATION OF PURCHASE PAYMENTS
In an application for a Contract, you select the Subaccounts or the Fixed
Interest Account to which purchase payments will be allocated. The
allocation must be a whole percentage. Purchase payments will be allocated
according to your instructions contained in the application or more recent
instructions received, if any, except that no purchase payment allocation is
permitted that would result in less than 5% of any payment being allocated
to any one Subaccount or the Fixed Interest Account. Available allocation
alternatives include the seven Subaccounts and the Fixed Interest Account.
You may change your purchase payment allocation instructions by submitting a
proper written request to the T. Rowe Price Variable Annuity Service Center.
A proper change in allocation instructions will be effective upon receipt at
the T. Rowe Price Variable Annuity Service Center and will continue in
effect until subsequently changed. You may also change your purchase payment
allocation instructions by telephone. Changes in the allocation of future
purchase payments have no effect on existing Account Value. You may,
however, exchange Account Value among the Subaccounts and the Fixed Interest
Account as described in "Exchanges of Account Value," page 18.
DOLLAR COST AVERAGING OPTION
Prior to the Annuity Payout Date, you may dollar cost average your Account
Value by authorizing the Company to make periodic exchanges of Account Value
from any one Subaccount to one or more of the other Subaccounts. Dollar cost
averaging is a systematic method of investing in which securities are
purchased at regular intervals in fixed dollar amounts so that the cost of
the securities gets averaged over time and possibly over various market
cycles. The option will result in the exchange of Account Value from one
Subaccount to one or more of the other Subaccounts. Amounts exchanged under
this option will be credited at the Subaccount's price as of the end of the
Valuation Dates on which the exchanges are effected. Since the price of a
Subaccount's Accumulation Units will vary, the amounts allocated to a
Subaccount will result in the crediting of a greater number of units when
the price is low and a lesser number of units when the price is high.
Similarly, the amounts exchanged from a Subaccount will result in a debiting
of a greater number of units when the Subaccount's price is low and a lesser
number of units when the price is high. Dollar cost averaging does not
guarantee profits, nor does it assure that you will not have losses.
You may request a Dollar Cost Averaging Request form from the T. Rowe Price
Variable Annuity Service Center. On the form, you must designate whether
Account Value is to be exchanged on the basis of a specific dollar amount, a
fixed period or earnings only, the Subaccount or Subaccounts to and from
which the exchanges will be made, the desired frequency of the exchanges,
which may be on a monthly, quarterly, semiannual, or annual basis, and the
length of time during which the exchanges shall continue or the total amount
to be exchanged over time.
To elect the Dollar Cost Averaging Option, your Account Value must be at
least $5,000, ($2,000 for a Contract funding a Qualified Plan), and a Dollar
Cost Averaging Request in proper form must be received at the T. Rowe Price
Variable Annuity Service Center. The Company will not consider the Dollar
Cost Averaging Request form to be complete until your Account Value is at
least the required amount. You may not have in effect at the same time
Dollar Cost Averaging and Asset Rebalancing Options.
After the Company has received a Dollar Cost Averaging Request in proper
form at the T. Rowe Price Variable Annuity Service Center, the Company will
exchange Account Value in the amounts you designate from the Subaccount from
which exchanges are to be made to the Subaccount or Subaccounts you have
chosen. The minimum amount that may be exchanged is $200 and the minimum
amount that may be allocated to any one Subaccount is $25. The Company will
effect each exchange on the date you specify or if no date is specified, on
the monthly, quarterly, semiannual, or annual anniversary, whichever
corresponds to the period selected, of the date of receipt at the T. Rowe
Price Variable Annuity Service Center of a Dollar Cost Averaging Request in
proper form. Exchanges will be made until the total amount elected has been
exchanged, or until Account Value in the Subaccount from which exchanges are
made has been depleted. Amounts periodically exchanged under this option are
not included in the six exchanges per Contract Year that are allowed as
discussed in "Exchanges of Account Value," page 18.
You may instruct the Company at any time to terminate the option by written
request to the T. Rowe Price Variable Annuity Service Center. In that event,
the Account Value in the Subaccount from which exchanges were being made
that has not been exchanged will remain in that Subaccount unless you
instruct us otherwise. If you wish to continue exchanging on a dollar cost
averaging basis after the expiration of the applicable period, the total
amount elected has been exchanged, or the Subaccount has been depleted, or
after the Dollar Cost Averaging Option has been canceled, you must complete
a new Dollar Cost Averaging Request and send it to the T. Rowe Price
Variable Annuity Service Center. The Contract must meet the $5,000 ($2,000
for a Contract funding a Qualified Plan) minimum required amount of Account
Value at that time. The Company may discontinue, modify, or suspend the
Dollar Cost Averaging Option at any time provided that, as required by its
contract with Investment Services, the Company first obtains the consent of
Investment Services.
Account Value also may be dollar cost averaged to or from the Fixed Interest
Account, subject to certain restrictions described under "The Fixed Interest
Account," page 28.
ASSET REBALANCING OPTION
Prior to the Annuity Payout Date, you may authorize the Company to
automatically exchange Account Value each quarter to maintain a particular
percentage allocation among the Subaccounts. The Account Value allocated to
each Subaccount will grow or decline in value at different rates during the
quarter, and Asset Rebalancing automatically reallocates the Account Value
in the Subaccounts each quarter to the allocation you select. Asset
Rebalancing is intended to exchange Account Value from those Subaccounts
that have increased in value to those Subaccounts that have declined in
value. Over time, this method of investing may help you to buy low and sell
high, although there can be no assurance of this. This investment method
does not guarantee profits, nor does it assure that you will not have
losses.
To elect the Asset Rebalancing Option, the Account Value must be at least
$10,000 ($2,000 for a Contract funding a Qualified Plan) and an Asset
Rebalancing Request in proper form must be received at the T. Rowe Price
Variable Annuity Service Center. You may not have in effect at the same time
Dollar Cost Averaging and Asset Rebalancing Options. An Asset Rebalancing
Request form is available upon request. On the form, you must indicate the
applicable Subaccounts and the percentage of Account Value which should be
allocated to each of the applicable Subaccounts each quarter under the Asset
Rebalancing Option. If the Asset Rebalancing Option is elected, all Account
Value allocated to the Subaccounts must be included in the Asset Rebalancing
Option.
This option will result in the exchange of Account Value to one or more of
the Subaccounts on the date you specify or, if no date is specified, on the
date of the Company's receipt of the Asset Rebalancing Request in proper
form and on each quarterly anniversary of the applicable date thereafter.
The amounts exchanged will be credited at the price of the Subaccount as of
the end of the Valuation Dates on which the exchanges are effected. Amounts
periodically exchanged under this option are not included in the six
exchanges per Contract Year that are allowed as discussed below.
You may instruct the Company at any time to terminate this option by written
request to the T. Rowe Price Variable Annuity Service Center. This option
will terminate automatically in the event that you exchange Account Value
(outside the Asset Rebalancing Option) by written request or telephone
instructions. In either event, the Account Value in the Subaccounts that has
not been exchanged will remain in those Subaccounts regardless of the
percentage allocation unless you instruct us otherwise. If you wish to
resume Asset Rebalancing after it has been canceled, you must complete a new
Asset Rebalancing Request form and send it to the T. Rowe Price Variable
Annuity Service Center. The Account Value at the time the request is made
must be at least $10,000 ($2,000 for a Contract funding a Qualified Plan).
The Company may discontinue, modify, or suspend the Asset Rebalancing Option
at any time provided that, as required by its contract with Investment
Services, the Company first obtains the consent of Investment Services.
Account Value allocated to the Fixed Interest Account may be included in
Asset Rebalancing, subject to certain restrictions described under "The
Fixed Interest Account," page 28.
EXCHANGES OF ACCOUNT VALUE
Prior to the Annuity Payout Date, you may exchange Account Value among the
Subaccounts upon proper written request to the T. Rowe Price Variable
Annuity Service Center. You may exchange Account Value (other than exchanges
in connection with the Dollar Cost Averaging or Asset Rebalancing Options)
by telephone if an Authorization for Telephone Requests form has been
properly completed, signed, and filed at the T. Rowe Price Variable Annuity
Service Center. Up to six exchanges are allowed in any Contract Year. The
minimum exchange amount is $500 ($200 under the Dollar Cost Averaging
Option), or the amount remaining in a given Subaccount.
You may also exchange Account Value between the Subaccounts and the Fixed
Interest Account; however, exchanges from the Fixed Interest Account to the
Subaccounts are restricted as described under "The Fixed Interest Account,"
page 28. For a discussion of exchanges after the Annuity Payout Date, see
"Annuity Payments," page 23.
The Company reserves the right at a future date, to waive or limit the
number of exchanges permitted each Contract Year, to suspend exchanges, to
limit the amount of Account Value that may be subject to exchanges and the
amount remaining in an account after an exchange, to impose conditions on
the right to exchange and to discontinue telephone exchanges provided that,
as required by its contract with Investment Services, the Company first
obtains the consent of Investment Services.
ACCOUNT VALUE
The Account Value is the sum of the amounts under the Contract held in each
Subaccount and the Fixed Interest Account. Account Value is determined as of
any Valuation Date during the Accumulation Period and during the Annuity
Period under Annuity Options 5 through 7.
On each Valuation Date, the portion of the Account Value allocated to any
particular Subaccount will be adjusted to reflect the investment experience
of that Subaccount for that date. See "Determination of Account Value,"
below. No minimum amount of Account Value is guaranteed. You bear the entire
investment risk relating to the investment performance of Account Value
allocated to the Subaccounts.
DETERMINATION OF ACCOUNT VALUE
Account Value will vary to a degree that depends upon several factors,
including investment performance of the Subaccounts to which you have
allocated Account Value, payment of subsequent purchase payments, partial
withdrawals, annuity payments under Options 5 through 7 and the charges
assessed in connection with the Contract. The amounts allocated to the
Subaccounts will be invested in shares of the corresponding Portfolios of
the Funds. The investment performance of the Subaccounts will reflect
increases or decreases in the net asset value per share of the corresponding
Portfolios and any dividends or distributions declared by the corresponding
Portfolios. Any dividends or distributions from any Portfolio will be
automatically reinvested in shares of the same Portfolio, unless the
Company, on behalf of the Separate Account, elects otherwise.
Assets in the Subaccounts are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's
interest in a Subaccount. When you allocate purchase payments to a
Subaccount, your Contract is credited with Accumulation Units. The number of
Accumulation Units to be credited is determined by dividing the dollar
amount allocated to the particular Subaccount by the price for the
particular Subaccount as of the end of the Valuation Period during which the
purchase payment is credited. In addition, other transactions including full
or partial withdrawals, exchanges, annuity payments under Options 5 through
7 and assessment of premium taxes against the Contract, all affect the
number of Accumulation Units credited to a Contract. The number of units
credited or debited in connection with any such transaction is determined by
dividing the dollar amount of such transaction by the price of the affected
Subaccount. The price of each Subaccount is determined as of each Valuation
Date. The number of Accumulation Units credited to a Contract will not be
changed by any subsequent change in the value of an Accumulation Unit, but
the price of an Accumulation Unit may vary from Valuation Date to Valuation
Date depending upon the investment experience of the Subaccount and charges
against the Subaccount.
The price of each Subaccount's units initially was $10. Determination of the
price of a Subaccount takes into account the following: (1) the investment
performance of the Subaccount, which is based upon the investment
performance of the corresponding Portfolio of the Funds, (2) any dividends
or distributions paid by the corresponding Portfolio, (3) the charges, if
any, that may be assessed by the Company for taxes attributable to the
operation of the Subaccount, and (4) the mortality and expense risk charge
under the Contract.
FULL AND PARTIAL WITHDRAWALS
Prior to the Annuity Payout Date, you may surrender the Contract for its
Withdrawal Value or make a partial withdrawal of Account Value. A full or
partial withdrawal, including a systematic withdrawal, may be taken from the
Account Value at any time while the Owner is living, subject to restrictions
on partial withdrawals of Account Value from the Fixed Interest Account and
limitations under applicable law. Withdrawals after the Annuity Payout Date
are permitted only under Annuity Options 5 through 8. See "Annuity
Payments," page 23. A full or partial withdrawal request will be effective
as of the end of the Valuation Period that a proper written request is
received at the T. Rowe Price Variable Annuity Service Center. A proper
written request must include the written consent of any effective assignee
or irrevocable Beneficiary, if applicable. You may direct Investment
Services to apply the proceeds of a full or partial withdrawal to the
purchase of shares of one or more of the T. Rowe Price Funds by so
indicating in your written withdrawal request.
The proceeds received upon a full withdrawal will be the Contract's
Withdrawal Value. The Withdrawal Value generally is equal to the Account
Value as of the end of the Valuation Period during which a proper withdrawal
request is received at the T. Rowe Price Variable Annuity Service Center,
less any premium taxes due and paid by the Company. The Withdrawal Value
during the Annuity Period under Option 8 is the present value of future
annuity payments calculated using the assumed interest rate, less any
premium taxes due and paid by the Company. (See "Annuity Payments," page
23.)
You may request a partial withdrawal as a specified percentage or dollar
amount of Account Value. Each partial withdrawal must be at least $500
except systematic withdrawals discussed below. A request for a partial
withdrawal will result in a payment by the Company in accordance with the
amount specified in the partial withdrawal request. Upon payment, the
Account Value will be reduced by an amount equal to the payment and any
applicable premium tax. If a partial withdrawal is requested that would
leave the Withdrawal Value in the Contract less than $2,000, the Company
reserves the right to treat the partial withdrawal as a request for a full
withdrawal.
The amount of a partial withdrawal will be deducted from the Account Value
in the Subaccounts and the Fixed Interest Account, according to your
instructions to the Company, subject to the restrictions on partial
withdrawals from the Fixed Interest Account. See "The Fixed Interest
Account," page 28. If you do not specify the allocation, the Company will
contact you for instructions, and the withdrawal will be effected as of the
end of the Valuation Period in which such instructions are obtained. A full
or partial withdrawal, including a systematic withdrawal, may be subject to
a premium tax charge to reimburse the Company for any tax on premiums on a
Contract that may be imposed by various states and municipalities. See
"Premium Tax Charge," page 23.
A full or partial withdrawal, including a systematic withdrawal, may result
in receipt of taxable income to the Owner and, if made prior to the Owner's
attaining age 59 1/2, may be subject to a 10% penalty tax. You should
carefully consider the tax consequences of a withdrawal under the Contract.
See "Federal Tax Matters," page 31.
SYSTEMATIC WITHDRAWALS
The Company currently offers a feature under which you may elect to receive
systematic withdrawals of Account Value by sending a properly completed
Systematic Withdrawal Request form to the T. Rowe Price Variable Annuity
Service Center. Systematic withdrawals are available only prior to the
Annuity Payout Date. You may direct Investment Services to apply the
proceeds of a systematic withdrawal to the purchase of shares of one or more
of the T. Rowe Price Funds by so indicating on the Systematic Withdrawal
Request form. A proper request must include the written consent of any
effective assignee or irrevocable Beneficiary, if applicable. You may
designate the systematic withdrawal amount as a percentage of Account Value
allocated to the Subaccounts and/or Fixed Interest Account, as a specified
dollar amount, as all earnings in the Contract, or as based upon the life
expectancy of the Owner or the Owner and a beneficiary, and the desired
frequency of the systematic withdrawals, which may be monthly, quarterly,
semiannually, or annually. You may stop or modify systematic withdrawals
upon proper written request to the T. Rowe Price Variable Annuity Service
Center at least 30 days in advance of the requested date of termination or
modification.
Each systematic withdrawal must be at least $100. Upon payment, your Account
Value will be reduced by an amount equal to the payment proceeds plus any
applicable premium taxes. Any systematic withdrawal that equals or exceeds
the Withdrawal Value will be treated as a full withdrawal. In no event will
payment of a systematic withdrawal exceed the Withdrawal Value. The Contract
will automatically terminate if a systematic withdrawal causes the
Contract's Withdrawal Value to equal zero.
The Company will effect each systematic withdrawal as of the end of the
Valuation Period during which the withdrawal is scheduled. The deduction
caused by the systematic withdrawal will be allocated to your Account Value
in the Subaccounts and the Fixed Interest Account based on your
instructions.
The Company may, at any time, discontinue, modify, or suspend systematic
withdrawals provided that, as required by its contract with Investment
Services, the Company first obtains the consent of Investment Services.
Systematic withdrawals from Account Value allocated to the Fixed Interest
Account must provide for payments over a period of not less than 36 months
as described under "The Fixed Interest Account," page 28. You should
consider carefully the tax consequences of a systematic withdrawal,
including the 10% penalty tax imposed on withdrawals made prior to the
Owner's attaining age 59 1/2. See "Federal Tax Matters," page 31.
FREE-LOOK RIGHT
You may return a Contract within the Free-Look Period, which is generally a
10-day period beginning when you receive the Contract. The returned Contract
will then be deemed void and the Company will refund any purchase payments
allocated to the Fixed Interest Account plus the Account Value in the
Subaccounts as of the end of the Valuation Period during which the returned
Contract is received by the Company. The Company will return purchase
payments allocated to the Subaccounts rather than Account Value in those
states and circumstances in which it is required to do so.
DEATH BENEFIT
If the Owner dies during the Accumulation Period, the Company will pay the
death benefit proceeds to the Designated Beneficiary upon receipt of due
proof of death and instructions regarding payment to the Designated
Beneficiary. If there are Joint Owners, the death benefit proceeds will be
payable upon receipt of due proof of death of either Owner during the
Accumulation Period and instructions regarding payment. If the surviving
spouse of the deceased Owner is the sole Designated Beneficiary, such spouse
may elect to continue the Contract in force, subject to certain limitations.
See "Distribution Requirements," page 22. If the Owner is not a natural
person, the death benefit proceeds will be payable upon receipt of due proof
of death of the Annuitant during the Accumulation Period and instructions
regarding payment, and the amount of the death benefit is based on the age
of the oldest Annuitant on the date the Contract was issued. If the death of
an Owner occurs on or after the Annuity Payout Date, any death benefit will
be determined according to the terms of the Annuity Option. See "Annuity
Options," page 25.
The death benefit proceeds will be the death benefit reduced by any premium
taxes due or paid by the Company. If an Owner dies during the Accumulation
Period and the age of each Owner was 75 or younger on the date the Contract
was issued, the amount of the death benefit will be the greatest of (1) the
Account Value as of the end of the Valuation Period in which due proof of
death and instructions regarding payment are received at the T. Rowe Price
Variable Annuity Service Center, (2) the total purchase payments received
less any reductions caused by previous withdrawals, or (3) the stepped-up
death benefit. The stepped-up death benefit is: (a) the highest death
benefit on any annual Contract anniversary that is both an exact multiple of
five and occurs prior to the oldest Owner attaining age 76, plus (b) any
purchase payments made since the applicable fifth annual Contract
anniversary, less (c) any withdrawals since the applicable anniversary.
If an Owner dies during the Accumulation Period and the Contract was issued
to the Owner after age 75, the amount of the death benefit will be the
Account Value as of the end of the Valuation Period in which due proof of
death and instructions regarding payment are received at the T. Rowe Price
Variable Annuity Service Center.
The death benefit for Contracts issued in Florida is different than the
death benefit described above. For Contracts issued in Florida, the death
benefit, regardless of age at issue, is the greater of (1) the Account Value
as of the end of the Valuation Period in which due proof of death and
instructions regarding payment are received at the T. Rowe Price Variable
Annuity Service Center, or (2) the total purchase payments received less any
reductions caused by previous withdrawals.
The Company will pay the death benefit proceeds to the Designated
Beneficiary in a single sum or under one of the Annuity Options, as elected
by the Designated Beneficiary. If the Designated Beneficiary is to receive
annuity payments under an Annuity Option, there may be limits under
applicable law on the amount and duration of payments that the Beneficiary
may receive, and requirements respecting timing of payments. A tax adviser
should be consulted in considering Annuity Options. See "Federal Tax
Matters," page 31 for a discussion of the tax consequences in the event of
death.
DISTRIBUTION REQUIREMENTS
For Contracts issued in connection with Non-Qualified Plans, if the
surviving spouse of the deceased Owner is the sole Designated Beneficiary,
such spouse may elect to continue the Contract in force until the earlier of
the surviving spouse's death or the Annuity Payout Date or to receive the
death benefit proceeds. For any Designated Beneficiary other than a
surviving spouse, only those options may be chosen that provide for complete
distribution of the Owner's interest in the Contract within five years of
the death of the Owner. If the Designated Beneficiary is a natural person,
that person alternatively can elect to begin receiving annuity payments
within one year of the Owner's death over a period not extending beyond his
or her life or life expectancy. If the Owner of the Contract is not a
natural person, these distribution rules are applicable upon the death of or
a change in the primary Annuitant.
For Contracts issued in connection with Qualified Plans, the terms of any
Qualified Plan and the Internal Revenue Code should be reviewed with respect
to limitations or restrictions on distributions following the death of the
Owner or Annuitant. Because the rules applicable to Qualified Plans are
extremely complex, a competent tax adviser should be consulted.
DEATH OF THE ANNUITANT
If the Annuitant dies prior to the Annuity Payout Date, and the Owner is a
natural person and is not the Annuitant, no death benefit proceeds will be
payable under the Contract. The Owner may name a new Annuitant within 30
days of the Annuitant's death. If a new Annuitant is not named, the Company
will designate the Owner as Annuitant. On the death of the Annuitant on or
after the Annuity Payout Date, any death benefit is determined under the
terms of the Annuity Option. See "Annuity Options," page 25.
CHARGES AND DEDUCTIONS
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MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a daily charge from the assets of each Subaccount for
mortality and expense risks assumed by the Company under the Contracts. The
charge generally is equal to an annual rate of 0.55% of each Subaccount's
average daily net assets. This amount is intended to compensate the Company
for certain mortality and expense risks the Company assumes in offering and
administering the Contracts and in operating the Subaccounts.
The expense risk borne by the Company is the risk that the Company's actual
expenses in issuing and administering the Contracts and operating the
Subaccounts will be more than the profit realized from the mortality and
expense risk charge. The mortality risk borne by the Company is the risk
that Annuitants, as a group, will live longer than the Company's actuarial
tables predict. In this event, the Company guarantees that annuity payments
will not be affected by a change in mortality experience that results in the
payment of greater annuity income than assumed under the Annuity Options in
the Contract. The Company assumes a mortality risk in connection with the
death benefit under the Contract.
The Company may ultimately realize a profit from the mortality and expense
risk charge to the extent it is not needed to cover mortality and
administrative expenses, but the Company may realize a loss to the extent
the charge is not sufficient. The Company may use any profit derived from
this charge for any lawful purpose, including any promotional and
administrative expenses, including compensation paid by the Company to
Investment Services or an affiliate thereof. The Company pays Investment
Services at the annual rate of 0.10% of each Subaccount's average daily net
assets for administrative services.
PREMIUM TAX CHARGE
Various states and municipalities impose a tax on premiums on annuity
contracts received by insurance companies. Whether or not a premium tax is
imposed will depend upon, among other things, the Owner's state of
residence, the Annuitant's state of residence, and the insurance tax laws
and the Company's status in a particular state. The Company assesses a
premium tax charge to reimburse itself for premium taxes that it incurs in
connection with a Contract. This charge will be deducted upon the Annuity
Payout Date, upon full or partial withdrawal, or upon payment of the death
benefit, if premium taxes are incurred at that time and are not refundable.
The Company reserves the right to deduct premium taxes when due or anytime
thereafter. Premium tax rates currently range from 0% to 3.5%, but are
subject to change by a governmental entity.
OTHER CHARGES
The Company may charge the Separate Account or the Subaccounts for the
federal, state, or local taxes incurred by the Company that are attributable
to the Separate Account or the Subaccounts, or to the operations of the
Company with respect to the Contracts, or that are attributable to payment
of premiums or acquisition costs under the Contracts. No such charge is
currently assessed. See "Tax Status of the Company and the Separate Account"
and "Charge for the Company's Taxes," page 32.
GUARANTEE OF CERTAIN CHARGES
The Company guarantees that the charge for mortality and expense risks will
not exceed an annual rate of 0.55% of each Subaccount's average daily net
assets.
FUND EXPENSES
Each Subaccount purchases shares at the net asset value of the corresponding
Portfolio of the Funds. Each Portfolio's net asset value reflects the
investment management fee and any other expenses that are deducted from the
assets of the Fund. These fees and expenses are not deducted from the
Subaccount, but are paid from the assets of the corresponding Portfolio. As
a result, you indirectly bear a pro rata portion of such fees and expenses.
The management fees and other expenses, if any, which are more fully
described in the Funds' prospectus, are not specified or fixed under the
terms of the Contract, and the Company bears no responsibility for such fees
and expenses.
ANNUITY PAYMENTS
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GENERAL
You may select the Annuity Payout Date at the time of application. You may
not defer the Annuity Payout Date beyond the Annuitant's 90th birthday,
although the terms of a Qualified Plan and the laws of certain states may
require you to begin receiving annuity payments at an earlier age. If you do
not select an Annuity Payout Date, the Annuity Payout Date will be the later
of the Annuitant's 70th birthday or the tenth annual Contract Anniversary.
See "Selection of an Option," page 26. If there are Joint Annuitants, the
birth date of the older Annuitant will be used to determine the latest
Annuity Payout Date. A letter will be sent to the Owner on the proposed
Annuity Payout Date requesting that the Owner confirm this date or to select
a new date.
On the Annuity Payout Date, the Account Value as of that date, less any
premium taxes, will be applied to provide an annuity under one of the
Options described on page 25. Each Option is available either as a variable
annuity supported by the Subaccounts or as a fixed annuity supported by the
Fixed Interest Account. A combination variable and fixed annuity is also
available under Options 5 through 7. Your payment choices for each Annuity
Option are set forth in the table below.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
COMBINATION VARIABLE
ANNUITY OPTION VARIABLE ANNUITY FIXED ANNUITY AND FIXED ANNUITY
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Option 1 - Life Income X X
-------------------------------------------------------------------------------------------------------
Option 2 - Life Income with Period Certain X X
-------------------------------------------------------------------------------------------------------
Option 3 - Life Income with Installment
Refund X X
-------------------------------------------------------------------------------------------------------
Option 4 - Joint and Last Survivor X X
-------------------------------------------------------------------------------------------------------
Option 5 - Payments for a Specified Period X X X
-------------------------------------------------------------------------------------------------------
Option 6 - Payments of a Specified Amount X X X
-------------------------------------------------------------------------------------------------------
Option 7 - Age Recalculation X X X
-------------------------------------------------------------------------------------------------------
Option 8 - Period Certain X X
-------------------------------------------------------------------------------------------------------
</TABLE>
Variable Annuity Payments will fluctuate with the investment performance of
the applicable Subaccounts while fixed Annuity Payments will not. Unless you
direct otherwise, Account Value allocated to the Subaccounts will be applied
to purchase a variable annuity and Account Value allocated to the Fixed
Interest Account will be applied to purchase a fixed annuity.
The Company will make Annuity Payments on a monthly, quarterly, semiannual,
or annual basis. No Annuity Payments will be made for less than $100. You
may direct Investment Services to apply the proceeds of an Annuity Payment
to shares of one or more of the T. Rowe Price Funds by submitting a written
request to the T. Rowe Price Variable Annuity Service Center. If the
frequency of payments selected would result in payments of less than $100,
the Company reserves the right to change the frequency.
You may designate or change an Annuity Payout Date, Annuity Option and
Annuitant, provided proper written notice is received at the T. Rowe Price
Variable Annuity Service Center at least 30 days prior to the Annuity Payout
Date. The date selected as the new Annuity Payout Date must be at least 30
days after the date written notice requesting a change of Annuity Payout
Date is received at the T. Rowe Price Variable Annuity Service Center.
EXCHANGES AND WITHDRAWALS
During the Annuity Period, you may exchange Account Value or Payment Units
among the Subaccounts upon proper written request to the T. Rowe Price
Variable Annuity Service Center. Up to six exchanges are allowed in any
Contract Year. Exchanges of Account Value or Payment Units during the
Annuity Period will result in future annuity payments based upon the
performance of the Subaccounts to which the exchange is made.
The Owner may exchange Payment Units under Options 1 through 4 and 8 and may
exchange Account Value among the Subaccounts and the Fixed Interest Account
under Options 5 through 7, subject to the restrictions on exchanges from the
Fixed Interest Account described under the "Fixed Interest Account," page
28. The minimum amount of Account Value that may be exchanged is $500 or, if
less, the amount remaining in the Fixed Interest Account or Subaccount.
Once Annuity Payments have commenced, an Annuitant or Owner cannot change
the Annuity Option and generally cannot surrender his or her annuity for the
Withdrawal Value. Full and partial withdrawals of Account Value are
available, however, during the Annuity Period under Options 5 through 7,
subject to the restrictions on withdrawals from the Fixed Interest Account.
An Owner may elect to withdraw the present value of annuity payments,
commuted at the assumed interest rate, if a variable annuity under Option 8
is selected. Partial withdrawals during the Annuity Period will reduce the
amount of future Annuity Payments.
ANNUITY OPTIONS
The Contract provides for eight Annuity Options. Other Annuity Options may
be available upon request at the discretion of the Company. If no Annuity
Option has been selected, Annuity Payments will be made to the Annuitant
under Option 2 which shall be an annuity payable monthly during the lifetime
of the Annuitant with payments guaranteed to be made for 10 years. A letter
will be sent to the Owner on the Annuity Payout Date to notify the Owner
that Option 2 will be selected and to give the Owner the opportunity to
confirm this Annuity Option or to select a different Annuity Option. The
Annuity Options are set forth below.
OPTION 1 - LIFE INCOME Periodic Annuity Payments will be made during the
lifetime of the Annuitant. It is possible under this Option for an Annuitant
to receive only one Annuity Payment if the Annuitant's death occurred prior
to the due date of the second Annuity Payment, two if death occurred prior
to the due date of the third Annuity Payment, etc. THERE IS NO MINIMUM
NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE
DEATH OF THE ANNUITANT, REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 2 - LIFE INCOME WITH PERIOD CERTAIN OF 5, 10, 15, OR 20 YEARS
Periodic Annuity Payments will be made during the lifetime of the Annuitant
with the promise that if, at the death of the Annuitant, payments have been
made for less than a stated period, which may be 5, 10, 15, or 20 years, as
elected, Annuity Payments will be continued during the remainder of such
period to the Designated Beneficiary. UPON THE ANNUITANT'S DEATH AFTER THE
PERIOD CERTAIN, NO FURTHER ANNUITY PAYMENTS WILL BE MADE.
OPTION 3 - LIFE INCOME WITH INSTALLMENT OR UNIT REFUND OPTION Periodic
Annuity Payments will be made during the lifetime of the Annuitant with the
promise that, if at the death of the Annuitant, the number of payments that
has been made is less than the number determined by dividing the amount
applied under this Option by the amount of the first payment, Annuity
Payments will be continued to the Designated Beneficiary until that number
of Annuity Payments has been made.
OPTION 4 - JOINT AND LAST SURVIVOR Periodic Annuity Payments will be made
during the lifetime of the Annuitants. Annuity Payments will be made as long
as either Annuitant is living. Upon the death of one Annuitant, Annuity
Payments continue to the surviving annuitant at the same or a reduced level
of 75%, 66 2/3% or 50% of Annuity Payments as elected by the Owner at the
time the Annuity Option is selected. With respect to fixed Annuity Payments,
the amount of the Annuity Payment and, with respect to variable annuity
payments, the number of Payment Units used to determine the Annuity Payment
is reduced as of the first Annuity Payment following the Annuitant's death.
It is possible under this Option for only one Annuity Payment to be made if
both Annuitants died prior to the second Annuity Payment due date, two if
both died prior to the third Annuity Payment due date, etc. AS IN THE CASE
OF OPTION 1, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS
OPTION. PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT,
REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 5 - PAYMENTS FOR SPECIFIED PERIOD Periodic Annuity Payments will be
made for a fixed period, which may be from 5 to 20 years, as elected by the
Owner. The amount of each Annuity Payment is determined by dividing Account
Value by the number of Annuity Payments remaining in the period. If, at the
death of the Annuitant, payments have been made for less than the selected
fixed period, the remaining unpaid payments will be paid to the Designated
Beneficiary.
OPTION 6 - PAYMENTS OF A SPECIFIED AMOUNT Periodic Annuity Payments of the
amount elected by the Owner will be made until Account Value is exhausted,
with the guarantee that, if, at the death of the Annuitant, all guaranteed
payments have not yet been made, the remaining unpaid payments will be paid
to the Designated Beneficiary. This Option is available only for Contracts
issued in connection with Non-Qualified Plans.
OPTION 7 - AGE RECALCULATION Periodic Annuity Payments will be made based
upon the Annuitant's life expectancy, or the joint life expectancy of the
Annuitant and a beneficiary, at the Annuitant's attained age (and the
beneficiary's attained or adjusted age, if applicable) each year. The
payments are computed by reference to government actuarial tables and are
made until Account Value is exhausted. Upon the Annuitant's death, any
Account Value will be paid to the Designated Beneficiary.
OPTION 8 - PERIOD CERTAIN Periodic Annuity Payments will be made for a fixed
period which may be 5, 10, 15 or 20 years. This option differs from Option 5
in that Annuity Payments are calculated on the basis of Payment Units. If
the Annuitant dies prior to the end of the period certain, the remaining
guaranteed Annuity Payments will be made to the Designated Beneficiary.
SELECTION OF AN OPTION
You should carefully review the Annuity Options with your financial or tax
adviser. For Contracts used in connection with a Qualified Plan, reference
should be made to the terms of the particular plan and the requirements of
the Internal Revenue Code for pertinent limitations respecting Annuity
Payments and other matters. For instance, Qualified Plans generally require
that Annuity Payments begin no later than April 1 of the calendar year
following the year in which the Annuitant reaches age 70 1/2. In addition,
under Qualified Plans, the period elected for receipt of Annuity Payments
under Annuity Options (other than life income) generally may be no longer
than the joint life expectancy of the Annuitant and beneficiary in the year
that the Annuitant reaches age 70 1/2, and must be shorter than such joint
life expectancy if the beneficiary is not the Annuitant's spouse and is more
than 10 years younger than the Annuitant. For Non-Qualified Plans, the
Company does not allow Annuity Payments to be deferred beyond the
Annuitant's 90th birthday.
ANNUITY PAYMENTS
Annuity Payments under Options 1 through 4 and 8 are based upon annuity
rates that vary with the Annuity Option selected. In the case of Options 1
through 4 the annuity rates will vary based upon the age and sex of the
Annuitant, except that unisex rates are used where required by law. The
annuity rates reflect your life expectancy based upon your age and gender as
of the Annuity Payout Date unless unisex rates apply. The annuity rates are
based upon the 1983(a) Mortality Table and are adjusted to reflect an
assumed interest rate of 3.5%, compounded annually, as selected by the
Owner. See the table below for the basis of annuity rates. In the case of
Options 5, 6 and 7, Annuity Payments are based upon Account Value without
regard to annuity rates.
BASIS OF ANNUITY RATES
OPTIONS 1-4 OPTION 8
Assumed Interest Rate Assumed Interest Rate
Mortality Table 1983(a)
The Company calculates variable Annuity Payments under Options 1 through 4
and 8 using Payment Units. The value of a Payment Unit for each Subaccount
is determined as of each Valuation Date and was initially $1.00. The Payment
Unit value of a Subaccount as of any subsequent Valuation Date is determined
by adjusting the Payment Unit value on the previous Valuation Date for (1)
the interim performance of the corresponding Portfolio of the Funds; (2) any
dividends or distributions paid by the corresponding Portfolio; (3) the
mortality and expense risk charge; (4) the charges, if any, that may be
assessed by the Company for taxes attributable to the operation of the
Subaccount; and (5) the assumed interest rate.
The Company determines the number of Payment Units used to calculate each
variable Annuity Payment as of the Annuity Payout Date. As discussed above,
the Contract specifies annuity rates for Options 1 through 4 and 8 which are
the guaranteed minimum dollar amount of monthly annuity payment for each
$1,000 of Account Value, less any applicable premium taxes, applied to an
Annuity Option. The Account Value as of the Annuity Payout Date, less any
applicable premium taxes, is divided by $1,000 and the result is multiplied
by the rate per $1,000 specified in the annuity tables to determine the
initial Annuity Payment for a variable annuity and the guaranteed monthly
Annuity Payment for a fixed annuity.
On the Annuity Payout Date, the Company divides the initial variable Annuity
Payment by the value as of that date of the Payment Unit for the applicable
Subaccount to determine the number of Payment Units to be used in
calculating subsequent Annuity Payments. If variable Annuity Payments are
allocated to more than one Subaccount, the number of Payment Units will be
determined by dividing the portion of the initial variable Annuity Payment
allocated to a Subaccount by the value of that Subaccount's Payment Unit as
of the Annuity Payout Date. The initial variable Annuity Payment is
allocated to the Subaccounts in the same proportion as the Account Value is
allocated as of the Annuity Payout Date. The number of Payment Units will
remain constant for subsequent Annuity Payments, unless the Owner exchanges
Payment Units among Subaccounts or makes a withdrawal under Option 8.
Subsequent variable Annuity Payments are calculated by multiplying the
number of Payment Units allocated to a Subaccount by the value of the
Payment Unit as of the date of the Annuity Payment. If the Annuity Payment
is allocated to more than one Subaccount, the Annuity Payment is equal to
the sum of the payment amount determined for each Subaccount.
ASSUMED INTEREST RATE
As discussed above, the annuity rates for Options 1 through 4 and 8 are
based upon an assumed interest rate of 3.5%, compounded annually. Variable
Annuity Payments increase or decrease from one Annuity Payment date to the
next based upon the performance of the applicable Subaccounts during the
interim period adjusted for the assumed interest rate. If the performance of
the Subaccounts is equal to the assumed interest rate, Annuity Payments will
remain constant. If the performance of the Subaccounts is greater than the
assumed interest rate, the amount of the Annuity Payments will increase and
if it is less than the assumed interest rate, the amount of the Annuity
Payments will decline. A higher assumed interest rate, for example 5%, would
mean a higher initial variable Annuity Payment, but the amount of the
Annuity Payments would increase more slowly in a rising market (or the
amount of the Annuity Payments would decline more rapidly in a falling
market). Conversely, a lower assumed interest rate, for example 3.5%, would
mean a lower initial variable Annuity Payment and more rapidly rising
Annuity Payment amounts in a rising market and more slowly declining Annuity
Payment amounts in a falling market.
THE FIXED INTEREST ACCOUNT
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You may allocate all or a portion of your purchase payments, and exchange
Account Value, to the Fixed Interest Account. Amounts allocated to the Fixed
Interest Account become part of the Company's General Account, which
supports the Company's insurance and annuity obligations. The Company's
General Account is subject to regulation and supervision by the Kansas
Department of Insurance and is also subject to the insurance laws and
regulations of other jurisdictions in which the Contract is distributed. In
reliance on certain exemptive and exclusionary provisions, interests in the
Fixed Interest Account have not been registered as securities under the
Securities Act of 1933 (the "1933 Act") and the Fixed Interest Account has
not been registered as an investment company under the Investment Company
Act of 1940 (the "1940 Act"). Accordingly, neither the Fixed Interest
Account nor any interests therein are generally subject to the provisions of
the 1933 Act or the 1940 Act. The disclosure in this Prospectus relating to
the Fixed Interest Account, however, may be subject to certain generally
applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in the Prospectus. This
Prospectus is generally intended to serve as a disclosure document only for
aspects of a Contract involving the Separate Account and contains only
selected information regarding the Fixed Interest Account. For more
information regarding the Fixed Interest Account, see "The Contract," page
14.
Amounts allocated to the Fixed Interest Account become part of the General
Account of the Company, which consists of all assets owned by the Company
other than those in the Separate Account and other separate accounts of the
Company. Subject to applicable law, the Company has sole discretion over the
investment of the assets of its General Account.
INTEREST
Account Value allocated to the Fixed Interest Account earns interest at a
fixed rate or rates that are paid by the Company. The Account Value in the
Fixed Interest Account earns interest at an interest rate that is guaranteed
to be at least an annual effective rate of 3% which will accrue daily
("Guaranteed Rate"). Such interest will be paid regardless of the actual
investment experience of the Company's General Account. In addition, the
Company may in its discretion pay interest at a rate ("Current Rate") that
exceeds the Guaranteed Rate. The Company will determine the Current Rate, if
any, from time to time.
Account Value allocated or exchanged to the Fixed Interest Account will earn
interest at the Current Rate, if any, in effect on the date such portion of
Account Value is allocated or exchanged to the Fixed Interest Account. The
Current Rate paid on any such portion of Account Value allocated or
exchanged to the Fixed Interest Account will be guaranteed for rolling
periods of one or more years (each a "Guarantee Period"). The Company
currently offers only Guarantee Periods of one year. Upon expiration of any
Guarantee Period, a new Guarantee Period of the same duration begins with
respect to that portion of Account Value, which will earn interest at the
Current Rate, if any, declared by the Company on the first day of the new
Guarantee Period.
Account Value allocated or exchanged to the Fixed Interest Account at one
point in time may be credited with a different Current Rate than amounts
allocated or exchanged to the Fixed Interest Account at another point in
time. For example, amounts allocated to the Fixed Interest Account in June
may be credited with a different Current Rate than amounts allocated to the
Fixed Interest Account in July. In addition, if Guarantee Periods of
different durations are offered, Account Value allocated or exchanged to the
Fixed Interest Account for a Guarantee Period of one duration may be
credited with a different Current Rate than amounts allocated or exchanged
to the Fixed Interest Account for a Guarantee Period of a different
duration. Therefore, at any time, various portions of your Account Value in
the Fixed Interest Account may be earning interest at different Current
Rates depending upon the point in time such portions were allocated or
exchanged to the Fixed Interest Account and the duration of the Guarantee
Period. The Company bears the investment risk for the Account Value
allocated to the Fixed Interest Account and for paying interest at the
Guaranteed Rate on amounts allocated to the Fixed Interest Account.
For purposes of determining the interest rates to be credited on Account
Value in the Fixed Interest Account, withdrawals or exchanges from the Fixed
Interest Account will be deemed to be taken first from any portion of
Account Value allocated to the Fixed Interest Account for which the
Guarantee Period expires during the calendar month in which the withdrawal
or exchange is effected, then in the order beginning with that portion of
such Account Value which has the longest amount of time remaining before the
end of its Guarantee Period and ending with that portion which has the least
amount of time remaining before the end of its Guarantee Period. For more
information about exchanges and withdrawals from the Fixed Interest Account,
see "Exchanges and Withdrawals" below.
DEATH BENEFIT
The death benefit under the Contract will be determined in the same fashion
for a Contract that has Account Value in the Fixed Interest Account as for a
Contract that has Account Value allocated to the Subaccounts. See "Death
Benefit," page 21.
CONTRACT CHARGES
Premium taxes will be the same for Contractowners who allocate purchase
payments or exchange Account Value to the Fixed Interest Account as for
those who allocate purchase payments to the Subaccounts. The charge for
mortality and expense risks will not be assessed against the Fixed Interest
Account, and any amounts that the Company pays for income taxes allocable to
the Subaccounts will not be charged against the Fixed Interest Account. In
addition, the investment management fees and any other expenses paid by the
Funds will not be paid directly or indirectly by Contractowners to the
extent the Account Value is allocated to the Fixed Interest Account;
however, such Contractowners will not participate in the investment
experience of the Subaccounts.
EXCHANGES AND WITHDRAWALS
Amounts may be exchanged from the Subaccounts to the Fixed Interest Account
and from the Fixed Interest Account to the Subaccounts, subject to the
following limitations. Exchanges from the Fixed Interest Account are allowed
only (1) from Account Value, the Guarantee Period of which expires during
the calendar month in which the exchange is effected, (2) pursuant to the
Dollar Cost Averaging Option provided that such exchanges are scheduled to
be made over a period of not less than one year, and (3) pursuant to the
Asset Rebalancing Option, provided that upon receipt of the Asset
Rebalancing Request, Account Value is allocated among the Fixed Interest
Account and the Subaccounts in the percentages selected by the Contractowner
without violating the restrictions on exchanges from the Fixed Interest
Account set forth in (1) above. Accordingly, a Contractowner who desires to
implement the Asset Rebalancing Option should do so at a time when Account
Value may be exchanged from the Fixed Interest Account to the Subaccounts in
the percentages selected by the Contractowner without violating the
restrictions on exchanges from the Fixed Interest Account. Once an Asset
Rebalancing Option is implemented, the restrictions on exchanges will not
apply to exchanges made pursuant to the Option. Up to six exchanges are
allowed in any Contract Year and exchanges pursuant to the Dollar Cost
Averaging and Asset Rebalancing Options are not included in the six
exchanges allowed per Contract Year. The minimum exchange amount is $500
($200 under the Dollar Cost Averaging Option) or the amount remaining in the
Fixed Interest Account. The Company reserves the right to waive or limit the
number of exchanges permitted each Contract Year, to suspend exchanges, to
limit the amount that may be subject to exchanges and the amount remaining
in an account after an exchange, and to impose conditions on the right to
exchange.
If Account Value is being exchanged from the Fixed Interest Account pursuant
to the Dollar Cost Averaging or Asset Rebalancing Option or withdrawn from
the Fixed Interest Account pursuant to systematic withdrawals, any purchase
payment allocated to, or Account Value exchanged to or from, the Fixed
Interest Account will automatically terminate such Dollar Cost Averaging or
Asset Rebalancing Option or systematic withdrawals, and any withdrawal from
the Fixed Interest Account or the Subaccounts will automatically terminate
the Asset Rebalancing Option. In the event of automatic termination of any
of the foregoing options, the Company shall so notify the Contractowner, and
the Contractowner may reestablish Dollar Cost Averaging, Asset Rebalancing,
or systematic withdrawals by sending a written request to the Company,
provided that the Owner's Account Value at that time meets any minimum
amount required for the Dollar Cost Averaging or Asset Rebalancing Option.
The Contractowner may also make full withdrawals to the same extent as a
Contractowner who has allocated Account Value to the Subaccounts. A
Contractowner may make a partial withdrawal from the Fixed Interest Account
only (1) from Account Value, the Guarantee Period of which expires during
the calendar month in which the partial withdrawal is effected, (2) pursuant
to systematic withdrawals, and (3) once per Contract Year in an amount up to
the greater of $5,000 or 10% of Account Value allocated to the Fixed
Interest Account at the time of the partial withdrawal. Systematic
withdrawals from Account Value allocated to the Fixed Interest Account must
provide for payments over a period of not less than 36 months. See "Full and
Partial Withdrawals," page 19 and "Systematic Withdrawals," page 20.
PAYMENTS FROM THE FIXED INTEREST ACCOUNT
As required by most states, the Company reserves the right to delay any full
and partial withdrawals and exchanges from the Fixed Interest Account for up
to six months after a written request in proper form is received at the T.
Rowe Price Variable Annuity Service Center. During the period of deferral,
interest at the applicable interest rate or rates will continue to be
credited to the amounts allocated to the Fixed Interest Account. The Company
does not expect to delay payments from the Fixed Interest Account and will
notify you if there will be a delay.
MORE ABOUT THE CONTRACT
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OWNERSHIP
The Contractowner is the person named as such in the application or in any
later change shown in the Company's records. While living, the Contractowner
alone has the right to receive all benefits and exercise all rights that the
Contract grants or the Company allows. The Owner may be an entity that is
not a living person, such as a trust or corporation, referred to herein as
"Non-Natural Persons." See "Federal Tax Matters," page 31.
JOINT OWNERS. The Joint Owners will be joint tenants with rights of
survivorship and upon the death of an Owner, the surviving Owner shall be
the sole Owner. Any Contract transaction requires the signature of all
persons named jointly. Joint Owners are permitted only on a Contract issued
pursuant to a Non-Qualified Plan.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary is the individual named as such in the application or any
later change shown in the Company's records. The Contractowner may change
the Beneficiary at any time while the Contract is in force by written
request on a form provided by the Company and received at the T. Rowe Price
Variable Annuity Service Center. The change will not be binding on the
Company until it is received and recorded at the T. Rowe Price Variable
Annuity Service Center. The change will be effective as of the date this
form is signed subject to any payments made or other actions taken by the
Company before the change is received and recorded. A Secondary Beneficiary
may be designated. The Owner may designate a permanent Beneficiary whose
rights under the Contract cannot be changed without the Beneficiary's
consent.
DIVIDENDS
The Contract is eligible to share in the surplus earnings of the Company.
However, the current dividend scale is zero, and the Company does not
anticipate that dividends will be paid.
PAYMENTS FROM THE SEPARATE ACCOUNT
The Company will pay any full or partial withdrawal benefit or death benefit
proceeds from Account Value allocated to the Subaccounts, and will effect an
exchange between Subaccounts or from a Subaccount to the Fixed Interest
Account within seven days from the Valuation Date a proper request is
received at the T. Rowe Price Variable Annuity Service Center. However, the
Company can postpone the calculation or payment of such a payment or
exchange of amounts from the Subaccounts to the extent permitted under
applicable law, for any period: (a) during which the New York Stock Exchange
is closed other than customary weekend and holiday closings, (b) during
which trading on the New York Stock Exchange is restricted as determined by
the SEC, (c) during which an emergency, as determined by the SEC, exists as
a result of which (i) disposal of securities held by the Separate Account is
not reasonably practicable, or (ii) it is not reasonably practicable to
determine the value of the assets of the Separate Account, or (d) as the SEC
may by order permit for the protection of investors.
PROOF OF AGE AND SURVIVAL
The Company may require proof of age or survival of any person on whose life
Annuity Payments depend.
MISSTATEMENTS
If the age or sex of an Annuitant or age of an Owner has been misstated, the
correct amount paid or payable by the Company under the Contract shall be
such as the Account Value would have provided for the correct age or sex
(unless unisex rates apply).
FEDERAL TAX MATTERS
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INTRODUCTION
The Contract described in this Prospectus is designed for use by individuals
in retirement plans which may or may not be Qualified Plans under the
provisions of the Internal Revenue Code ("Code").
The ultimate effect of federal income taxes on the amounts held under a
Contract, on annuity payments, and on the economic benefits to the Owner,
the Annuitant, and the Beneficiary or other payee will depend upon the type
of retirement plan for which the Contract is purchased, the tax and
employment status of the individuals involved, and a number of other
factors. The discussion of the federal income tax considerations relating to
a Contract contained herein and in the Statement of Additional Information
is general in nature and is not intended to be an exhaustive discussion of
all questions that might arise in connection with a Contract. It is based
upon the Company's understanding of the present federal income tax laws as
currently interpreted by the Internal Revenue Service ("IRS"), and is not
intended as tax advice. No representation is made regarding the likelihood
of continuation of the present federal income tax laws or of the current
interpretations by the IRS or the courts. Future legislation may affect
annuity contracts adversely. Moreover, no attempt has been made to consider
any applicable state or other laws. Because of the inherent complexity of
the tax laws and the fact that tax results will vary according to the
particular circumstances of the individual involved and, if applicable, the
Qualified Plan, a person should consult a qualified tax adviser regarding
the purchase of a Contract, the selection of an Annuity Option under a
Contract, the receipt of annuity payments under a Contract, or any other
transaction involving a Contract (including an exchange). THE COMPANY DOES
NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF, OR TAX CONSEQUENCES
ARISING FROM, ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACT.
TAX STATUS OF THE COMPANY AND THE SEPARATE ACCOUNT
GENERAL
The Company intends to be taxed as a life insurance company under Part I,
Subchapter L of the Code. Because the operations of the Separate Account
form a part of the Company, the Company will be responsible for any federal
income taxes that become payable with respect to the income of the Separate
Account and its Subaccounts.
CHARGE FOR THE COMPANY'S TAXES
A charge may be made against the Separate Account for any federal taxes
incurred by the Company that are attributable to the Separate Account, the
Subaccounts, or to the operations of the Company with respect to the
Contracts or attributable to payments, premiums, or acquisition costs under
the Contracts. The Company will review the question of a charge to the
Separate Account, the Subaccounts, or the Contract for the Company's federal
taxes periodically. Charges may become necessary if, among other reasons,
the tax treatment of the Company or of income and expenses under the
Contract is ultimately determined to be other than what the Company
currently believes it to be, if there are changes made in the federal income
tax treatment of variable annuities at the insurance company level, or if
there is a change in the Company's tax status.
Under current laws, the Company 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, the Company reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS
Each of the Portfolios will be required to adhere to regulations issued by
the Treasury Department pursuant to Section 817(h) of the Code prescribing
asset diversification requirements for investment companies whose shares are
sold to insurance company separate accounts funding variable contracts.
Pursuant to these regulations, on the last day of each calendar quarter (or
on any day within 30 days thereafter), no more than 55% of the total assets
of a Portfolio may be represented by any one investment, no more than 70%
may be represented by any two investments, no more than 80% may be
represented by any three investments, and no more than 90% may be
represented by any four investments. For purposes of Section 817(h),
securities of a single issuer generally are treated as one investment, but
obligations of the U.S. Treasury and each U.S. Governmental agency or
instrumentality generally are treated as securities of separate issuers. The
Separate Account, through the Portfolios, intends to comply with the
diversification requirements of Section 817(h).
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contractowner's gross income. The IRS has stated in published
rulings that a variable contractowner will be considered the owner of
separate account assets if the contractowner possesses incidents of
ownership in those assets, such as the ability to exercise investment
control over the assets. The Treasury Department also announced, in
connection with the issuance of regulations concerning diversification, that
those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor (i.e., the policyowner), rather than the insurance
company, to be treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by way of regulations
or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no guidance
applicable to the Contract has been issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example in the present case, the Contractowner has additional flexibility in
allocating purchase payments and Contract Values than in the cases described
in the rulings. These differences could result in a Contractowner being
treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, the Company does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department
has stated it expects to issue. The Company therefore reserves the right to
modify the Contract, as deemed appropriate by the Company, to attempt to
prevent a Contractowner from being considered the owner of a pro rata share
of the assets of the Separate Account. Moreover, in the event that
regulations or rulings are promulgated, there can be no assurance that the
Portfolios will be able to operate as currently described in the Prospectus,
or that the Funds will not have to change any Portfolio's investment
objective or investment policies.
INCOME TAXATION OF ANNUITIES IN GENERAL-NON-QUALIFIED PLANS
Section 72 of the Code governs the taxation of annuities. In general, a
Contractowner is not taxed on increases in value under an annuity contract
until some form of distribution is made under the contract. However, the
increase in value may be subject to tax currently under certain
circumstances. See "Contracts Owned by Non-Natural Persons," page 35 and
"Diversification Standards," page 32. Withholding of federal income taxes on
all distributions may be required unless a recipient who is eligible elects
not to have any amounts withheld and properly notifies the Company of that
election.
* SURRENDERS OR WITHDRAWALS PRIOR TO THE ANNUITY PAYOUT DATE Code Section
72 provides that amounts received upon a total or partial withdrawal
(including systematic withdrawals) from a Contract prior to the Annuity
Payout Date generally will be treated as gross income to the extent that
the cash value of the Contract (determined without regard to any
surrender charge in the case of a partial withdrawal) exceeds the
"investment in the contract." The "investment in the contract" is that
portion, if any, of purchase payments paid under a Contract less any
distributions received previously under the Contract that are excluded
from the recipient's gross income. The taxable portion is taxed at
ordinary income tax rates. For purposes of this rule, a pledge or
assignment of a Contract is treated as a payment received on account of
a partial withdrawal of a Contract. Similarly, loans under a Contract
are generally treated as distributions under the Contract.
* SURRENDERS OR WITHDRAWALS ON OR AFTER THE ANNUITY PAYOUT DATE Upon a
complete surrender, the amount received is taxable to the extent that
the cash value of the Contract exceeds the investment in the Contract.
The taxable portion of such payments will be taxed at ordinary income
tax rates. For fixed annuity payments, the taxable portion of each
payment generally is determined by using a formula known as the
"exclusion ratio," which establishes the ratio that the investment in
the Contract bears to the total expected amount of annuity payments for
the term of the Contract. That ratio is then applied to each payment to
determine the non-taxable portion of the payment. The remaining portion
of each payment is taxed at ordinary income rates. For variable annuity
payments, the taxable portion of each payment is determined by using a
formula known as the "excludable amount," which establishes the
non-taxable portion of each payment. The non-taxable portion is a fixed
dollar amount for each payment, determined by dividing the investment in
the Contract by the number of payments to be made. The remainder of each
variable annuity payment is taxable. Once the excludable portion of
annuity payments to date equals the investment in the Contract, the
balance of the annuity payments will be fully taxable.
* PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS With respect to
amounts withdrawn or distributed before the taxpayer reaches age 59 1/2,
a penalty tax is generally imposed equal to 10% of the portion of such
amount which is includible in gross income. However, the penalty tax is
not applicable to withdrawals: (i) made on or after the death of the
owner (or where the owner is not an individual, the death of the
"primary annuitant," who is defined as the individual the events in
whose life are of primary importance in affecting the timing and amount
of the payout under the Contract); (ii) attributable to the taxpayer's
becoming totally disabled within the meaning of Code Section 72(m)(7);
(iii) which are part of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life
expectancies) of the taxpayer and his or her beneficiary; (iv) from
certain qualified plans; (v) under a so-called qualified funding asset
(as defined in Code Section 130(d)); (vi) under an immediate annuity
contract; or (vii) which are purchased by an employer on termination of
certain types of qualified plans and which are held by the employer
until the employee separates from service.
If the penalty tax does not apply to a surrender or withdrawal as a result
of the application of item (iii) above, and the series of payments are
subsequently modified (other than by reason of death or disability), the tax
for the first year in which the modification occurs will be increased by an
amount (determined by the regulations) equal to the tax that would have been
imposed but for item (iii) above, plus interest for the deferral period, if
the modification takes place (a) before the close of the period which is
five years from the date of the first payment and after the taxpayer attains
age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
ADDITIONAL CONSIDERATIONS
* DISTRIBUTION-AT-DEATH RULES In order to be treated as an annuity
contract, a Contract must provide the following two distribution rules:
(a) if any owner dies on or after the Annuity Payout Date, and before
the entire interest in the Contract has been distributed, the remainder
of the owner's interest will be distributed at least as quickly as the
distribution method in effect on the owner's death; and (b) if any owner
dies before the Annuity Payout Date, the entire interest in the Contract
must generally be distributed within five years after the date of death,
or, if payable to a designated beneficiary, must be annuitized over the
life of that designated beneficiary or over a period not extending
beyond the life expectancy of that beneficiary, commencing within one
year after the date of death of the owner. If the sole designated
beneficiary is the spouse of the deceased owner, the Contract (together
with the deferral of tax on the accrued and future income thereunder)
may be continued in the name of the spouse as owner.
Generally, for purposes of determining when distributions must begin
under the foregoing rules, where an owner is not an individual, the
primary annuitant is considered the owner. In that case, a change in the
primary annuitant will be treated as the death of the owner. Finally, in
the case of joint owners, the distribution-at-death rules will be
applied by treating the death of the first owner as the one to be taken
into account in determining generally when distributions must commence,
unless the sole Beneficiary is the deceased owner's spouse.
* GIFT OF ANNUITY CONTRACTS Generally, gifts of Non-Qualified Plan
Contracts prior to the Annuity Payout Date will trigger tax on the gain
on the Contract, with the donee getting a stepped-up basis for the
amount included in the donor's income. The 10% penalty tax and gift tax
also may be applicable. This provision does not apply to transfers
between spouses or incident to a divorce.
* CONTRACTS OWNED BY NON-NATURAL PERSONS If the Contract is held by a
non-natural person (for example, a corporation), the income on that
Contract (generally the increase in net surrender value less the
purchase payments) is includible in taxable income each year. The rule
does not apply where the Contract is acquired by the estate of a
decedent, where the Contract is held by certain types of retirement
plans, where the Contract is a qualified funding asset for structured
settlements, where the Contract is purchased on behalf of an employee
upon termination of a qualified plan, and in the case of a so-called
immediate annuity. An annuity contract held by a trust or other entity
as agent for a natural person is considered held by a natural person.
* MULTIPLE CONTRACT RULE For purposes of determining the amount of any
distribution under Code Section 72(e) (amounts not received as
annuities) that is includible in gross income, all Non-Qualified annuity
contracts issued by the same insurer to the same Contractowner during
any calendar year are to be aggregated and treated as one contract.
Thus, any amount received under any such contract prior to the
contract's Annuity Payout Date, such as a partial withdrawal, dividend,
or loan, will be taxable (and possibly subject to the 10% penalty tax)
to the extent of the combined income in all such contracts.
In addition, the Treasury Department has broad regulatory authority in
applying this provision to prevent avoidance of the purposes of this
rule. It is possible that, under this authority, the Treasury Department
may apply this rule to amounts that are paid as annuities (on and after
the Annuity Payout Date) under annuity contracts issued by the same
company to the same owner during any calendar year. In this case,
annuity payments could be fully taxable (and possibly subject to the 10%
penalty tax) to the extent of the combined income in all such contracts
and regardless of whether any amount would otherwise have been excluded
from income because of the "exclusion ratio" under the contract.
* POSSIBLE TAX CHANGES In recent years, legislation has been proposed that
would have adversely modified the federal taxation of certain annuities.
There is always the possibility that the tax treatment of annuities
could change by legislation or other means (such as IRS regulations,
revenue rulings, and judicial decisions). Moreover, although unlikely,
it is also possible that any legislative change could be retroactive
(that is, effective prior to the date of such change).
* TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A CONTRACT A transfer of
ownership of a Contract, the designation of an Annuitant, Payee, or
other Beneficiary who is not also the Owner, the selection of certain
Annuity Payout Dates or the exchange of a Contract may result in certain
tax consequences to the Owner that are not discussed herein. An Owner
contemplating any such transfer, assignment, selection, or exchange
should contact a qualified tax adviser with respect to the potential
effects of such a transaction.
QUALIFIED PLANS
The Contract may be used as a Qualified Plan that meets the requirements of
an individual retirement annuity ("IRA") under Section 408 of the Code, or a
Roth IRA under Section 408A of the Code. No attempt is made herein to
provide more than general information about the use of the Contract as a
Qualified Plan. Contractowners, Annuitants, and Beneficiaries are cautioned
that the rights of any person to any benefits under such Qualified Plans may
be limited by applicable law, regardless of the terms and conditions of the
Contract issued in connection therewith.
The amount that may be contributed to a Qualified Plan is subject to
limitations under the Code. In addition, early distributions from Qualified
Plans may be subject to penalty taxes. Furthermore, most Qualified Plans are
subject to certain minimum distribution rules. Failure to comply with these
rules could result in disqualification of the Plan or subject the Owner or
Annuitant to penalty taxes. As a result, the minimum distribution rules may
limit the availability of certain Annuity Options to certain Annuitants and
their beneficiaries. These rules and requirements may not be incorporated
into our Contract administration procedures. Therefore, Contractowners,
Annuitants, and Beneficiaries are responsible for determining that
contributions, distributions, and other transactions with respect to the
Contracts comply with applicable law.
THE FOLLOWING IS A BRIEF DESCRIPTION OF QUALIFIED PLANS AND THE USE OF THE
CONTRACT THEREWITH:
* SECTION 408 AND SECTION 408A
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to establish individual retirement programs through the purchase
of Individual Retirement Annuities ("traditional IRAs"). The Contract may be
purchased as an IRA. The IRAs described in this paragraph are called
"traditional IRAs" to distinguish them from "Roth IRAs" which are described
below.
IRAs are subject to limitations on the amount that may be contributed, the
persons who may be eligible, and on the time when distributions must
commence. Depending upon the circumstances of the individual, contributions
to a traditional IRA may be made on a deductible or nondeductible basis.
IRAs may not be transferred, sold, assigned, discounted, or pledged as
collateral for a loan or other obligation. The annual premium for an IRA may
not be fixed and may not exceed $2,000. Any refund of premium must be
applied to the payment of future premiums or the purchase of additional
benefits.
Sale of the Contract for use with IRAs may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the
Contract for such purposes will be provided with such supplementary
information as may be required by the Internal Revenue Service and will have
the right to revoke the Contract under certain circumstances. See the IRA
Disclosure Statement which accompanies this Prospectus.
An individual's interest in a traditional IRA must generally be distributed
or begin to be distributed not later than April 1 of the calendar year
following the calendar year in which the individual reaches age 70 1/2
("required beginning date"). The Contractowner's retirement date, if any,
will not affect his or her required beginning date. Periodic distributions
must not extend beyond the life of the individual or the lives of the
individual and a designated beneficiary (or over a period extending beyond
the life expectancy of the individual or the joint life expectancy of the
individual and a designated beneficiary).
If an individual dies before reaching his or her required beginning date,
the individual's entire interest must generally be distributed within five
years of the individual's death. However, the five-year rule will be deemed
satisfied if distributions begin before the close of the calendar year
following the year of the individual's death to a designated beneficiary and
are made over the life of the beneficiary (or over a period not extending
beyond the life expectancy of the beneficiary). If the designated
beneficiary is the individual's surviving spouse, distributions may be
delayed until the individual would have reached age 70 1/2.
If an individual dies after reaching his or her required beginning date, the
individual's interest must generally be distributed at least as rapidly as
under the method of distribution in effect at the time of the individual's
death.
Distributions from IRAs are generally taxed under Code Section 72. Under
these rules, a portion of each distribution may be excludable from income.
The amount excludable from the individual's income is the amount of the
distribution which bears the same ratio as the individual's nondeductible
contributions to all IRAs bear to the expected return under the IRAs.
The Internal Revenue Service has not reviewed the Contract for qualification
as an IRA, and has not addressed in a ruling of general applicability
whether a death benefit provision such as the provision in the Contract
comports with IRA qualification requirements.
ROTH IRAS. Section 408A of the Code permits eligible individuals to
establish a Roth IRA, a type of IRA which became available in 1998. The
Contract may be purchased as a Roth IRA. Contributions to a Roth IRA are not
deductible, but withdrawals that meet certain requirements are not subject
to federal income tax. Sale of the contract for use with Roth IRAs may be
subject to special requirements imposed by the Internal Revenue Service.
Purchasers of the Contract for such purposes will be provided with such
supplementary information as may be required by the Internal Revenue Service
or other appropriate agency, and will have the right to revoke the Contract
under certain requirements. Unlike a traditional IRA, Roth IRAs are not
subject to minimum required distribution rules during the Contractowner's
life time. Generally, however, upon the death of the Contractowner, the
amount in a remaining Roth IRA must be distributed in the same manner as a
traditional IRA as described above.
The Internal Revenue Service has not reviewed the Contract for qualification
as a Roth IRA and has not addressed in a ruling of general applicability
whether a death benefit provision such as the provision in the Contract
comports with Roth IRA qualification requirements.
* TAX PENALTIES
PREMATURE DISTRIBUTION TAX. Distributions from a Qualified Plan before the
owner reaches age 59 1/2 are generally subject to an additional tax equal to
10% of the taxable portion of the distribution. The 10% penalty tax does not
apply to distributions: (i) made on or after the death of the Owner; (ii)
attributable to the Owner's disability; (iii) which are part of a series of
substantially equal periodic payments made (at least annually) for the life
(or life expectancy) of the Owner or the joint lives (or joint life
expectancies) of the Owner and a designated beneficiary; (iv) made to pay
for certain medical expenses; (v) that are exempt withdrawals of an excess
contribution; (vi) that are rolled over or transferred in accordance with
Code requirements; (vii) which, subject to certain restrictions, do not
exceed the health insurance premiums paid by unemployed individuals in
certain cases; (viii) made to pay "qualified higher education expenses"; or
(ix) for certain "qualified first-time homebuyer distributions."
MINIMUM DISTRIBUTION TAX. If the amount distributed from all your IRAs is
less than the minimum required distribution for the year, the Owner is
subject to a 50% tax on the amount that was not properly distributed from
all your IRAs.
WITHHOLDING
Periodic distributions (e.g., annuities and installment payments) from a
Qualified Plan that will last for a period of 10 or more years are generally
subject to voluntary income tax withholding. The amount withheld on such
periodic distributions is determined at the rate applicable to wages. The
recipient of a periodic distribution may generally elect not to have
withholding apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than 10 years) from an IRA are subject to income tax
withholding at a flat 10% rate. The recipient of such a distribution may
elect not to have withholding apply.
The above description of the federal income tax consequences applicable to
Qualified Plans which may be funded by the Contract offered by this
Prospectus is only a brief summary and is not intended as tax advice. The
rules governing the provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have adverse tax
consequences. A prospective Contractowner considering adoption of a
Qualified Plan and purchase of a Contract in connection therewith should
first consult a qualified and competent tax adviser, with regard to the
suitability of the Contract as an investment vehicle for the Qualified Plan.
OTHER INFORMATION
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VOTING OF FUND SHARES
You indirectly (through the Separate Account) purchase shares of the
Portfolios when you allocate purchase payments to the Subaccounts. The
Company owns shares of the Portfolios in the Separate Account for your
benefit. Under current law, the Company will vote shares of the Portfolios
held in the Subaccounts in accordance with voting instructions received from
Owners having the right to give such instructions. You will have the right
to give voting instructions to the extent that you have Account Value
allocated to the particular Subaccount. The Company will vote all shares it
owns through the Subaccount in the same proportion as the shares for which
it receives voting instructions from Owners. The Company votes shares in
accordance with its current understanding of the federal securities laws. If
the Company later determines that it may vote shares of the Funds in its own
right, it may elect to do so.
Unless otherwise required by applicable law, the number of shares of a
particular Portfolio as to which you may give voting instructions to the
Company is determined by dividing your Account Value in a Subaccount on a
particular date by the net asset value per share of that Portfolio as of the
same date. Fractional votes will be counted. The number of votes as to which
voting instructions may be given will be determined as of the date
established by the Fund for determining shareholders eligible to vote at the
meeting of the Fund. If required by the SEC, the Company reserves the right
to determine in a different fashion the voting rights attributable to the
shares of the Funds. Voting instructions may be cast in person or by proxy.
Voting rights attributable to your Account Value in a Subaccount for which
you do not submit timely voting instructions will be voted by the Company in
the same proportion as the voting instructions that are received in a timely
manner for Contracts participating in that Subaccount.
SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to compliance with the law as then
in effect, to make additions to, deletions from, substitutions for, or
combinations of the securities that are held by the Separate Account or any
Subaccount or that the Separate Account or any Subaccount may purchase. If
shares of any or all of the Portfolios of the Funds should no longer be
available for investment, or if the Company receives an opinion from counsel
acceptable to Investment Services that substitution is in the best interest
of Contractowners and that further investment in shares of the Portfolio(s)
would cause undue risk to the Company, the Company may substitute shares of
another Portfolio of the Funds or of a different fund for shares already
purchased, or to be purchased in the future under the Contract. The Company
may also purchase, through the Subaccount, other securities for other
classes of contracts, or permit a conversion between classes of contracts on
the basis of requests made by Owners.
In connection with a substitution of any shares attributable to an Owner's
interest in a Subaccount or the Separate Account, the Company will, to the
extent required under applicable law, provide notice, seek Owner approval,
seek prior approval of the SEC, and comply with the filing or other
procedures established by applicable state insurance regulators.
The Company also reserves the right to establish additional Subaccounts of
the Separate Account that would invest in a new Portfolio of one of the
Funds or in shares of another investment company, a series thereof, or other
suitable investment vehicle. New Subaccounts may be established by the
Company with the consent of Investment Services, and any new Subaccount will
be made available to existing Owners on a basis to be determined by the
Company and Investment Services. The Company may also eliminate or combine
one or more Subaccounts if marketing, tax, or investment conditions so
warrant.
Subject to compliance with applicable law, the Company may transfer assets
to the General Account with the consent of Investment Services. The Company
also reserves the right, subject to any required regulatory approvals, to
transfer assets of any Subaccount to another separate account or Subaccount
with the consent of Investment Services.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in these and other contracts as
may be necessary or appropriate to reflect such substitution or change. If
deemed by the Company to be in the best interests of persons having voting
rights under the Contracts, the Separate Account may be operated as a
management investment company under the 1940 Act or any other form permitted
by law; it may be deregistered under that Act in the event such registration
is no longer required; or it may be combined with other separate accounts of
the Company or an affiliate thereof. Subject to compliance with applicable
law, the Company also may combine one or more Subaccounts and may establish
a committee, board, or other group to manage one or more aspects of the
operation of the Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend
sales of the Contract as presently offered and to make any change to the
provisions of the Contract to comply with, or give Owners the benefit of,
any federal or state statute, rule, or regulation, including but not limited
to requirements for annuity contracts and retirement plans under the
Internal Revenue Code and regulations thereunder or any state statute or
regulation. The Company also reserves the right to limit the amount and
frequency of subsequent purchase payments.
REPORTS TO OWNERS
A statement will be sent annually to each Contractowner indicating the
Account Value as of the end of each year. In addition, the statement will
indicate the allocation of Account Value among the Fixed Interest Account
and the Subaccounts and any other information required by law. Confirmations
will also be sent out upon purchase payments, exchanges, and full and
partial withdrawals. Certain transactions will be confirmed quarterly. These
transactions include exchanges under the Dollar Cost Averaging and Asset
Rebalancing Options, purchase payments made under an Automatic Investment
Program, systematic withdrawals, and Annuity Payments.
Each Contractowner will also receive an annual and semiannual report
containing financial statements for the Portfolios, which will include a
list of the portfolio securities of the Portfolios, as required by the 1940
Act, and/or such other reports as may be required by federal securities
laws.
TELEPHONE EXCHANGE PRIVILEGES
You may request an exchange of Account Value by telephone if an
Authorization for Telephone Requests form ("Telephone Authorization") has
been completed, signed, and filed at the T. Rowe Price Variable Annuity
Service Center. The Company has established procedures to confirm that
instructions communicated by telephone are genuine and will not be liable
for any losses due to fraudulent or unauthorized instructions, provided that
it complies with its procedures. The Company's procedures require that any
person requesting an exchange by telephone provide the account number and
the Owner's tax identification number and such instructions must be received
on a recorded line. The Company reserves the right to deny any telephone
exchange request. If all telephone lines are busy (which might occur, for
example, during periods of substantial market fluctuations), Contractowners
might not be able to request exchanges by telephone and would have to submit
written requests.
By authorizing telephone exchanges, you authorize the Company to accept and
act upon telephonic instructions for exchanges involving your Contract, and
agree that neither the Company, nor any of its affiliates, nor the Funds,
nor any of their directors, trustees, officers, employees, or agents, will
be liable for any loss, damages, cost, or expense (including attorney's
fees) arising out of any requests effected in accordance with the Telephone
Authorization and believed by the Company to be genuine, provided that the
Company has complied with its procedures. As a result of this policy on
telephone requests, the Contractowner will bear the risk of loss arising
from the telephone exchange privileges. The Company may discontinue, modify,
or suspend telephone exchange privileges at any time.
DISTRIBUTION OF THE CONTRACT
T. Rowe Price Investment Services, Inc. is the distributor of the Contracts.
Investment Services also acts as the distributor of certain mutual funds
advised by T. Rowe Price and Price-Fleming. Investment Services is
registered with the SEC as a broker-dealer under the Securities Exchange Act
of 1934, and in all 50 states, the District of Columbia, and Puerto Rico.
Investment Services is a member of the National Association of Securities
Dealers, Inc. Investment Services is a wholly owned subsidiary of T. Rowe
Price and is an affiliate of the Funds.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Separate Account is a
party, or which would materially affect the Separate Account.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Contracts
described in this Prospectus, the Company's authority to issue the Contracts
under Kansas law, and the validity of the forms of the Contracts under
Kansas law have been passed upon by Amy J. Lee, Esq., the Company's
Associate General Counsel.
Legal matters relating to the federal securities and federal income tax laws
have been passed upon by Dechert Price & Rhoads, Washington, D.C.
PERFORMANCE INFORMATION
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Performance information for the Subaccounts, including the yield and total
return of all Subaccounts may appear in advertisements, reports, and
promotional literature to current or prospective Owners.
Current yield for the Prime Reserve Subaccount will be based on investment
income received by a hypothetical investment over a given seven-day period
(less expenses accrued during the period), and then "annualized" (i.e.,
assuming that the seven-day yield would be received for 52 weeks, stated in
terms of an annual percentage return on the investment). "Effective yield"
for the Prime Reserve Subaccount is calculated in a manner similar to that
used to calculate yield but reflects the compounding effect of earnings.
For the other Subaccounts, quotations of yield will be based on all
investment income per Accumulation Unit earned during a given 30-day period,
less expenses accrued during the period ("net investment income"), and will
be computed by dividing net investment income by the value of an
Accumulation Unit on the last day of the period. Quotations of average
annual total return for any Subaccount will be expressed in terms of the
average annual compounded rate of return on a hypothetical investment in a
Contract over a period of 1, 5, and 10 years (or, if less, up to the life of
the Subaccount), and will reflect the deduction of the mortality and expense
risk charge and may simultaneously be shown for other periods. Where the
Portfolio in which a Subaccount invests was established prior to inception
of the Subaccount, quotations of total return may include quotations for
periods beginning prior to the Subaccount's date of inception. Such
quotations of total return are based upon the performance of the
Subaccount's corresponding Portfolio adjusted to reflect deduction of the
mortality and expense risk charge.
Performance information for any Subaccount reflects only the performance of
a hypothetical Contract under which Account Value is allocated to a
Subaccount during a particular time period on which the calculations are
based. Performance information should be considered in light of the
investment objectives and policies, characteristics, and quality of the
Portfolio in which the Subaccount invests, and the market conditions during
the given time period, and should not be considered as a representation of
what may be achieved in the future. For a description of the methods used to
determine yield and total return for the Subaccounts and the usage of other
performance related information, see the Statement of Additional
Information.
ADDITIONAL INFORMATION
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REGISTRATION STATEMENT
A Registration Statement under the 1933 Act has been filed with the SEC
relating to the offering described in this Prospectus. This Prospectus has
been filed as a part of the Registration Statement and does not contain all
of the information set forth in the Registration Statement and exhibits
thereto, and reference is made to such Registration Statement and exhibits
for further information relating to the Company and the Contract. Statements
contained in this Prospectus, as to the content of the Contract and other
legal instruments, are summaries. For a complete statement of the terms
thereof, reference is made to the instruments filed as exhibits to the
Registration Statement. The Registration Statement and the exhibits thereto
may be inspected and copied at the SEC's office, located at 450 Fifth
Street, N.W., Washington, D.C.
FINANCIAL STATEMENTS
The consolidated financial statements of Security Benefit Life Insurance
Company and Subsidiaries at December 31, 1999 and 1998, and for each of the
three years in the period ended December 31, 1999, and the financial
statements of the Separate Account at December 31, 1999, and for the years
ended December 31, 1999 and 1998, are included in the Statement of
Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to the Company and the Separate Account.
The Table of Contents of the Statement of Additional Information is set
forth below.
TABLE OF CONTENTS
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General Information and History 3
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Distribution of the Contract 3
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Limits on Premiums Paid Under Tax-Qualified Retirement Plans 3
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Experts 4
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Performance Information 4
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Financial Statements 6
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<PAGE>
IRA DISCLOSURE STATEMENT
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This Disclosure Statement describes the statutory and regulatory provisions
applicable to the operation of Individual Retirement Annuities. Internal
Revenue Service regulations require that this be given to each person
desiring to establish an Individual Retirement Annuity. Further information
can be obtained from any district office of the Internal Revenue Service.
RIGHT TO REVOKE
You may revoke your Individual Retirement Annuity within seven days of the
date your first purchase payment is received by Security Benefit Life
Insurance Company. To revoke your Individual Retirement Annuity and receive
a refund of the entire amount you paid, you must mail or deliver a written
notice of revocation, signed exactly as your signature appears on your
variable annuity application to: T. Rowe Price Variable Annuity Service
Center, P.O. Box 750440, Topeka, KS 66675-0440, 1-800-888-2461.
If you send your revocation notice by First Class Mail, we will consider
that you have notified us as of the date of the postmark on the envelope. If
you send it by Certified or Registered Mail, you will have notified us as of
the certification or registration date on the label. In either case, the
revocation notice must be properly addressed and mailed, with postage
prepaid. Upon receipt of a timely revocation notice, the entire amount of
your contribution will be returned to you without adjustment for sales
commissions, administrative fees, or market value fluctuation.
WHAT ARE THE STATUTORY REQUIREMENTS?
An Individual Retirement Annuity contract must meet the following
requirements:
1. The amount in your Individual Retirement Annuity must be fully vested at
all times.
2. The contract must provide that you cannot transfer it to someone else.
3. The contract must have flexible premiums.
4. You must start receiving distributions by April 1 of the year following
the year in which you reach age 70 1/2 (see "Required Minimum
Distributions").
5. The contract must provide that you cannot contribute more than $2,000
for any year. (This requirement does not apply to rollovers. See
"Rollovers and Direct Transfers.")
6. The contract must provide that any refund of premium will be applied
before the close of the calendar year following the year of refund
toward the payment of future premiums or the purchase of additional
benefits.
The Individual Retirement Annuity contract contains the provisions described
above. The contract has not, however, been approved as to form by the
Internal Revenue Service.
ROLLOVERS AND DIRECT TRANSFERS
1. A rollover is a tax-free transfer of cash or other assets from one
retirement program to another. There are two kinds of rollover payments.
In one, you transfer amounts from one Individual Retirement Annuity or
Individual Retirement Account (collectively referred to herein as an
"IRA") to another. With the other, you transfer amounts from a qualified
employee benefit plan or tax-sheltered annuity to an IRA. While you may
make rollover contributions to the Individual Retirement Annuity, you
cannot deduct them on your tax return.
2. You must complete a tax-free rollover by the 60th day after the date you
receive the distribution from your IRA or other qualified employee
benefit plan.
3. A rollover distribution from an IRA may be made to you only once a year.
The one-year period begins on the date you receive the IRA distribution,
not on the date you roll it over (reinvest it) into another IRA.
4. A direct transfer of funds in an IRA from one trustee or insurance
company to another is not a rollover. It is a transfer that is not
affected by the one-year waiting period.
5. All or part of the premium for the contract may be paid from an IRA
rollover, qualified pension or profit-sharing plan or tax-sheltered
annuity rollover, or from a direct transfer from another IRA. The
proceeds from this contract may be used as a rollover contribution to
another IRA.
ALLOWANCE OF DEDUCTION
1. In general, the amount you can contribute each year to the Annuity
contract is the lesser of $2,000 or your taxable compensation for the
year. If you have more than one IRA, the limit applies to the total
contributions made to your IRAs for the year. Wages, salaries, tips,
professional fees, bonuses, and other amounts you receive for providing
personal services are compensation. If you own and operate your own
business as a sole proprietor, your net earnings reduced by your
deductible contributions on your behalf to self-employed retirement
plans is compensation. If you are an active partner in a partnership and
provide services to the partnership, your share of partnership income
reduced by deductible contributions made on your behalf to qualified
retirement plans is compensation. All taxable alimony and separate
maintenance payments received under a decree of divorce or separate
maintenance are compensation.
2. Generally, if you are not covered by a qualified retirement plan, the
amount you can deduct in a year for contributions to your IRA is the
lesser of $2,000 or your taxable compensation for the year. However, if
you are not covered by a qualified retirement plan, but your spouse is,
the amount you may deduct for IRA contributions will be phased out if
your joint adjusted gross income ("AGI") is between $150,000 and
$160,000.
3. If you are covered by a qualified retirement plan, the amount of IRA
contributions you may deduct in a year may be reduced or eliminated
based on your AGI for the year. The AGI level at which a single
taxpayer's deduction for 1999 is affected, $31,000, will increase
annually to $50,000 in 2005. The AGI level at which a married taxpayer's
deduction for 1999 is affected, $51,000, will increase annually to
$80,000 in 2007.
4. Contributions to your IRA can be made at any time. If you make a
contribution between January 1 and April 15, however, you may elect to
treat the contribution as made either in that year or in the preceding
year. You may file a tax return claiming a deduction for your IRA
contribution before the contribution is actually made. You must,
however, make the contribution by the due date of your return not
including extensions.
5. You cannot make a contribution other than a rollover contribution to
your IRA for the year in which you reach age 70 1/2 or thereafter.
6. If both you and your spouse have compensation, you can each set up your
own IRA. The contribution for each of you is figured separately and
depends on how much each earns. Both of you cannot participate in the
same IRA account or contract.
7. If you and your spouse file a joint federal income tax return, each of
you may contribute up to $2,000 to your own IRA annually if your joint
income is $4,000 or more. The maximum amount the higher compensated
spouse may contribute for the year is the lesser of $2,000 or 100% of
that spouse's compensation. The maximum the lower-compensated spouse may
contribute is the lesser of (i) $2,000 or (ii) 100% of that spouse's
compensation plus the amount by which the higher compensated spouse's
compensation exceeds the amount the higher compensated spouse
contributes to his or her IRA.
SEP-IRAS
If you are participating in a Simplified Employee Pension Plan (SEP), the
contributions made by your employer into your IRA after 1986 are excluded
from your income. If the SEP contains a salary reduction arrangement, you
may elect to reduce your salary by up to the lesser of 15% of compensation
or $9,500 (indexed annually) and have that amount contributed to your
SEP-IRA. The maximum SEP contributions, including salary reduction amounts
and employer contributions to your account in any year is generally limited
to the lesser of $30,000 (indexed) or 15% of your total compensation from
such employer for that year. Employers that have established salary
reduction SEPs before 1997 may continue to maintain and contribute to them.
However, no new salary reduction SEPs may be established after 1996.
Instead, eligible employers may establish SIMPLE IRA programs for years
after 1996, which permit salary reduction contributions. This IRA may not be
used in connection with a SIMPLE plan.
If an IRA is being used in connection with a SEP, contributions must bear a
uniform relationship to the total compensation (not in excess of the first
$160,000 indexed) of each employee participating under the SEP. If you are a
participant in a SEP, you will be considered to be an active participant in
an employee pension plan for purposes of your deductible contribution limits
for your IRA (see "Allowance of Deduction" section). For further information
concerning participation and contributions, please refer to IRS Form
5305-SEP (which must be completed and executed by your employer in order to
establish a SEP).
TAX STATUS OF THE CONTRACT AND DISTRIBUTIONS
1. Earnings of your Individual Retirement Annuity contract are not taxed
until they are distributed to you.
2. In general, taxable distributions are included in your gross income in
the year you receive them.
3. Distributions are non-taxable to the extent they represent a return of
non-deductible contributions. The non-taxable percentage of a
distribution is determined by dividing your total undistributed,
non-deductible IRA contributions by the value of all your IRAs
(including SEPs and rollovers).
4. You cannot choose the special five-year or ten-year averaging that may
apply to lump sum distributions from qualified employer plans.
Amounts held in IRAs are generally subject to the imposition of federal
estate taxes. In addition, if you elect to have all or any part of your
account payable to a beneficiary (or beneficiaries) upon your death, the
election generally will not subject you to any gift tax liability.
REQUIRED MINIMUM DISTRIBUTIONS
You must start receiving minimum distributions from your Individual
Retirement Annuity starting with the year you reach age 70 1/2 . Ordinarily,
the required minimum distribution for a particular year must be received by
December 31 of that year. However, you may delay the required minimum
distribution for the year you reach age 70 1/2 until April 1 of the
following year (your "required beginning date").
Figure your required minimum distribution for each year by dividing the
value of your Individual Retirement Annuity on December 31 of the preceding
year by the applicable life expectancy. The applicable life expectancy is
your remaining life expectancy or the remaining joint life and last survivor
expectancy of you and your designated beneficiary. If a designated
beneficiary is more than 10 years younger than you, that beneficiary is
assumed to be exactly 10 years younger. Life expectancies are determined
using the expected return multiple tables shown in IRS Publication 590
"Individual Retirement Arrangements." To obtain a free copy of IRS
Publication 590 and other IRA forms, write the IRS Forms Distribution Center
for your area as shown in your income tax return instructions.
Annuity payments which begin by April 1 of the year following the year you
reach age 70 1/2 satisfy the minimum distribution requirement if they
provide for non-increasing payments over your life or the lives of you and
your spouse, provided that, if installments are guaranteed, the maximum
guaranty period may be less than the applicable life expectancy.
If you have more than one IRA, you must determine the required minimum
distribution separately for each IRA; however, you can take the actual
distribution of these amounts from any one or more of your IRAs.
If the actual distribution from your IRA is less than the minimum amount
that should be distributed in accordance with the rules set forth above, the
difference is an excess accumulation. There is a 50% excise tax on any
excess accumulations.
If you die after your required beginning date, your entire remaining account
balance must be distributed to your designated beneficiary at least as
rapidly as under the method of distribution in effect on your date of death.
If you die before your required beginning date, the general rule is that
your entire balance must be distributed within five (5) years of your death.
However, if the balance of your IRA account is payable to your designated
beneficiary, your designated beneficiary may elect that the amount be paid
in substantially equal installments over a fixed period not exceeding the
designated beneficiary's life expectancy, beginning no later than December
31 of the year following the year in which you died. If your spouse is your
designated beneficiary, such distribution need not commence until December
31 of the year during which you would have attained 70 1/2 had you survived.
Alternatively, if your designated beneficiary is your spouse, he or she may
elect to treat your IRA as his or her own IRA.
WHAT HAPPENS IF EXCESS CONTRIBUTIONS ARE MADE TO MY INDIVIDUAL RETIREMENT
ANNUITY?
1. You must pay a 6% excise tax each year on excess contributions that
remain in your Individual Retirement Annuity. Generally, an excess
contribution is the amount contributed to your Individual Retirement
Annuity that is above the maximum amount you can contribute for the
year. The excess is taxed in the year contributed and each year after
that until you correct it.
2. You will not have to pay the 6% excise tax if you withdraw the excess
amount by the date your tax return is due, including extensions, for the
year of the contribution. You do not have to include in your gross
income an excess contribution that you withdraw from your Individual
Retirement Annuity before your tax return is due if the income earned on
the excess was also withdrawn and no deduction was allowed for the
excess contribution.
ARE THERE ANY PENALTIES FOR PREMATURE DISTRIBUTIONS?
There is an additional tax on premature distributions equal to 10% of the
amount of the premature distribution that you must include in your gross
income. Premature distributions are generally amounts you withdraw from your
IRA before you are age 59 1/2. However, the tax on premature distributions
does not apply:
1. To distributions that are rolled over tax free to another IRA, a
qualified employee benefit plan, or a tax-sheltered annuity.
2. To a series of substantially equal periodic payments made over your life
or life expectancy, or the joint life or life expectancy of you and your
beneficiary.
3. To amounts distributed to a beneficiary, or the individual's estate, on
or after the death of the individual.
4. If you are permanently disabled. You are considered disabled if you
cannot do any substantial gainful activity because of your physical or
mental condition. A physician must determine that the condition has
lasted or can be expected to last continuously for 12 months or more or
that the condition can be expected to lead to death.
5. To a distribution which does not exceed the amount of your medical
expenses that could be deducted for the year (generally speaking,
medical expenses paid during a year are deductible to the extent they
exceed 7 1/2% of your adjusted gross income for the year).
6. To a distribution (subject to certain restrictions) that does not exceed
the premiums you paid for health insurance coverage for yourself, your
spouse, and dependents if you have been unemployed and received
unemployment compensation for at least 12 weeks.
7. To a "qualified first-time homebuyer distribution," within the meaning
of Code ss.72(t)(8), up to a $10,000 lifetime limit.
8. To a distribution for post-secondary education costs for you, your
spouse, or any child or grandchild of you or your spouse (i.e.,
"qualified higher education expenses").
IRA EXCISE TAX REPORTING
Use Form 5329, Return for Individual Retirement Arrangement Taxes, to report
the excise taxes on excess contributions, premature distributions, and
excess accumulations. If you do not owe any IRA excise taxes, you do not
need Form 5329. Further information can be obtained from any district office
of the Internal Revenue Service.
BORROWING
If you borrow money under your Individual Retirement Annuity contract or use
it as security for a loan, you must include in gross income the fair market
value of the Individual Retirement Annuity contract as of the first day of
your tax year, and the penalty tax on premature distributions may apply.
(Note: This contract does not allow borrowings under it, nor may it be
assigned or pledged as collateral for a loan.)
FINANCIAL INFORMATION
Contributions to your Individual Retirement Annuity contract are not subject
to sales charges. A mortality and expense risk charge of 0.55% on an annual
basis is deducted as described in the attached variable annuity prospectus.
(This charge is not deducted with respect to contract value allocated to the
fixed interest account option.) See the accompanying prospectus for the
underlying mutual funds for information about the charges associated with
the funds. Contractowners who allocate contract value to the Subaccounts
bear a pro rata share of the fees and expenses of the underlying funds. The
growth in value of the Individual Retirement Annuity contract is neither
guaranteed, nor projected, but is based upon the investment experience of
the underlying mutual fund portfolios that correspond to the Subaccounts to
which you have allocated contract value.
<PAGE>
ROTH IRA DISCLOSURE STATEMENT
ROTH INDIVIDUAL RETIREMENT ANNUITY DISCLOSURE STATEMENT
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This Disclosure Statement describes the statutory and regulatory provisions
applicable to the operation of Roth IRAs. Internal Revenue Service
regulations require that this be given to each person desiring to establish
a Roth IRA. Further information can be obtained from any district office of
the Internal Revenue Service.
YOUR RIGHT TO REVOKE
You may revoke your Roth IRA within seven days of the date your first
purchase payment is received by Security Benefit Life Insurance Company. To
revoke your Roth IRA and receive a refund of the entire amount you paid, you
must mail or deliver a written notice of revocation, signed exactly as your
signature appears on your variable annuity application, to: T. Rowe Price
Variable Annuity Service Center, P.O. Box 750440, Topeka, KS 66675-0440,
1-800-888-2461.
If you send your revocation notice by First Class Mail, we will consider
that you have notified us as of the date of the postmark on the envelope. If
you send it by Certified or Registered Mail, you will have notified us as of
the certification or registration date on the label. In either case, the
revocation notice must be properly addressed and mailed, with postage
prepaid. Upon receipt of a timely revocation notice, the entire amount of
your contribution will be returned to you without adjustment for sales
commissions, administrative fees or market value fluctuation.
WHAT ARE THE REQUIREMENTS?
A Roth IRA contract must meet the following requirements:
1. The amount in your Roth IRA must be fully vested at all times.
2. The contract must provide that you cannot transfer it to someone else.
3. The contract must have flexible premiums.
4. If you die before your entire interest in the contract has been
distributed, your beneficiary may need to receive distributions within a
specified time frame (see "Required Minimum Distributions" below).
5. The contract must provide that you cannot contribute more than $2,000
for any year. This requirement does not apply to qualified rollover
contributions. (See "Rollovers and Direct Transfers" below).
6. The contract must provide that any refund of premium will be applied
before the close of the calendar year following the year of refund
toward the payment of future premiums or the purchase of additional
benefits.
The Roth IRA contract contains the provisions described above. The contract
has not, however, been approved as to form by the Internal Revenue Service.
ROLLOVERS AND DIRECT TRANSFERS
1. You may make a qualified rollover contribution to this contract from
another Roth IRA or from a traditional IRA, and such a contribution will
not count toward the annual limit on contributions to the contract. You
may make a qualified rollover contribution from a traditional IRA only
if your modified adjusted gross income for the year in which the
rollover will occur is $100,000 or less, and if you are married, you and
your spouse have joint income of $100,000 or less and you file a joint
income tax return for the year in which the rollover occurs. You and
your spouse will not be subject to the requirements for married
individuals if you have lived apart for the entire year of contribution.
2. The amount distributed from your traditional IRA and rolled over will be
subject to federal income taxes, except to the extent such amounts
relate to nondeductible contributions. However, if the distribution was
made before 1999, the amount to be included in your taxable income would
be evenly divided over a four-year period. If you die before the end of
the four-year period, the amount that was not included at the time of
your death in your income because you elected to divide your income over
a four-year period must be included in your final return, unless your
spouse is the sole beneficiary of all your Roth IRAs. If your spouse is
the sole beneficiary of all your Roth IRAs, he or she will continue to
include the amounts converted from your traditional IRA over the
four-year period. If you become divorced during the four-year period, or
you are married and file a separate income tax return during the
four-year period, you must continue to recognize income over the
four-year period.
3. You must complete a qualified rollover contribution by the 60th day
after the date you receive the distribution from your IRA.
4. A direct transfer of funds in a Roth IRA or a traditional IRA from one
trustee or insurance company to this Roth IRA does not constitute a
rollover.
5. You may make a direct transfer of funds in a traditional IRA to this
Roth IRA.
6. You may not make a rollover contribution from a qualified pension or
profit-sharing plan or tax-sheltered annuity to this Roth IRA. A
distribution from this Roth IRA may be used as a rollover contribution
to another Roth IRA. You may not transfer a Roth IRA to a traditional
IRA.
7. You may not rollover minimum required distributions from your
traditional IRA into this Roth IRA.
8. A rollover contribution from one IRA to another IRA, other than a
qualified rollover contribution from a traditional IRA to a Roth IRA,
may be made only once a year. The one-year period begins on the date you
receive the distribution from the first IRA, not on the date you roll it
over (reinvest it) into another IRA. A conversion from a traditional IRA
to a Roth IRA is not treated as a rollover for purposes of the one-year
rule.
AMOUNT OF ANNUAL CONTRIBUTION
1. In general, the amount you can contribute each year to the contract is
the lesser of $2,000 or your taxable compensation for the year. If you
have more than one IRA (either a Roth IRA or a traditional IRA), the
limit applies to the total contributions made to your IRAs for the year.
Wages, salaries, tips, professional fees, bonuses and other amounts you
receive for providing personal services are compensation. If you own and
operate your own business as a sole proprietor, your net earnings
reduced by your deductible contributions on your behalf to self-employed
retirement plans is compensation. If you are an active partner in a
partnership and provide services to the partnership, your share of
partnership income reduced by deductible contributions made on your
behalf to qualified retirement plans is compensation. All taxable
alimony and separate maintenance payments received under a decree of
divorce or separate maintenance are compensation.
2. No amount you contribute to the contract will be deductible for federal
income tax purposes.
3. Contributions to your Roth IRA can be made at any time. If you make a
contribution between January 1 and April 15, however, you may elect to
treat the contribution as made either in that year or in the preceding
year.
4. If both you and your spouse have compensation you can each set up your
own Roth IRA. The contribution for each of you is figured separately and
depends on how much each earns. Both of you cannot participate in the
same Roth IRA or contract.
5. If you and your spouse file a joint federal income tax return, each of
you may contribute up to $2,000 to your own Roth IRA annually if your
joint income is $4,000 or more. The maximum amount the higher
compensated spouse may contribute for the year is the lesser of $2,000
or 100% of that spouse's compensation. The maximum the lower compensated
spouse may contribute is the lesser of (i) $2,000 or (ii) 100% of that
spouse's compensation plus the amount by which the higher compensated
spouse's compensation exceeds the amount the higher compensated spouse
contributes to his or her Roth IRA.
6. Your maximum annual contribution amount shall be phased-out if you are
single and have an adjusted gross income between $95,000 and $110,000,
or if you are married and you and your spouse have a combined adjusted
gross income between $150,000 and $160,000 in accordance with Section
ss.408A(c)(3) of the Internal Revenue Code (the "Code").
TAX STATUS OF DISTRIBUTIONS
1. Since your contributions to the contract will be made with after-tax
dollars, when your contributions are distributed to you they will not be
subject to federal income tax. Distributions from the contract will be
considered as coming first from your contributions and then from the
earnings on your contributions. You will owe no federal income tax when
earnings on your contributions are distributed to you, provided they are
distributed in a "qualified distribution."
2. "Qualified distributions" from the contract will not be subject to
federal income tax or the additional 10% early withdrawal tax. To be
qualified, a distribution must:
(a) occur after the five-year period beginning on the first day of the
year you made your initial contribution to the contract, and
(b) must be:
(1) made on or after the date on which you attain age 59 1/2;
(2) made to a beneficiary (or your estate) on or after your death;
(3) attributable to your being disabled; or
(4) a distribution to pay for "qualified first-time homebuyer
expenses" under Codess.72(t)(8) up to $10,000.
3. You will owe federal income tax, and perhaps an additional 10% early
withdrawal tax, as a result of obtaining a "nonqualified distribution."
A nonqualified distribution is subject to federal income tax and the
early withdrawal tax to the extent that the sum of the distribution PLUS
all other distributions from the Roth IRA (whether qualified or
nonqualified) MINUS the amount of your previous distributions that were
taxable EXCEEDS your contribution to all of your Roth IRAs.
4. Your surviving spouse will be treated as the owner of your Roth IRA for
purposes of determining whether a distribution is a "nonqualified
distribution." This means that a distribution to your surviving spouse
from your Roth IRA will be satisfied only if the above requirements are
satisfied with respect to your surviving spouse. However, the period
during which you held the Roth IRA prior to your death will be taken
into account for purposes of determining whether your spouse has
satisfied the five-year requirement in 2(a) above.
5. Amounts held in Roth IRAs are generally subject to the imposition of
federal estate taxes. If you elect to have all or any part of your
account payable to a beneficiary (or beneficiaries) upon your death, the
election generally will not subject you to any gift tax liability.
6. Taxable distributions from a Roth IRA are not eligible for special
five-year or ten-year averaging that may apply to lump sum distributions
from qualified employer retirement plans.
7. Distributions that are rolled over as a qualified rollover contribution
to another Roth IRA will be treated as a "qualified distribution."
8. Substantially equal periodic payments from a Roth IRA that was formerly
a traditional IRA from which you were receiving substantially equal
periodic payments will be treated as nonqualified distributions.
However, such distributions will not be subject to the 10% penalty on
premature distributions (see below).
REQUIRED MINIMUM DISTRIBUTIONS
1. You are not required to receive required minimum distributions from your
Roth IRA during your lifetime.
2. If you die before the entire balance in your Roth IRA has been
distributed, the general rule is that the entire balance must be
distributed within five (5) years of your death. However, if the balance
in your Roth IRA account is payable to your designated beneficiary, you
may elect or your designated beneficiary may elect that the amount be
paid in substantially equal installments over a fixed period not
exceeding the designated beneficiary's life expectancy, beginning no
later than December 31 of the year following the year in which you died.
If your spouse is the sole designated beneficiary of your Roth IRA on
your date of death, these rules do not apply and the Roth IRA will be
treated as your spouse's IRA, and no distributions from the Roth IRA to
your spouse will be required during your spouse's lifetime.
3. Life expectancies are determined using the expected return multiple
tables shown in IRS Publication 590 "Individual Retirement
Arrangements." To obtain a free copy of IRS Publication 590, write the
IRS Forms Distribution Center for your area as shown in your income tax
return instructions.
4. If the actual distribution from your Roth IRA is less than the minimum
amount that should be distributed in accordance with the rules set forth
above, the difference is subject to a 50% excise tax.
WHAT HAPPENS IF EXCESS CONTRIBUTIONS ARE MADE TO MY ROTH IRA?
1. You must pay a 6% excise tax if you make excess contributions to your
Roth IRA. Generally, an excess contribution is the amount contributed to
your Roth IRA that is above the maximum amount you can contribute for
the year.
2. You will not have to pay the 6% excise tax if you withdraw the excess
amount, plus the net income on those excess contributions, by the date
your tax return is due, including extensions, for the year of the
contribution. The net earnings on these excess contributions will be
included in your income for the year in which the contributions were
made.
3. If your excess contributions, plus the net income on those
contributions, are distributed AFTER the due date of your tax return for
the year of contribution, the earnings on those contributions may be
subject to federal income tax and the 10% tax on premature
distributions. However, if you choose to leave the excess contributions
in your Roth IRA after the due date of your income tax return for the
year of contribution, the excess contributions will be treated as deemed
Roth IRA contributions for subsequent years, to the extent you
contribute less than $2,000 for those subsequent years.
ARE THERE ANY PENALTIES FOR PREMATURE DISTRIBUTIONS?
There is an additional tax on premature distributions which are part of a
nonqualified distribution equal to 10% of the amount of the premature
distribution that you must include in your gross income. (See the discussion
above on the "Tax Status of Distributions.") Premature distributions are
generally amounts you withdraw from your Roth IRA before you are age 59 1/2.
Distributions to your surviving spouse will be treated as premature
distributions if your surviving spouse withdraws amounts from your Roth IRA
before he or she is 59 1/2. However, the tax on premature distributions does
not apply:
1. To distributions that constitute qualified rollover contributions to
another Roth IRA.
2. To a series of substantially equal periodic payments made over your life
or life expectancy, or the joint life expectancy of you and your
beneficiary.
3. To amounts distributed to a beneficiary, or your estate, on or after
your death.
4. If you are permanently disabled. You are considered disabled if you
cannot do any substantial gainful activity because of your physical or
mental condition. A physician must determine that the condition has
lasted or can be expected to last continuously for 12 months or more or
the condition can be expected to lead to death.
5. To a distribution which does not exceed the amount of your medical
expenses that could be deducted for the year (generally speaking,
medical expenses paid during a year are deductible to the extent they
exceed 7 1/2% of your adjusted gross income for the year).
6. To a distribution (subject to certain restrictions) that does not exceed
the premiums you paid for health insurance coverage for yourself, your
spouse and dependents if you have been unemployed and received
unemployment compensation for at least 12 weeks.
7. To a "qualified first-time homebuyer distribution," within the meaning
of Code ss.72(t)(8), up to $10,000.
8. To a distribution for post-secondary education costs for you, your
spouse or any child or grandchild of you or your spouse.
IRA EXCISE TAX REPORTING
Use Form 5329, Return for Individual Retirement Arrangement Taxes, to report
the excise taxes on excess contributions and premature distributions. If you
do not owe any excise taxes, you do not need Form 5329. Further information
can be obtained from any district office of the Internal Revenue Service.
TRANSACTIONS WITH YOUR ROTH IRA
If you engage in a so-called prohibited transaction with respect to your
Roth IRA, the IRA will lose its exemption from tax. In this event, you will
be taxed on the fair market value of the contract even if you do not
actually receive a distribution. In addition, if you are less than 59 1/2,
your taxes may be further increased by a penalty tax in an amount equal to
10% of the fair market value of the contract. These prohibited transactions
include borrowing money from your Roth IRA, using your Roth IRA account as
security for a loan or a number of other financial transactions with your
Roth IRA. If you pledge your Roth IRA as security for a loan, then the
amount or portion pledged is considered to be distributed to you and also
must be included in your gross income. (Note: This contract does not allow
borrowings under it, nor may it be assigned or pledged as collateral for a
loan.)
FINANCIAL INFORMATION
Contributions to your Roth IRA contract are not subject to sales charges. A
mortality and expense risk charge of 0.55% on an annual basis is deducted as
described in the attached variable annuity prospectus. (This charge is not
deducted with respect to contract value allocated to the fixed interest
account option.) See the accompanying prospectus for the underlying mutual
funds for information about the charges associated with the funds.
Contractowners who allocate contract value to the Subaccounts bear a pro
rata share of the fees and expenses of the underlying funds. The growth in
value of the Roth IRA contract is neither guaranteed, nor projected, but is
based upon the investment experience of the underlying mutual fund
portfolios that correspond to the Subaccounts to which you have allocated
contract value.
IMPORTANT: The discussion of the tax rules for Roth IRAs in this Disclosure
Statement is based upon the best available information. However, the rules
that apply to Roth IRAs, including those applicable to the conversion and
reconversion of IRAs, are complex and may have consequences that are
specific to your personal tax or financial situation. Therefore, you should
consult your tax advisor for the latest developments and for advice about
how maintaining a Roth IRA will affect your personal tax or financial
situation.
<PAGE>
VARIABLE ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
T. ROWE PRICE NO-LOAD IMMEDIATE VARIABLE ANNUITY
An Individual Single Premium
Immediate Variable Annuity Contract
May 1, 2000
--------------------------------------------------------------------------
ISSUED BY: MAILING ADDRESS:
Security Benefit T. Rowe Price Variable
Life Insurance Company Annuity Service Center
700 SW Harrison Street P.O. Box 750440
Topeka, Kansas 66636-0001 Topeka, Kansas 66675-0440
1-800-888-2461 1-800-469-6587
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
* THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
* THIS PROSPECTUS IS ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE T. ROWE PRICE
EQUITY SERIES, INC., THE T. ROWE PRICE FIXED INCOME SERIES, INC. AND THE T.
ROWE PRICE INTERNATIONAL SERIES, INC. YOU SHOULD READ THE PROSPECTUSES
CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
This Prospectus describes the T. Rowe Price No-Load Immediate Variable
Annuity--a single premium immediate variable annuity contract (the
"Contract") issued by Security Benefit Life Insurance Company (the
"Company"). The Contract is available for individuals as a non-tax qualified
retirement plan. The Contract is also available as an individual retirement
annuity ("IRA") qualified under Section 408, or a Roth IRA qualified under
Section 408A, of the Internal Revenue Code. The Contract is designed to give
you flexibility in receiving retirement income.
The Contract provides several options for annuity payments beginning on the
Annuity Payout Date. The Annuity Payout Date, which must be within 30 days
of the Contract Date, and Annuity Option are selected at the time of
purchase.
The minimum initial Purchase Payment is $25,000. The Company does not accept
additional Purchase Payments. You may allocate the Purchase Payment to one
or more of the Subaccounts that comprise a separate account of the Company
called the T. Rowe Price Variable Annuity Account, or to the Fixed Interest
Account of the Company. Each Subaccount invests in a corresponding Portfolio
of the T. Rowe Price Equity Series, Inc., the T. Rowe Price Fixed Income
Series, Inc., or the T. Rowe Price International Series, Inc. (the "Funds").
Each Portfolio is listed under its respective Fund below.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price New America Growth Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
The investments made by the Funds at any given time are not expected to be
the same as the investments made by other mutual funds sponsored by T. Rowe
Price Associates, Inc., including other mutual funds with investment
objectives and policies similar to those of the Portfolios. Different
performance will result due to differences in cash flows into and out of the
Portfolios, different fees and expenses and differences in portfolio size
and positions.
Your Annuity Payments, if supported by the Subaccounts, will vary based on
the investment performance of the Subaccounts to which you allocate the
Purchase Payment. No minimum amount of variable annuity payments is
guaranteed, except that Annuity Payments under Option 9 are guaranteed never
to fall below the Floor Payment. The Company guarantees the amount of fixed
Annuity Payments.
You may return a Contract according to the terms of its Free-Look Right (see
"Free-Look Right," page 18). This Prospectus concisely sets forth
information about the Contract and the T. Rowe Price Variable Annuity
Account that you should know before purchasing the Contract. The "Statement
of Additional Information," dated May 1, 2000, which has been filed with the
Securities and Exchange Commission (the "SEC"), contains certain additional
information. The Statement of Additional Information, as it may be
supplemented from time to time, is incorporated by reference into this
Prospectus and is available at no charge, by writing the T. Rowe Price
Variable Annuity Service Center, P.O. Box 750440, Topeka, Kansas 66675-0440,
or by calling 1-800-469-6587. The table of contents of the Statement of
Additional Information is set forth on page 41 of this Prospectus.
Date: May 1, 2000
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
* YOU MAY NOT BE ABLE TO PURCHASE THE CONTRACT IN YOUR STATE. YOU SHOULD NOT
CONSIDER THIS PROSPECTUS TO BE AN OFFERING IF THE CONTRACT MAY NOT BE
LAWFULLY OFFERED IN YOUR STATE. YOU SHOULD ONLY RELY UPON INFORMATION
CONTAINED IN THIS PROSPECTUS OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
Definitions 5
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Summary 7
--------------------------------------------------------------------------
Expense Table 9
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Condensed Financial Information 12
--------------------------------------------------------------------------
Information About the Company, the Separate Account, and the Funds 13
--------------------------------------------------------------------------
The Contract 15
--------------------------------------------------------------------------
Charges and Deductions 18
--------------------------------------------------------------------------
Annuity Payments 20
--------------------------------------------------------------------------
The Fixed Interest Account 28
--------------------------------------------------------------------------
More About the Contract 30
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Federal Tax Matters 31
--------------------------------------------------------------------------
Other Information 37
--------------------------------------------------------------------------
Performance Information 40
--------------------------------------------------------------------------
Additional Information 41
--------------------------------------------------------------------------
<PAGE>
DEFINITIONS
- --------------------------------------------------------------------------------
* VARIOUS TERMS COMMONLY USED IN THIS PROSPECTUS ARE DEFINED AS FOLLOWS:
ACCOUNT VALUE The total value of a Contract, which includes amounts
allocated to the Subaccounts and the Fixed Interest Account. The Company
determines Account Value as of each Valuation Date prior to the Annuity
Payout Date and on and after the Annuity Payout Date under Annuity Options 5
through 7. Account Value is also determined under Option 9 during the
Liquidity Period.
ACCUMULATION UNIT A unit of measure used to calculate Account Value.
ANNUITANT The Annuitant receives Annuity Payments during the Annuity Period
and is the person or persons on whose life Annuity Payments depend under
Annuity Options 1 through 4 and 9. If the Owner names Joint Annuitants in
the Contract, "Annuitant" means both Annuitants unless otherwise stated.
ANNUITY A series of periodic income payments made by the Company to an
Annuitant, Joint Annuitant, or Beneficiary during the period specified in
the Annuity Option.
ANNUITY OPTIONS or OPTIONS Options under the Contract that prescribe the
provisions under which a series of Annuity Payments or a death benefit, if
applicable, is paid.
ANNUITY PAYMENTS Payments made beginning on the Annuity Payout Date
according to the provisions of the Annuity Option selected. Annuity Payments
are made on the same day of each month, on a monthly, quarterly, semiannual
or annual basis, depending on the Annuity Option selected.
ANNUITY PERIOD The period beginning on the Annuity Payout Date during which
Annuity Payments are made.
ANNUITY PAYOUT DATE The date within 30 days of the Contract Date upon which
Annuity Payments are scheduled to begin.
CONTRACT DATE The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually
the date that the initial Purchase Payment is credited to the Contract.
CONTRACTOWNER or OWNER The person entitled to the ownership rights under the
Contract and in whose name the Contract is issued. Any Owner must also be an
Annuitant.
CONTRACT YEAR Each 12-month period measured from the Contract Date.
DESIGNATED BENEFICIARY The person having the right to the death benefit, if
any, payable upon the death of the Annuitant during the Annuity Period. The
Designated Beneficiary is the first person on the following list who is
alive on the date of death of the Annuitant: the Primary Beneficiary; the
Secondary Beneficiary; or if none of the above is alive, the Owner's Estate.
FIXED INTEREST ACCOUNT An account that is part of the Company's General
Account to which the Purchase Payment may be allocated to purchase a fixed
annuity. Account Value allocated to the Fixed Interest Account under Options
5 through 7 will earn fixed rates of interest (which may not be less than
3%) declared by the Company periodically at its discretion.
FLOOR PAYMENT Annuity Payments under Option 9 are guaranteed never to be
less than the Floor Payment, which is equal to 80% of the amount of the
initial Annuity Payment, adjusted for withdrawals.
FUNDS T. Rowe Price Equity Series, Inc., T. Rowe Price Fixed Income Series,
Inc., and T. Rowe Price International Series, Inc. The Funds are
diversified, open-end management investment companies commonly referred to
as mutual funds.
GENERAL ACCOUNT All assets of the Company other than those allocated to the
Separate Account or to any other separate account of the Company.
LIQUIDITY PERIOD Under Annuity Option 9, the Liquidity Period is the period
of time during which the Owner may withdraw Account Value. The Liquidity
Period is a period beginning on the Contract Date and ending on a date five
years from the Annuity Payout Date.
PAYMENT UNIT A unit of measure used to calculate Annuity Payments under
Options 1 through 4, 8 and 9.
PURCHASE PAYMENT The amount paid to the Company as consideration for the
Contract.
SEPARATE ACCOUNT The T. Rowe Price Variable Annuity Account, a separate
account of the Company. The Purchase Payment may be allocated to Subaccounts
of the Separate Account to support an Annuity Payment.
SUBACCOUNT A division of the Separate Account of the Company which invests
in a separate Portfolio of one of the Funds. Currently, seven Subaccounts
are available under the Contract depending upon the Annuity Option selected.
T. ROWE PRICE VARIABLE ANNUITY SERVICE CENTER P.O. Box 750440, Topeka,
Kansas 66675-0440, 1-800-469-6587.
VALUATION DATE Each date on which the Separate Account is valued, which
currently includes each day that the T. Rowe Price Variable Annuity Service
Center and the New York Stock Exchange are open for trading. The T. Rowe
Price Variable Annuity Service Center and the New York Stock Exchange are
closed on weekends and on the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
VALUATION PERIOD A period used in measuring the investment experience of
each Subaccount. The Valuation Period begins at the close of one Valuation
Date and ends at the close of the next succeeding Valuation Date.
WITHDRAWAL VALUE The amount a Contractowner receives upon full withdrawal of
the Contract, which is equal to Account Value less any premium taxes due and
paid by the Company and for withdrawals under Option 9, any withdrawal
charge. The Withdrawal Value under Option 8 is the present value of future
Annuity Payments calculated using the assumed interest rate less any premium
taxes due and paid by the Company.
<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
This summary provides a brief overview of the more significant aspects of
the Contract. Further detail is provided in this Prospectus, the Statement
of Additional Information, and the Contract. Unless the context indicates
otherwise, the discussion in this summary and the remainder of the
Prospectus relates to the portion of the Contract involving the Separate
Account. The Fixed Interest Account is briefly described under "The Fixed
Interest Account," page 28 and in the Contract.
PURPOSE OF THE CONTRACT
The single premium immediate variable annuity contract (the "Contract")
described in this Prospectus provides several Options for Annuity Payments
on a variable basis, a fixed basis, or both. You may select an Annuity
Option that provides income for your lifetime or a specified period.
You may purchase the Contract as a non-tax qualified retirement plan for an
individual ("Non-Qualified Plan"). If you are eligible, you may also
purchase the Contract as an individual retirement annuity ("IRA") qualified
under Section 408, or a Roth IRA qualified under Section 408A, of the
Internal Revenue Code of 1986, as amended ("Qualified Plan"). An IRA may be
purchased with contributions rolled over from tax-qualified plans such as
403(b) plans, 401(k) plans, or individual retirement accounts. See the
discussion of IRAs and Roth IRAs under "Section 408 and Section 408A," page
35.
THE SEPARATE ACCOUNT AND THE FUNDS
You may allocate your Purchase Payment to the T. Rowe Price Variable Annuity
Account (the "Separate Account") to provide a variable annuity. See
"Separate Account," page 13. The Separate Account is currently divided into
seven divisions referred to as Subaccounts. Each Subaccount invests
exclusively in shares of a specific Portfolio of one of the Funds. Each of
the Funds' Portfolios has a different investment objective or objectives.
Each Portfolio is listed under its respective Fund below.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price New America Growth Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Personal Strategy Balanced Portfolio
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
Your Annuity Payments, if supported by a Subaccount, will increase or
decrease in dollar value depending on the investment performance of the
corresponding Portfolio in which such Subaccount invests. You bear the
investment risk for amounts allocated to a Subaccount. Not all of the
Subaccounts are available under each Annuity Option.
FIXED INTEREST ACCOUNT
You may allocate your Purchase Payment to the Fixed Interest Account to
provide a fixed annuity. The Fixed Interest Account is part of the Company's
General Account. Amounts allocated to the Fixed Interest Account earn
interest at rates determined at the discretion of the Company and that are
guaranteed to be at least an effective annual rate of 3%. See "The Fixed
Interest Account," page 28.
PURCHASE PAYMENT
The minimum Purchase Payment is $25,000. The Company does not accept
additional Purchase Payments under the Contract. A Purchase Payment
exceeding $1,000,000 will not be accepted under a Contract without prior
approval of the Company. See "Purchase Payments," page 16.
CONTRACT BENEFITS
The Contract provides for several Annuity Options on either a variable
basis, a fixed basis, or both. The Company guarantees payments under the
fixed Annuity Options. See "Annuity Payments," page 20. The Contract
provides for a death benefit upon the death of the Annuitant under certain
of the Annuity Options. See "Annuity Options," page 23 for more information.
You may exchange your interest in the Contract among the Subaccounts,
subject to certain restrictions as described in "The Contract," page 15,
"Exchanges," page 21 and "The Fixed Interest Account," page 28. You may make
up to six exchanges in any Contract Year.
You may withdraw your Account Value under Annuity Options 5 through 8 and
during the Liquidity Period under Option 9. Withdrawals under Option 9 are
subject to a withdrawal charge as discussed below. Withdrawals of Account
Value allocated to the Fixed Interest Account are subject to certain
restrictions described in "The Fixed Interest Account," page 28. See "Full
and Partial Withdrawals," page 22, and "Federal Tax Matters," page 31 for
more information about withdrawals, including the 10% penalty tax that may
be imposed upon full and partial withdrawals made prior to the Owner
attaining age 59 1/2.
FREE-LOOK RIGHT
You may return the Contract within the Free-Look Period, which is generally
a 10-day period beginning when you receive the Contract. In this event, the
Company will refund to you the amount of the Purchase Payment allocated to
the Fixed Interest Account plus the Account Value in the Subaccounts. The
Company will refund the amount of the Purchase Payment allocated to the
Subaccounts rather than the Account Value in those states and circumstances
in which it is required to do so. See "Free-Look Right," page 18.
CHARGES AND DEDUCTIONS
The Company does not deduct a sales load from the Purchase Payment. The
Company will deduct certain charges in connection with the Contract as
described below.
* MORTALITY AND EXPENSE RISK CHARGE The Company deducts a daily charge from
the assets of each Subaccount for mortality and expense risks equal to an
annual rate of 0.55% (1.40% under Annuity Option 9) of each Subaccount's
average daily net assets. See "Mortality and Expense Risk Charge," page 18.
* PREMIUM TAX CHARGE The Company assesses a premium tax charge to reimburse
itself for any premium taxes that it incurs with respect to this Contract.
This charge will be deducted from your Purchase Payment if the Company
incurs a premium tax. The Company reserves the right to deduct such taxes
when due or anytime thereafter. Premium tax rates currently range from 0% to
3.5%. See "Premium Tax Charge," page 19.
* WITHDRAWAL CHARGE If you withdraw Account Value during the Liquidity Period
under Option 9, the withdrawal is subject to a withdrawal charge. The charge
is based upon the year in which the withdrawal is made as measured from the
Annuity Payout Date. The withdrawal charge, which ranges from 5% in the
first year to 1% in the fifth year, is applied to the amount of the
withdrawal. Withdrawals after the fifth year from the Annuity Payout Date
are not permitted under Option 9. See "Contract Withdrawal Charge," page 19.
* OTHER EXPENSES The Company pays the operating expenses of the Separate
Account. Investment management fees and operating expenses of the Funds are
paid by the Funds and are reflected in the net asset value of Fund shares.
For a description of these charges and expenses, see the prospectus for the
Funds.
CONTACTING THE COMPANY
You should direct all written requests, notices, and forms required by the
Contract, and any questions or inquiries to the T. Rowe Price Variable
Annuity Service Center, P.O. Box 750440, Topeka, Kansas 66675-0440,
1-800-469-6587.
EXPENSE TABLE
- --------------------------------------------------------------------------------
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly and indirectly if you
allocate your Purchase Payment to the Subaccounts. The table reflects any
contractual charges, expenses of the Separate Account, and charges and
expenses of the Portfolios. The table does not reflect premium taxes that
may be imposed by various jurisdictions. See "Premium Tax Charge," page 19.
The information contained in the table is not applicable to amounts
allocated to the Fixed Interest Account.
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," page 18. For a more complete description of each
Portfolio's costs and expenses, see the Funds' prospectus, which accompanies
this Prospectus.
<TABLE>
TABLE 1
- -------------------------------------------------------------------------------------------------
<CAPTION>
All Other
Annuity
CONTRACTOWNER TRANSACTION EXPENSES Option 9 Options
<S> <C> <C>
Withdrawal Charge Under Option 9 (as a percentage of amount surrendered) 5%(1) None
CONTRACTUAL EXPENSES
Sales Load on Purchase Payments None None
Annual Maintenance Fee None None
ANNUAL SEPARATE ACCOUNT EXPENSES
Annual Mortality and Expense Risk Charge
(as a percentage of each Subaccount's average daily net assets) 1.40% .55%
Total Annual Separate Account Expenses 1.40% .55%
ANNUAL PORTFOLIO EXPENSES (AS A PERCENTAGE OF EACH PORTFOLIO'S AVERAGE DAILY NET ASSETS)
</TABLE>
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER PORTFOLIO
FEE(2) EXPENSES EXPENSES
<S> <C> <C> <C>
T. Rowe Price New America Growth Portfolio .85% 0% .85%
T. Rowe Price International Stock Portfolio 1.05% 0% 1.05%
T. Rowe Price Mid-Cap Growth Portfolio .85% 0% .85%
T. Rowe Price Equity Income Portfolio .85% 0% .85%
T. Rowe Price Personal Strategy Balanced Portfolio .90% 0% .90%
T. Rowe Price Limited-Term Bond Portfolio .70% 0% .70%
T. Rowe Price Prime Reserve Portfolio .55% 0% .55%
- -------------------------------------------------------------------------------------------------
</TABLE>
1 The withdrawal charge, which ranges from 5% in the first year to 1% in the
fifth year, is imposed only upon withdrawals under Option 9 which are
permitted only during the Liquidity Period. The withdrawal charge is based
upon the year in which the withdrawal is made as measured from the Annuity
Payout Date.
2 The management fee includes the ordinary expenses of operating the Funds.
EXAMPLES
The examples presented below show expenses that you would pay at the end of
one, three, five, or ten years. The examples show expenses based upon an
allocation of $1,000 to each of the Subaccounts and a hypothetical annual
return of 5%.
You should not consider the examples below a representation of past or
future expenses. Actual expenses may be greater or lesser than those shown.
The 5% return assumed in the examples is hypothetical and should not be
considered a representation of past or future actual returns, which may be
greater or lesser than the assumed amount.
EXAMPLE - You would pay the expenses shown below (unless Option 9 were
selected):
<TABLE>
- ----------------------------------------------------------------------------------------------
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
New America Growth Subaccount $14 $44 $77 $168
International Stock Subaccount $16 $50 $87 $190
Mid-Cap Growth Subaccount $14 $44 $77 $168
Equity Income Subaccount $14 $44 $77 $168
Personal Strategy Balanced Subaccount $15 $46 $79 $174
Limited-Term Bond Subaccount $13 $40 $69 $151
Prime Reserve Subaccount $11 $35 $61 $134
- ----------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE - You would pay the expenses shown below assuming (1) selection of
Option 9, and (2) no withdrawals:
<TABLE>
- ----------------------------------------------------------------------------------------------
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
New America Growth Subaccount $23 $70 $120 $258
International Stock Subaccount $25 $76 $131 $279
Mid-Cap Growth Subaccount $23 $70 $120 $258
Equity Income Subaccount $23 $70 $120 $258
Personal Strategy Balanced Subaccount $23 $72 $123 $264
Limited-Term Bond Subaccount $21 $66 $113 $243
Prime Reserve Subaccount* $20 $61 $105 $227
- ----------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE - You would pay the expenses shown below assuming (1) selection of
Option 9, and (2) a full withdrawal at the end of each time period:
<TABLE>
- ----------------------------------------------------------------------------------------------
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS**
<S> <C> <C> <C> <C>
New America Growth Subaccount $74 $103 $132 $258
International Stock Subaccount $76 $108 $142 $279
Mid-Cap Growth Subaccount $74 $103 $132 $258
Equity Income Subaccount $74 $103 $132 $258
Personal Strategy Balanced Subaccount $75 $104 $134 $264
Limited-Term Bond Subaccount $73 $98 $124 $243
Prime Reserve Subaccount* $71 $94 $117 $227
- ----------------------------------------------------------------------------------------------
</TABLE>
*Not available for Option 9.
**Withdrawals under Option 9 are permitted only during the Liquidity Period,
which is a period beginning on the Contract Date and ending on a date five
years from the Annuity Payout Date.
<PAGE>
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The following condensed financial information presents accumulation unit
values for the years ended December 31, 1999, 1998, 1997 and 1996, and the
period April 1, 1995 (date of inception), through December 31, 1995, as well
as ending accumulation units outstanding under each Subaccount.
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
1999(1) 1999(2) 1998(1) 1997(1) 1996(1) 1995(1)
<S> <C> <C> <C> <C> <C> <C>
NEW AMERICA GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period $22.72 $23.71 $19.28 $16.00 $13.40 $10.00
End of period $24.91 $24.46 $22.72 $19.28 $16.00 $13.40
Accumulation units:
Outstanding at the end of 2,069,472 4,648 2,269,650 2,030,514 1,596,903 333,934
period
INTERNATIONAL STOCK SUBACCOUNT
Accumulation unit value:
Beginning of period $15.08 $15.13 $13.09 $12.77 $11.19 $10.00
End of period $19.83 $19.20 $15.08 $13.09 $12.77 $11.19
Accumulation units:
Outstanding at the end of 1,556,280 782 1,554,164 1,562,428 1,124,821 218,427
period
EQUITY INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period $20.42 $22.10 $18.84 $14.70 $12.37 $10.00
End of period $21.07 $20.23 $20.42 $18.84 $14.70 $12.37
Accumulation units:
Outstanding at the end of 3,159,785 6,429 3,428,903 3,450,047 1,902,935 365,712
period
PERSONAL STRATEGY BALANCED
SUBACCOUNT
Accumulation unit value:
Beginning of period $18.04 $18.25 $15.86 $13.51 $11.90 $10.00
End of period $19.44 $18.67 $18.04 $15.86 $13.51 $11.90
Accumulation units:
Outstanding at the end of 1,207,707 2,020 1,257,891 983,602 599,843 148,349
period
LIMITED TERM-BOND SUBACCOUNT
Accumulation unit value:
Beginning of period $12.38 $11.89 $11.60 $10.93 $10.64 $10.00
End of period $12.28 $11.87 $12.38 $11.60 $10.93 $10.64
Accumulation units:
Outstanding at the end of 718,369 0 926,046 626,694 445,079 86,891
period
MID-CAP GROWTH SUBACCOUNT*
Accumulation unit value:
Beginning of period $14.34 $15.19 $11.82 $10.00
End of period $17.47 $17.20 $14.34 $11.82
Accumulation units:
Outstanding at the end of 1,730,183 2,102 1,508,570 1,100,979
period
PRIME RESERVE SUBACCOUNT*
Accumulation unit value:
Beginning of period $10.97 N/A $10.48 $10.00
End of period $11.44 N/A $10.97 $10.48
Accumulation units:
Outstanding at the end of 1,614,807 N/A 1,367,278 769,829
period
- --------------------------------------------------------------------------------------------------------------
</TABLE>
1 Accumulation unit values for Annuity Options 5 through 7 and a deferred
annuity contract funded by the Separate Account.
2 Accumulation unit values for Annuity Option 9.
*The Mid-Cap Growth and Prime Reserve Subaccounts commenced operations on
January 2, 1997.
<PAGE>
INFORMATION ABOUT THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUNDS
- --------------------------------------------------------------------------------
SECURITY BENEFIT LIFE INSURANCE COMPANY
The Company is a life insurance company organized under the laws of the
State of Kansas. It was organized originally as a fraternal benefit society
and commenced business February 22, 1892. It became a mutual life insurance
company under its present name on January 2, 1950. On July 31, 1998, the
Company converted from a mutual life insurance company to a stock life
insurance company ultimately controlled by Security Benefit Mutual Holding
Company, a Kansas mutual holding company. Membership interests of persons
who were Contractowners as of July 31, 1998 became membership interests in
Security Benefit Mutual Holding Company as of that date, and persons who
acquire policies from the Company after that date automatically become
members in the mutual holding company.
The Company 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 1999, the Company had total assets of approximately $8.3
billion. Together with its subsidiaries, the Company has total funds under
management of approximately $9.9 billion.
PUBLISHED RATINGS
The Company may from time to time publish in advertisements, sales
literature, and reports to Owners, the ratings and other information
assigned to it by one or more independent rating organizations such as A.M.
Best Company and Standard & Poor's. The purpose of the ratings is to reflect
the financial strength and/or claims-paying ability of the Company and
should not be considered as bearing on the investment performance of assets
held in the Separate Account. Each year the A.M. Best Company reviews the
financial status of thousands of insurers, culminating in the assignment of
Best's Ratings. These ratings reflect their current opinion of the relative
financial strength and operating performance of an insurance company in
comparison to the norms of the life/health insurance industry. In addition,
the claims-paying ability of the Company as measured by Standard & Poor's
Insurance Ratings Services may be referred to in advertisements or sales
literature or in reports to Owners. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of
its insurance and annuity policies in accordance with their terms. Such
ratings do not reflect the investment performance of the Separate Account or
the degree of risk associated with an investment in the Separate Account.
SEPARATE ACCOUNT
T. ROWE PRICE VARIABLE ANNUITY ACCOUNT
The Company established the T. Rowe Price Variable Annuity Account as a
separate account under Kansas law on March 28, 1994. The Contract provides
that income, gains, or losses of the Separate Account, whether or not
realized, are credited to or charged against the assets of the Separate
Account without regard to other income, gains, or losses of the Company. The
Company owns the assets in the Separate Account and is required to maintain
sufficient assets in the Separate Account to meet all Separate Account
obligations under the Contract. Such Separate Account assets are not subject
to claims of the Company's creditors. The Company may transfer to its
General Account assets that exceed anticipated obligations of the Separate
Account. All obligations arising under the Contracts are general corporate
obligations of the Company. The Company may invest its own assets in the
Separate Account for other purposes, but not to support contracts other than
variable annuity contracts, and may accumulate in the Separate Account
proceeds from Contract charges and investment results applicable to those
assets.
The Separate Account is currently divided into seven Subaccounts. The
Contract provides that income, gains and losses, whether or not realized,
are credited to, or charged against, the assets of each Subaccount without
regard to the income, gains, or losses in the other Subaccounts. Each
Subaccount invests exclusively in shares of a specific Portfolio of one of
the Funds. The Company may in the future establish additional Subaccounts of
the Separate Account, which may invest in other Portfolios of the Funds or
in other securities, mutual funds, or investment vehicles. Under its
contract with the underwriter, T. Rowe Price Investment Services, Inc.
("Investment Services"), the Company cannot add new Subaccounts, or
substitute shares of another portfolio, without the consent of Investment
Services, unless (1) such change is necessary to comply with applicable
laws, (2) shares of any or all of the Portfolios should no longer be
available for investment, or (3) the Company receives an opinion from
counsel acceptable to Investment Services that substitution is in the best
interest of Contractowners and that further investment in shares of the
Portfolio(s) would cause undue risk to the Company. For more information
about the underwriter, see "Distribution of the Contract," page 39.
The Separate Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with
the SEC does not involve supervision by the SEC of the administration or
investment practices of the Separate Account or of the Company.
THE FUNDS
The T. Rowe Price Equity Series, Inc., the T. Rowe Price Fixed Income
Series, Inc., and the T. Rowe Price International Series, Inc. are
diversified, open-end management investment companies of the series type.
The Funds are registered with the SEC under the 1940 Act. Such registration
does not involve supervision by the SEC of the investments or investment
policy of the Funds. Together, the Funds currently have seven separate
Portfolios, each of which pursues different investment objectives and
policies.
In addition to the Separate Account, shares of the Funds are being sold to
variable life insurance and variable annuity separate accounts of other
insurance companies, including insurance companies affiliated with the
Company. In the future, it may be disadvantageous for variable annuity
separate accounts of other life insurance companies, or for both variable
life insurance separate accounts and variable annuity separate accounts, to
invest simultaneously in the Funds. Currently neither the Company nor the
Funds foresee any such disadvantages to either variable annuity owners or
variable life insurance owners. The management of the Funds intends to
monitor events in order to identify any material conflicts between or among
variable annuity owners and variable life insurance owners and to determine
what action, if any, should be taken in response. In addition, if the
Company believes that any Fund's response to any of those events or
conflicts insufficiently protects Owners, it will take appropriate action on
its own. For more information see the Funds' prospectus.
A summary of the investment objective of each Portfolio of the Funds is set
forth below. There can be no assurance that any Portfolio will achieve its
objective. More detailed information is contained in the accompanying
prospectus of the Funds, including information on the risks associated with
the investments and investment techniques of each Portfolio.
THE FUNDS' PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO
The investment objective of the New America Growth Portfolio is long-term
growth of capital through investments primarily in the common stocks of
companies operating in sectors T. Rowe Price believes will be the fastest
growing in the United States.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
The investment objective of the International Stock Portfolio is to seek
long-term growth of capital through investments primarily in common stocks
of established, non-U.S. companies.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO
The investment objective of the Mid-Cap Growth Portfolio is to provide
long-term capital appreciation by investing primarily in common stocks of
medium-sized growth companies.
T. ROWE PRICE EQUITY INCOME PORTFOLIO
The investment objective of the Equity Income Portfolio is to provide
substantial dividend income and also capital appreciation by investing
primarily in dividend-paying common stocks of established companies.
T. ROWE PRICE PERSONAL STRATEGY BALANCED PORTFOLIO
The investment objective of the Personal Strategy Balanced Portfolio is to
seek the highest total return over time consistent with an emphasis on both
capital appreciation and income.
T. ROWE PRICE LIMITED-TERM BOND PORTFOLIO
The investment objective of the Limited-Term Bond Portfolio is to seek a
high level of income consistent with moderate price fluctuation by investing
primarily in short- and intermediate-term investment grade debt securities.
T. ROWE PRICE PRIME RESERVE PORTFOLIO (NOT AVAILABLE UNDER OPTION 9)
The investment objectives of the Prime Reserve Portfolio are preservation of
capital, liquidity, and, consistent with these, the highest possible current
income, by investing primarily in high-quality money market securities.
THE INVESTMENT ADVISERS
T. Rowe Price Associates, Inc. ("T. Rowe Price"), located at 100 East Pratt
Street, Baltimore, Maryland 21202, serves as Investment Adviser to each
Portfolio, except the T. Rowe Price International Stock Portfolio. Rowe
Price-Fleming International, Inc. ("Price-Fleming"), an affiliate of T. Rowe
Price, serves as Investment Adviser to the T. Rowe Price International Stock
Portfolio. Price-Fleming's U.S. office is located at 100 East Pratt Street,
Baltimore, Maryland 21202. As Investment Adviser to the Portfolios, T. Rowe
Price and Price-Fleming are responsible for selection and management of
portfolio investments. T. Rowe Price and Price-Fleming are registered with
the SEC as investment advisers.
T. Rowe Price and Price-Fleming are not affiliated with the Company, and the
Company has no responsibility for the management or operations of the
Portfolios.
THE CONTRACT
- --------------------------------------------------------------------------------
GENERAL
The Company issues the Contract offered by this Prospectus. It is a single
premium immediate variable annuity. To the extent that all or a portion of
the Purchase Payment is allocated to the Subaccounts, the Contract is
significantly different from a fixed annuity contract in that it is the
Contractowner who assumes the risk of investment gain or loss rather than
the Company. The Contract provides several Annuity Options under which the
Company will pay periodic Annuity Payments on a variable basis, a fixed
basis, or both, beginning on the Annuity Payout Date. The amount of variable
Annuity Payments will depend on the investment performance of the
Subaccounts to which the Purchase Payment has been allocated. The Company
guarantees the amount of fixed Annuity Payments.
The Contract is available for purchase by an individual as a non-tax
qualified retirement plan ("Non-Qualified Plan"). The Contract is also
eligible for purchase as an individual retirement annuity ("IRA") qualified
under Section 408, or a Roth IRA qualified under Section 408A, of the
Internal Revenue Code ("Qualified Plan"). An IRA may be purchased with
contributions from tax-qualified plans such as 403(b) plans, 401(k) plans,
or individual retirement accounts. See the discussion of IRAs and Roth IRAs
under "Section 408 and Section 408A," page 36. Joint Owners are permitted
only on a Contract issued pursuant to a Non-Qualified Plan.
APPLICATION FOR A CONTRACT
If you wish to purchase a Contract, you may submit an application and the
Purchase Payment to the Company, as well as any other form or information
that the Company may require. The Purchase Payment may be made by check or,
if you own shares of one or more mutual funds distributed by Investment
Services ("T. Rowe Price Funds"), you may elect on the application to redeem
shares of that fund(s) and forward the redemption proceeds to the Company.
Any such transaction shall be effected by Investment Services, the
distributor of the T. Rowe Price Funds and the Contract. If you redeem fund
shares, it is a sale of shares for tax purposes, which may result in a
taxable gain or loss. You may obtain an application by contacting the T.
Rowe Price Variable Annuity Service Center. The Company reserves the right
to reject an application or Purchase Payment for any reason, subject to the
Company's underwriting standards and guidelines and any applicable state or
federal law relating to nondiscrimination.
Any Owner must also be an Annuitant. The maximum age of an Owner or
Annuitant for which a Contract will be issued is 85. If there are Joint
Owners or Annuitants, the maximum issue age will be determined by reference
to the older Owner or Annuitant.
PURCHASE PAYMENTS
The minimum Purchase Payment for the purchase of a Contract is $25,000. The
Company will not accept additional Purchase Payments under the Contract. A
Purchase Payment exceeding $1 million will not be accepted without prior
approval of the Company.
The Company will apply the initial Purchase Payment not later than the end
of the second Valuation Date after the Valuation Date it is received at the
T. Rowe Price Variable Annuity Service Center; provided that the Purchase
Payment is preceded or accompanied by an application that contains
sufficient information to establish an account and properly credit such
Purchase Payment. If the Company does not receive a complete application,
the Company will notify you that it does not have the necessary information
to issue a Contract. If you do not provide the necessary information to the
Company within five Valuation Dates after the Valuation Date on which the
Company first receives the initial Purchase Payment or if the Company
determines it cannot otherwise issue the Contract, the Company will return
the initial Purchase Payment to you unless you consent to the Company
retaining the Purchase Payment until the application is made complete.
An application will be considered properly completed if it (1) includes all
information requested on the application, including election of an Annuity
Option, and (2) is accompanied by proof of the date of birth of the
Annuitant and any Joint Annuitant and the entire amount of the Purchase
Payment.
ALLOCATION OF THE PURCHASE PAYMENT
In an application for a Contract, you select the Subaccounts or the Fixed
Interest Account to which the Purchase Payment will be allocated. The
allocation must be a whole percentage. The Purchase Payment will be
allocated according to your instructions contained in the application,
except that no Purchase Payment allocation is permitted that would result in
less than 5% of any payment being allocated to any one Subaccount or the
Fixed Interest Account. Available allocation alternatives generally include
the seven Subaccounts and the Fixed Interest Account. The Prime Reserve
Subaccount and the Fixed Interest Account are not available under Option 9.
ACCOUNT VALUE
The Account Value is the sum of the amounts under the Contract held in each
Subaccount and in the Fixed Interest Account. Account Value is determined as
of any Valuation Date prior to the Annuity Payout Date and on and after the
Annuity Payout Date under Annuity Options 5 through 7 and during the
Liquidity Period under Option 9. There is no Account Value under Options 1
through 4 and 8, or after the Liquidity Period, under Option 9.
On each Valuation Date, the portion of the Account Value allocated to any
particular Subaccount will be adjusted to reflect the investment experience
of that Subaccount for that date. See "Determination of Account Value,"
below. No minimum amount of Account Value is guaranteed. You bear the entire
investment risk relating to the investment performance of Account Value
allocated to the Subaccounts.
DETERMINATION OF ACCOUNT VALUE
The Account Value will vary to a degree that depends upon several factors,
including investment performance of the Subaccounts to which Account Value
has been allocated, partial withdrawals, the charges assessed in connection
with the Contract and Annuity Payments under Options 5 through 7 and during
the Liquidity Period, under Option 9. The amounts allocated to the
Subaccounts will be invested in shares of the corresponding Portfolios of
the Funds. The investment performance of the Subaccounts will reflect
increases or decreases in the net asset value per share of the corresponding
Portfolios and any dividends or distributions declared by the corresponding
Portfolios. Any dividends or distributions from any Portfolio will be
automatically reinvested in shares of the same Portfolio, unless the
Company, on behalf of the Separate Account, elects otherwise.
Assets in the Subaccounts are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's
interest in a Subaccount. When a Contractowner allocates all or part of the
Purchase Payment to a Subaccount, the Contract is credited with Accumulation
Units. The number of Accumulation Units to be credited is determined by
dividing the dollar amount allocated to the particular Subaccount by the
Accumulation Unit value for the particular Subaccount as of the end of the
Valuation Period in which the Purchase Payment is credited. In addition,
other transactions including full or partial withdrawals and any withdrawal
charge, exchanges, Annuity Payments under Options 5 through 7 and during the
Liquidity Period under Option 9, and assessment of premium taxes against the
Contract, all affect the number of Accumulation Units credited to a
Contract. The number of units credited or debited in connection with any
such transaction is determined by dividing the dollar amount of such
transaction by the Accumulation Unit value of the affected Subaccount. The
Accumulation Unit value of each Subaccount is determined as of each
Valuation Date. The number of Accumulation Units credited to a Contract will
not be changed by any subsequent change in the value of an Accumulation
Unit, but the dollar value of an Accumulation Unit may vary from Valuation
Date to Valuation Date depending upon the investment experience of the
Subaccount and charges against the Subaccount.
The Accumulation Unit value of each Subaccount's units initially was $10.
Determination of the unit value of a Subaccount takes into account the
following: (1) the investment performance of the Subaccount, which is based
upon the investment performance of the corresponding Portfolio of the Funds,
(2) any dividends or distributions paid by the corresponding Portfolio, (3)
the charges, if any, that may be assessed by the Company for taxes
attributable to the operation of the Subaccount, and (4) the mortality and
expense risk charge of the applicable Annuity Option under the Contract.
FREE-LOOK RIGHT
You may return a Contract within the Free-Look Period, which is generally a
10-day period beginning when you receive the Contract. The returned Contract
will then be deemed void and the Company will refund to you any part of the
Purchase Payment allocated to the Fixed Interest Account plus the Account
Value in the Subaccounts as of the end of the Valuation Period during which
the returned Contract is received by the Company. The Company will refund
the amount of the Purchase Payment allocated to the Subaccounts rather than
Account Value in those states and circumstances in which it is required to
do so.
DEATH BENEFIT
If the Owner dies prior to the Annuity Payout Date, the Company will pay the
death benefit proceeds upon receipt of due proof of death and instructions
regarding payment. If the Owner dies and there is no Joint Annuitant, the
death benefit proceeds will be payable to the Designated Beneficiary in an
amount equal to the Account Value as of the date due proof of death and
instructions regarding payment are received by the Company, less any premium
taxes due or paid by the Company, any partial withdrawals and any Annuity
Payments. If the Owner dies and there is a Joint Annuitant, the surviving
Joint Annuitant may elect to receive the death benefit proceeds described
above or elect a new Annuity Option. If the Owner is not a natural person,
the death benefit proceeds will be payable upon receipt of due proof of
death of the Annuitant prior to the Annuity Payout Date and instructions
regarding payment. If the death of an Owner occurs on or after the Annuity
Payout Date, any death benefit will be determined according to the terms of
the Annuity Option selected by the Owner. See "Annuity Options," page 24.
See "Federal Tax Matters," page 31 for a discussion of the tax consequences
in the event of death.
DISTRIBUTION REQUIREMENTS
For Contracts issued in connection with Non-Qualified Plans, if any Owner
dies prior to the Annuity Payout Date, the entire death benefit must be paid
within five years after the death of such Owner. If any Owner dies on or
after the Annuity Payout Date, Annuity Payments shall continue to be paid at
least as rapidly as under the method of payment being used as of the date of
the Owner's death. If the Owner of the Contract is not a natural person,
these distribution rules are applicable upon the death of or a change in the
primary Annuitant.
For Contracts issued in connection with Qualified Plans, the terms of any
Qualified Plan and the Internal Revenue Code should be reviewed with respect
to limitations or restrictions on distributions following the death of the
Owner or Annuitant. Because the rules applicable to Qualified Plans are
extremely complex, a competent tax adviser should be consulted.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a daily charge from the assets of each Subaccount for
mortality and expense risks assumed by the Company under the Contracts. The
charge generally is equal to an annual rate of 0.55% of each Subaccount's
average daily net assets. This amount is intended to compensate the Company
for certain mortality and expense risks the Company assumes in offering and
administering the Contracts and in operating the Subaccounts. If Option 9 is
selected, the mortality and expense risk charge is equal to an annual rate
of 1.40% of each Subaccount's average daily net assets.
The expense risk borne by the Company is the risk that the Company's actual
expenses in issuing and administering the Contracts and operating the
Subaccounts will be more than the profit realized from the mortality and
expense risk charge. The mortality risk borne by the Company is the risk
that Annuitants, as a group, will live longer than the Company's actuarial
tables predict. In this event, the Company guarantees that Annuity Payments
will not be affected by a change in mortality experience that results in the
payment of greater annuity income than assumed under the Annuity Options in
the Contract. With respect to Option 9, the Company also assumes the risks
associated with providing the Floor Payment. See "Option 9 - Life Income
with Liquidity," page 24.
The Company may ultimately realize a profit from the mortality and expense
risk charge to the extent it is not needed to cover mortality and
administrative expenses, but the Company may realize a loss to the extent
the charge is not sufficient. The Company may use any profit derived from
this charge for any lawful purpose, including any promotional and
administrative expenses, including compensation paid by the Company to
Investment Services or an affiliate thereof, at the annual rate of 0.10% of
each Subaccount's average daily net assets for administrative services.
PREMIUM TAX CHARGE
Various states and municipalities impose a tax on premiums on annuity
contracts received by insurance companies. Whether or not a premium tax is
imposed will depend upon, among other things, the Owner's state of
residence, the Annuitant's state of residence, and the insurance tax laws
and the Company's status in a particular state. The Company assesses a
premium tax charge to reimburse itself for premium taxes that it incurs in
connection with a Contract. This charge will be deducted from the Purchase
Payment if premium tax is incurred. The Company reserves the right to deduct
premium taxes when due or anytime thereafter. Premium tax rates currently
range from 0% to 3.5%, but are subject to change by a governmental entity.
CONTRACT WITHDRAWAL CHARGE
The Company deducts a withdrawal charge from full or partial withdrawals
made during the Liquidity Period under Option 9. The charge is deducted from
the Subaccounts in the same proportion as the withdrawal is allocated. The
withdrawal charge is based upon the year in which the withdrawal is made as
measured from the Annuity Payout Date. Withdrawals after the fifth year from
the Annuity Payout Date are not permitted. The withdrawal charge, which is
set forth below, is applied to the amount of the withdrawal.
-----------------------------------------------------------
YEAR FROM ANNUITY PAYOUT DATE WITHDRAWAL CHARGE
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth 1%
-----------------------------------------------------------
The withdrawal charge compensates the Company for the costs associated with
providing the Floor Payment under Option 9, including the costs of
reinsurance purchased by the Company to hedge against the Company's
potential losses from providing the Floor Payment.
OTHER CHARGES
The Company may charge the Separate Account or the Subaccounts for the
federal, state, or local taxes incurred by the Company that are attributable
to the Separate Account or the Subaccounts, or to the operations of the
Company with respect to the Contract, or that are attributable to payment of
premiums or acquisition costs under the Contract. No such charge is
currently assessed. See "Tax Status of the Company and the Separate Account"
and "Charge for the Company's Taxes," page 31.
GUARANTEE OF CERTAIN CHARGES
The Company guarantees that the charge for mortality and expense risks will
not exceed an annual rate of 0.55% of each Subaccount's average daily net
assets (1.40% of each Subaccount's average daily net assets under Option 9).
FUND EXPENSES
Each Subaccount purchases shares at the net asset value of the corresponding
Portfolio of the Funds. Each Portfolio's net asset value reflects the
investment management fee and any other expenses that are deducted from the
assets of the Fund. These fees and expenses are not deducted from the
Subaccount, but are paid from the assets of the corresponding Portfolio. As
a result, you indirectly bear a pro rata portion of such fees and expenses.
The management fees and other expenses, if any, which are more fully
described in the Funds' prospectus, are not specified or fixed under the
terms of the Contract, and the Company bears no responsibility for such fees
and expenses.
ANNUITY PAYMENTS
- --------------------------------------------------------------------------------
GENERAL
You must select an Annuity Payout Date, which must be within 30 days of the
Contract Date, at the time of purchase. If you do not select an Annuity
Payout Date, the Annuity Payout Date will be a date one month from the
Contract Date. For example, if the Contract Date is February 28 and no
Annuity Payout Date is selected, the Annuity Payout Date will be March 28.
On the Annuity Payout Date, the Purchase Payment, less any applicable
premium taxes, will be applied to provide an annuity under one of the
Options described on page 23. The Purchase Payment is further reduced by an
amount equal to 1.8% of the Purchase Payment if you elect a fixed annuity
under one of Options 1 through 4 or 8. Each Option, except Option 9 which is
available only as a variable annuity, is available either as a variable
annuity supported by the Subaccounts or as a fixed annuity supported by the
Fixed Interest Account. A combination variable and fixed annuity is also
available under Options 5 through 7. Your payment choices for each Annuity
Option are set forth in the table below.
<TABLE>
- -------------------------------------------------------------------------------------------------------
<CAPTION>
COMBINATION VARIABLE
ANNUITY OPTION VARIABLE ANNUITY FIXED ANNUITY AND FIXED ANNUITY
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Option 1 - Life Income X X
- -------------------------------------------------------------------------------------------------------
Option 2 - Life Income with Period Certain X X
- -------------------------------------------------------------------------------------------------------
Option 3 - Life Income with Installment X X
Refund
- -------------------------------------------------------------------------------------------------------
Option 4 - Joint and Last Survivor X X
- -------------------------------------------------------------------------------------------------------
Option 5 - Payments for a Specified Period X X X
- -------------------------------------------------------------------------------------------------------
Option 6 - Payments of a Specified Amount X X X
- -------------------------------------------------------------------------------------------------------
Option 7 - Age Recalculation X X X
- -------------------------------------------------------------------------------------------------------
Option 8 - Period Certain X X
- -------------------------------------------------------------------------------------------------------
Option 9 - Life Income with Liquidity X
- -------------------------------------------------------------------------------------------------------
</TABLE>
Variable Annuity Payments will fluctuate with the investment performance of
the applicable Subaccounts while fixed Annuity Payments will not. Any
portion of the net Purchase Payment under the Contract allocated to the
Subaccounts will be applied to purchase a variable annuity and any portion
under the Contract allocated to the Fixed Interest Account will be applied
to purchase a fixed annuity. The net Purchase Payment will be equal to the
Purchase Payment, reduced by any applicable premium taxes, and 1.8% of the
Purchase Payment if a fixed annuity under one of Options 1 through 4 or 8 is
selected.
The Company will make Annuity Payments on a monthly, quarterly, semiannual,
or annual basis, except that under Option 9, Annuity Payments can be made
only on a monthly basis. No Annuity Payments will be made for less than $100
except that there is no minimum payment amount with respect to Annuity
Payments under Option 9. You may direct Investment Services to apply the
proceeds of an Annuity Payment to purchase shares of one or more of the T.
Rowe Price Funds by submitting a written request to the T. Rowe Price
Variable Annuity Service Center. If the frequency of payments selected would
result in payments of less than $100, the Company reserves the right to
change the frequency.
You may not change the Annuity Payout Date, Annuity Option or Annuitant at
any time after the Contract has been issued.
EXCHANGES
You may exchange Account Value or Payment Units (depending upon the Annuity
Option selected) among the Subaccounts upon proper written request to the T.
Rowe Price Variable Annuity Service Center. Exchanges may be made by
telephone if telephone exchanges were elected in the application, or an
Authorization for Telephone Requests form has been properly completed,
signed and filed at the T. Rowe Price Variable Annuity Service Center. Up to
six exchanges are allowed in any Contract Year. The minimum amount of
Account Value that may be exchanged is $500 or, if less, the amount
remaining in the Fixed Interest Account or Subaccount. Exchanges of Account
Value or Payment Units will immediately affect the amount of future Annuity
Payments, which will be based upon the performance of the Subaccounts to
which the exchange is made. Because Option 9 provides for level monthly
payments that reset only annually, an exchange under Option 9 will not
affect the amount of the Annuity Payment until the next annual reset date.
The Owner may exchange Payment Units among Subaccounts under Options 1
through 4 and 8 and may exchange Account Value among the Subaccounts and the
Fixed Interest Account under Options 5 through 7, subject to the
restrictions on exchanges from the Fixed Interest Account described under
the "Fixed Interest Account," page 29. Under Option 9, the Owner may
exchange only among the Subaccounts (excluding the Prime Reserve
Subaccount). Under Option 9, Account Value may be exchanged during the
Liquidity Period and Payment Units may be exchanged after the Liquidity
Period. An exchange of Account Value during the Liquidity Period under
Option 9 will automatically effect a corresponding exchange of Payment
Units.
The Company reserves the right at a future date, to waive or limit the
number of exchanges permitted each Contract Year, to suspend exchanges, to
limit the amount of Account Value that may be subject to exchanges and the
amount remaining in an account after an exchange, to impose conditions on
the right to exchange and to discontinue telephone exchanges provided that,
as required by its contract with Investment Services, the Company first
obtains the consent of Investment Services.
FULL AND PARTIAL WITHDRAWALS
Once the Contract has been issued, an Annuitant or Owner cannot change the
Annuity Option and generally cannot surrender his or her annuity and receive
a lump-sum settlement in return. Full and partial withdrawals of Account
Value are available, however, under Options 5 through 7, subject to the
restrictions on withdrawals from the Fixed Interest Account, and under
Option 9 during the Liquidity Period. Withdrawals during the Liquidity
Period under Option 9 are subject to a withdrawal charge as discussed under
"Contract Withdrawal Charge," page 19. An Owner may elect to withdraw the
present value of Annuity Payments, commuted at the assumed interest rate, if
a variable annuity under Option 8 is selected. Partial withdrawals will
reduce the amount of future Annuity Payments. Under Option 9, upon a partial
withdrawal of Account Value, the amount of the Annuity Payment, Floor
Payment and number of Payment Units used to calculate the Annuity Payment
will be reduced. The amount of the Annuity Payment and the number of Payment
Units for each Subaccount is reduced in the same proportion as the
withdrawal reduces Account Value allocated to that Subaccount as of the date
of the withdrawal. The Floor Payment is reduced in the same proportion as
the withdrawal reduces overall Account Value as of the date of the
withdrawal. An example of a partial withdrawal under Option 9 is set forth
below.
<TABLE>
- ------------------------------ ---------------------- ---------------------------------- ----------------
<CAPTION>
SUBACCOUNTS FROM WHICH ACCOUNT VALUE ON WITHDRAWAL AMOUNT PERCENTAGE
ANNUITY PAYMENT IS MADE DATE OF WITHDRAWAL (INCLUDING WITHDRAWAL CHARGES) REDUCTION
<S> <C> <C> <C>
Equity Income $95,000 $0 0%
International Stock $25,000 $15,000 60%
Total $120,000 $15,000 12.5%
- ------------------------------ ---------------------- ---------------------------------- ----------------
</TABLE>
<TABLE>
- ------------------------------ ----------------------------------- -- -----------------------------------
<CAPTION>
PRIOR TO PARTIAL WITHDRAWAL AFTER PARTIAL WITHDRAWAL
----------------------------------- -----------------------------------
AMOUNT OF AMOUNT OF
SUBACCOUNTS FROM WHICH ANNUITY PAYMENT FLOOR ANNUITY PAYMENT FLOOR
ANNUITY PAYMENT IS MADE PAYMENT UNITS PAYMENT PAYMENT UNITS PAYMENT(1)
<S> <C> <C> <C> <C> <C> <C>
Equity Income(2) $300 29.7914 N/A $300 29.7914 N/A
International Stock(3) $100 9.7847 N/A $40 3.9139 N/A
Total $400 $304 $340 $266
- ------------------------------ ------------ ---------- ----------- -- ------------ ---------- -----------
</TABLE>
1 The Floor Payment is reduced by 12.5%, the percentage by which the
partial Withdrawal reduced Account Value.
2 The Annuity Payment and Payment Units allocated to this Subaccount are
not reduced in this example, because no amount is withdrawn from Account
Value allocated to the Equity Income Subaccount.
3 The Annuity Payment and Payment Units allocated to this Subaccount are
reduced by 60%, the percentage by which the partial Withdrawal reduced
Account Value allocated to the International Stock Subaccount.
A full or partial withdrawal request will be effective as of the end of the
Valuation Period that a proper written request is received by the Company at
the T. Rowe Price Variable Annuity Service Center. A proper written request
must include the written consent of any effective assignee or irrevocable
Beneficiary, if applicable. A Contractowner may direct Investment Services
to apply the proceeds of a full or partial withdrawal to the purchase of
shares of one or more of the T. Rowe Price Funds by so indicating in their
written withdrawal request.
The proceeds received upon a full withdrawal will be the Contract's
Withdrawal Value. The Withdrawal Value generally is equal to the Account
Value as of the end of the Valuation Period during which a proper withdrawal
request is received by the Company at the T. Rowe Price Variable Annuity
Service Center, less any premium taxes due and paid by the Company and,
under Option 9, any withdrawal charge. The Withdrawal Value under Option 8
is the present value of future Annuity Payments calculated using the assumed
interest rate, less any premium taxes due and paid by the Company.
A partial withdrawal may be requested for a specified percentage or dollar
amount of Account Value. Each partial withdrawal must be at least $500. A
request for a partial withdrawal will result in a payment by the Company in
accordance with the amount specified in the partial withdrawal request. Upon
payment, the Account Value will be reduced by an amount equal to the
withdrawal, any applicable premium tax and any applicable withdrawal charge.
If a partial withdrawal is requested that would leave the Withdrawal Value
in the Contract less than $10,000, or with respect to Option 8, Annuity
Payments after the withdrawal would be less than $100, the Company reserves
the right to treat the partial withdrawal as a request for a full
withdrawal.
The amount of a partial withdrawal will be deducted from the Account Value
in the Subaccounts and the Fixed Interest Account, according to the
Contractowner's instructions to the Company, subject to the restrictions on
partial withdrawals from the Fixed Interest Account. See "The Fixed Interest
Account," page 28. If a Contractowner does not specify the allocation, the
Company will contact the Contractowner for instructions, and the withdrawal
will be effected as of the end of the Valuation Period in which such
instructions are obtained.
A full or partial withdrawal may result in receipt of taxable income to the
Owner and, if made prior to the Owner's attaining age 59 1/2, may be subject
to a 10% penalty tax. The tax consequences of a withdrawal under the
Contract should be carefully considered. See "Federal Tax Matters," page 31.
ANNUITY OPTIONS
The Contract provides for nine Annuity Options. Other Annuity Options may be
available upon request at the discretion of the Company. The Annuity Options
are set forth below.
OPTION 1 - LIFE INCOME Periodic Annuity Payments will be made during the
lifetime of the Annuitant. It is possible under this Option for an Annuitant
to receive only one Annuity Payment if the Annuitant's death occurred prior
to the due date of the second Annuity Payment, two if death occurred prior
to the due date of the third Annuity Payment, etc. THERE IS NO MINIMUM
NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE
DEATH OF THE ANNUITANT, REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
OPTION 2 - LIFE INCOME WITH PERIOD CERTAIN OF 5, 10, 15, OR 20 YEARS
Periodic Annuity Payments will be made during the lifetime of the Annuitant
with the promise that if, at the death of the Annuitant, payments have been
made for less than a stated period, which may be 5, 10, 15, or 20 years, as
elected, Annuity Payments will be continued during the remainder of such
period to the Designated Beneficiary. UPON THE ANNUITANT'S DEATH AFTER THE
PERIOD CERTAIN, NO FURTHER ANNUITY PAYMENTS WILL BE MADE.
OPTION 3 - LIFE INCOME WITH INSTALLMENT OR UNIT REFUND OPTION Periodic
Annuity Payments will be made during the lifetime of the Annuitant with the
promise that, if at the death of the Annuitant, the number of payments that
has been made is less than the number determined by dividing the amount
applied under this Option by the amount of the first Annuity Payment,
Annuity Payments will be continued to the Designated Beneficiary until that
number of Annuity Payments has been made.
OPTION 4 - JOINT AND SURVIVOR Periodic Annuity Payments will be made during
the lifetime of the Annuitants. Annuity Payments will be made as long as
either Annuitant is living. Upon the death of one Annuitant, Annuity
Payments continue to the surviving Annuitant at the same or a reduced level
of 75%, 66 2/3% or 50% of Annuity Payments as elected by the Owner at the
time the Annuity Option is selected. (FOR A CONTRACT ISSUED IN CONNECTION
WITH A QUALIFIED PLAN, PERIODIC ANNUITY PAYMENTS WILL BE MADE DURING THE
LIFE OF THE PARTICIPANT UNDER THE PLAN (THE "PRIMARY ANNUITANT"). UPON THE
DEATH OF THE PRIMARY ANNUITANT, PAYMENTS WILL BE MADE TO THE JOINT ANNUITANT
DURING HIS OR HER LIFETIME. ANNUITY PAYMENTS WILL BE REDUCED BY THE SELECTED
PERCENTAGE, IF ANY, ONLY UPON THE DEATH OF THE PRIMARY ANNUITANT.)
With respect to fixed Annuity Payments, the amount of the Annuity Payment
and, with respect to Variable Annuity Payments, the number of Payment Units
used to determine the Annuity Payment is reduced, if applicable, as of the
first Annuity Payment following an Annuitant's (for Qualified Plans, the
Primary Annuitant's) death. In the event of the death of one Annuitant, the
surviving Joint Annuitant has the right to exercise all rights under the
Contract, including the right to make exchanges. It is possible under this
Option for only one Annuity Payment to be made if both Annuitants died prior
to the second Annuity Payment due date, two if both died prior to the third
Annuity Payment due date, etc. AS IN THE CASE OF OPTION 1, THERE IS NO
MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON
THE DEATH OF THE LAST SURVIVING ANNUITANT, REGARDLESS OF THE NUMBER OF
PAYMENTS RECEIVED.
OPTION 5 - PAYMENTS FOR SPECIFIED PERIOD Periodic Annuity Payments will be
made for a fixed period, which may be from 5 to 20 years, as elected by the
Owner. The amount of each Annuity Payment is determined by dividing Account
Value by the number of Annuity Payments remaining in the period. If, at the
death of the Annuitant, payments have been made for less than the selected
fixed period, the remaining unpaid payments will be paid to the Designated
Beneficiary.
OPTION 6 - PAYMENTS OF A SPECIFIED AMOUNT Periodic Annuity Payments of the
amount elected by the Owner will be made until Account Value is exhausted,
with the guarantee that, if, at the death of the Annuitant, all guaranteed
payments have not yet been made, the remaining unpaid payments will be paid
to the Designated Beneficiary. This Option is available only for Contracts
issued in connection with Non-Qualified Plans.
OPTION 7 - AGE RECALCULATION Periodic Annuity Payments will be made based
upon the Annuitant's life expectancy, or the joint life expectancy of the
Annuitant and a beneficiary, at the Annuitant's attained age (and the
beneficiary's attained or adjusted age, if applicable) each year. The
payments are computed by reference to government actuarial tables, and are
made until Account Value is exhausted. Upon the Annuitant's death, any
Account Value will be paid to the Designated Beneficiary.
OPTION 8 - PERIOD CERTAIN Periodic Annuity Payments will be made for a fixed
period which may be 5, 10, 15 or 20 years. This option differs from Option 5
in that Annuity Payments are calculated on the basis of Payment Units. If
the Annuitant dies prior to the end of the period certain, the remaining
guaranteed Annuity Payments will be made to the Designated Beneficiary.
OPTION 9 - LIFE INCOME WITH LIQUIDITY Monthly Annuity Payments will be made
for the life of the Annuitant, or the Owner may elect Annuity Payments for
the life of the Annuitant and a Joint Annuitant, and in both cases with a
period certain of 15 years. The period certain will be for a period of 10
years in the case of a Contract issued in connection with a Qualified Plan
if the life expectancy of the Annuitant or joint life expectancy of the
Joint Annuitants is less than 15 years, but more than 10 years. In any case,
the period certain may not exceed the life expectancy of the Annuitant or
joint life expectancy of the Joint Annuitants if the Contract is issued in
connection with a Qualified Plan.
Annuity Payments under this option are guaranteed never to be less than the
Floor Payment which is equal to 80% of the initial Annuity Payment; provided
that the Floor Payment is adjusted in the event of a withdrawal as discussed
under "Full and Partial Withdrawals," page 22. The amount of the Annuity
Payment will remain level for 12 month intervals and will reset on each
anniversary of the Annuity Payout Date. Annuity Payments (including the
Floor Payment) during the Liquidity Period are paid from Account Value and
reduce the amount of Account Value available for withdrawal. If Account
Value allocated to a Subaccount is depleted during the Liquidity Period, any
shortfall will be deducted proportionately from those Subaccounts that have
Account Value, and future annuity payments will be based upon the
performance of those Subaccounts.
If there are joint Annuitants, Annuity Payments will be made as long as
either Annuitant is living. Upon the death of one Annuitant, Annuity
Payments continue to the surviving Annuitant at the same or a reduced level
of 75%, 66 2/3% or 50% of Annuity Payments as elected by the Owner at the
time the Annuity Option is selected. (FOR A CONTRACT ISSUED IN CONNECTION
WITH A QUALIFIED PLAN, PERIODIC ANNUITY PAYMENTS WILL BE MADE DURING THE
LIFE OF THE PARTICIPANT UNDER THE PLAN (THE "PRIMARY ANNUITANT"). UPON THE
DEATH OF THE PRIMARY ANNUITANT, PAYMENTS WILL BE MADE TO THE JOINT ANNUITANT
DURING HIS OR HER LIFETIME. ANNUITY PAYMENTS WILL BE REDUCED BY THE SELECTED
PERCENTAGE, IF ANY, ONLY UPON THE DEATH OF THE PRIMARY ANNUITANT.) The
number of Payment Units used to calculate Annuity Payments is reduced (1) as
of the Annuity Payment due at the close of the period certain, or (2) if
later, as of the first Annuity Payment following the death of the Annuitant.
A death benefit is payable to the Designated Beneficiary upon the death of
the Annuitant or, if there are Joint Annuitants, upon the death of the last
Annuitant prior to the close of the period certain. The death benefit during
the Liquidity Period is the Account Value as of the end of the Valuation
Period during which due proof of death and instructions regarding payment
are received at the T. Rowe Price Variable Annuity Service Center. The
Designated Beneficiary may elect the death benefit in the event of death
during the remainder of the period certain, as follows: (1) a lump sum equal
to the present value, calculated using the assumed interest rate, of the
remaining guaranteed Annuity Payments as of the end of the Valuation Period
during which due proof of death and instructions regarding payment are
received at the T. Rowe Price Variable Annuity Service Center; or (2) the
remaining guaranteed Annuity Payments paid to the Designated Beneficiary on
a monthly basis.
If there are Joint Annuitants, upon the death of one Annuitant during the
Liquidity Period, the amount of Annuity Payments to the surviving Annuitant
may be increased as of the close of the Liquidity Period. Whether the amount
of the Annuity Payment will be increased is determined by applying an amount
equal to the present value of the future Annuity Payments based upon the
joint lives of the Annuitants, calculated using the assumed interest rate,
to a life income option with a period certain of ten years (or the amount of
time remaining in the period certain as of the close of the Liquidity
Period) to determine an Annuity Payment. If this Annuity Payment is greater
than the current Annuity Payment, the current payment would be increased to
that amount as of the close of the Liquidity Period. The Payment Units and
Floor Payment would be increased proportionately as of that date.
SELECTION OF AN OPTION
Contractowners should carefully review the Annuity Options with their
financial or tax advisers, and, for Contracts used in connection with a
Qualified Plan, reference should be made to the terms of the particular plan
and the requirements of the Internal Revenue Code for pertinent limitations
respecting Annuity Payments and other matters. For instance, Qualified Plans
generally require that Annuity Payments begin no later than April 1 of the
calendar year following the year in which the Annuitant reaches age 70 1/2.
In addition, under Qualified Plans, the period elected for receipt of
Annuity Payments under Annuity Options (other than life income) generally
may be no longer than the joint life expectancy of the Annuitant and
beneficiary in the year that the Annuitant reaches age 70 1/2, and must be
shorter than such joint life expectancy if the beneficiary is not the
Annuitant's spouse and is more than 10 years younger than the Annuitant.
ANNUITY PAYMENTS
Annuity Payments under Options 1 through 4, 8 and 9 are based upon annuity
rates that vary with the Annuity Option selected. In the case of Options 1
through 4 and 9 the annuity rates will vary based upon your age and sex,
except that unisex rates are used where required by law. The annuity rates
reflect your life expectancy as of the Annuity Payout Date and gender,
unless unisex rates apply. The annuity rates are based upon the 1983(a)
mortality table and are adjusted to reflect an assumed interest rate of 3.5%
or 5%, compounded annually, as selected by you. Only an assumed interest
rate of 3.5% is available under Option 9. See the discussion under "Assumed
Interest Rate," below. See the table below for the basis of annuity rates.
In the case of Options 5, 6 and 7, Annuity Payments are based upon Account
Value without regard to annuity rates.
BASIS OF ANNUITY RATES
- ------------------------------------------------------------
OPTIONS 1-4 AND 9 OPTION 8
Assumed Interest Rate Assumed Interest Rate
Mortality Table 1983(a)
- ------------------------------------------------------------
The Company calculates Variable Annuity Payments under Options 1 through 4,
8 and 9 using Payment Units. The value of a Payment Unit for each Subaccount
is determined as of each Valuation Date and initially was $1.00. The Payment
Unit value of a Subaccount as of any subsequent Valuation Date is determined
by adjusting the Payment Unit value on the previous Valuation Date for (1)
the interim performance of the corresponding Portfolio of the Funds; (2) any
dividends or distributions paid by the corresponding Portfolio; (3) the
mortality and expense risk charge; (4) the charges, if any, that may be
assessed by the Company for taxes attributable to the operation of the
Subaccount; and (5) the assumed interest rate.
The Company determines the number of Payment Units used to calculate each
variable Annuity Payment as of the Annuity Payout Date. As discussed above,
the Contract specifies annuity rates for Options 1 through 4, 8 and 9, which
are the guaranteed minimum dollar amount of monthly Annuity Payment for each
$1,000 of Purchase Payment, less any applicable premium taxes, and less a
charge equal to 1.8% of the Purchase Payment for a fixed annuity, applied to
an Annuity Option. The net Purchase Payment is divided by $1,000 and the
result is multiplied by the rate per $1,000 specified in the annuity tables
to determine the initial Annuity Payment for a variable annuity and the
guaranteed monthly Annuity Payment for a fixed annuity.
On the Annuity Payout Date, the Company divides the initial variable Annuity
Payment by the value of the Payment Unit as of that date for the applicable
Subaccount to determine the number of Payment Units to be used in
calculating subsequent Annuity Payments. If variable Annuity Payments are
allocated to more than one Subaccount, the number of Payment Units will be
determined by dividing the portion of the initial variable Annuity Payment
allocated to a Subaccount by the value of that Subaccount's Payment Unit as
of the Annuity Payout Date. The initial variable Annuity Payment is
allocated to the Subaccounts in the same proportion as the Purchase Payment
is allocated. The number of Payment Units will remain constant for
subsequent Annuity Payments, unless you exchange Payment Units among
Subaccounts or make a withdrawal under Option 8 or during the Liquidity
Period under Option 9.
Subsequent variable Annuity Payments are calculated by multiplying the
number of Payment Units allocated to a Subaccount by the value of the
Payment Unit as of the date of the Annuity Payment. If the Annuity Payment
is allocated to more than one Subaccount, the Annuity Payment is equal to
the sum of the payment amounts determined for each Subaccount. Annuity
Payments under Option 9 are reset only once each year on the 12-month
anniversary of the Annuity Payout Date to reflect the investment performance
of the Subaccount(s). An example is set forth below of an Annuity Payment
calculation under Option 9 assuming purchase of a Contract by a 60-year old
male with a Purchase Payment of $100,000 and no premium tax.
-------------------------------------------------------------------------------
Initial Purchase Payment $100,000 $100,000
- 0 --------
Premium Tax -------- $1,000 = 100
Net Purchase Payment $100,000
Amount determined by reference to annuity table for a male,
age 60 under Option 9........................................... $4.78
First Variable Annuity Payment (100 x $4.78).................... $478
<TABLE>
<CAPTION>
ALLOCATION OF FIRST VARIABLE PAYMENT UNIT NUMBER OF PAYMENT
NET PURCHASE ANNUITY PAYMENT VALUE ON ANNUITY UNITS USED TO DETERMINE
SUBACCOUNT PAYMENT ALLOCATION PAYOUT DATE SUBSEQUENT PAYMENTS
<S> <C> <C> <C> <C> <C> <C>
Equity Income 50% $239.00 / $1.51 = 158.2781
International Stock 50% 239.00 / 1.02 = 234.3137
------
$478.00
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF PAYMENT UNITS USED TO PAYMENT UNIT VALUE AMOUNT OF SUBSEQUENT
SUBACCOUNT DETERMINE SUBSEQUENT PAYMENTS ON ANNUAL RESET DATE ANNUITY PAYMENT
<S> <C> <C> <C> <C> <C>
Equity Income 158.2781 x $1.60 = $253.24
International Stock 234.3137 x 1.10 = 257.74
------
Subsequent Variable Annuity Payment................................................. $510.98
</TABLE>
<TABLE>
<CAPTION>
DATE OF AMOUNT OF DATE OF AMOUNT OF
ANNUITY PAYMENT ANNUITY PAYMENT ANNUITY PAYMENT ANNUITY PAYMENT
<S> <C> <C> <C> <C> <C>
Annuity Payout Date February 15 $478.00 September 15 $478.00
March 15 478.00 October 15 478.00
April 15 478.00 November 15 478.00
May 15 478.00 December 15 478.00
June 15 478.00 January 15 478.00
July 15 478.00 Annual Reset February 15 510.98
Date
August 15 478.00
--------------------------------------------------------------------------------------------------------------
</TABLE>
ASSUMED INTEREST RATE
As discussed above, the annuity rates for Options 1 through 4, and 8 are
based upon an assumed interest rate of 3.5% or 5%, compounded annually, as
you elect at the time the Annuity Option is selected. (Only an assumed
interest rate of 3.5% is available under Option 9.) Variable Annuity
Payments generally increase or decrease from one Annuity Payment date to the
next based upon the performance of the applicable Subaccounts during the
interim period adjusted for the assumed interest rate. If the performance of
the Subaccounts is equal to the assumed interest rate, Annuity Payments will
remain constant. If the performance of the Subaccounts is greater than the
assumed interest rate, the amount of the Annuity Payments will increase and
if it is less than the assumed interest rate, the amount of the Annuity
Payments will decline. A higher assumed interest rate, for example 5%, would
mean a higher initial Variable Annuity Payment, but the amount of the
Annuity Payments would increase more slowly in a rising market (or the
amount of the Annuity Payments would decline more rapidly in a falling
market). Conversely, a lower assumed interest rate, for example 3.5%, would
mean a lower initial variable Annuity Payment and more rapidly rising
Annuity Payment amounts in a rising market and more slowly declining Annuity
Payment amounts in a falling market.
THE FIXED INTEREST ACCOUNT
- --------------------------------------------------------------------------------
You may allocate your net Purchase Payment to the Fixed Interest Account to
purchase a fixed annuity under Annuity Options 1 through 4 and 8. Under
Annuity Options 5 through 7, all or a portion of the Purchase Payment may be
allocated to the Fixed Interest Account and Account Value allocated to the
Subaccounts under those Options may be exchanged to the Fixed Interest
Account. A fixed annuity is not available under Option 9. Amounts allocated
to the Fixed Interest Account become part of the Company's General Account,
which supports the Company's insurance and annuity obligations. The
Company's General Account is subject to regulation and supervision by the
Kansas Department of Insurance and is also subject to the insurance laws and
regulations of other jurisdictions in which the Contract is distributed. In
reliance on certain exemptive and exclusionary provisions, interests in the
Fixed Interest Account have not been registered as securities under the
Securities Act of 1933 (the "1933 Act") and the Fixed Interest Account has
not been registered as an investment company under the Investment Company
Act of 1940 (the "1940 Act"). Accordingly, neither the Fixed Interest
Account nor any interests therein are generally subject to the provisions of
the 1933 Act or the 1940 Act. The disclosure in this Prospectus relating to
the Fixed Interest Account, however, may be subject to certain generally
applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in the Prospectus. This
Prospectus is generally intended to serve as a disclosure document only for
aspects of a Contract involving the Separate Account and contains only
selected information regarding the Fixed Interest Account. For more
information regarding the Fixed Interest Account, see "The Contract," page
15.
Amounts allocated to the Fixed Interest Account become part of the General
Account of the Company, which consists of all assets owned by the Company
other than those in the Separate Account and other separate accounts of the
Company. Subject to applicable law, the Company has sole discretion over the
investment of the assets of its General Account.
INTEREST
Account Value allocated to the Fixed Interest Account earns interest at a
fixed rate or rates that are paid by the Company. The Account Value in the
Fixed Interest Account earns interest at an interest rate that is guaranteed
to be at least an annual effective rate of 3% which will accrue daily
("Guaranteed Rate"). Such interest will be paid regardless of the actual
investment experience of the Company's General Account. In addition, the
Company may in its discretion pay interest at a rate ("Current Rate") that
exceeds the Guaranteed Rate. The Company will determine the Current Rate, if
any, from time to time.
Account Value allocated or exchanged to the Fixed Interest Account will earn
interest at the Current Rate, if any, in effect on the date such portion of
Account Value is allocated or exchanged to the Fixed Interest Account. The
Current Rate paid on any such portion of Account Value allocated or
exchanged to the Fixed Interest Account will be guaranteed for rolling
periods of one or more years (each a "Guarantee Period"). The Company
currently offers only Guarantee Periods of one year. Upon expiration of any
Guarantee Period, a new Guarantee Period of the same duration begins with
respect to that portion of Account Value, which will earn interest at the
Current Rate, if any, declared by the Company on the first day of the new
Guarantee Period.
Account Value allocated or exchanged to the Fixed Interest Account at one
point in time may be credited with a different Current Rate than amounts
allocated or exchanged to the Fixed Interest Account at another point in
time. For example, amounts allocated to the Fixed Interest Account in June
may be credited with a different Current Rate than amounts allocated to the
Fixed Interest Account in July. In addition, if Guarantee Periods of
different durations are offered, Account Value allocated or exchanged to the
Fixed Interest Account for a Guarantee Period of one duration may be
credited with a different Current Rate than amounts allocated or exchanged
to the Fixed Interest Account for a Guarantee Period of a different
duration. Therefore, at any time, various portions of a Contractowner's
Account Value in the Fixed Interest Account may be earning interest at
different Current Rates depending upon the point in time such portions were
allocated or exchanged to the Fixed Interest Account and the duration of the
Guarantee Period. The Company bears the investment risk for the Account
Value allocated to the Fixed Interest Account and for paying interest at the
Guaranteed Rate on amounts allocated to the Fixed Interest Account.
For purposes of determining the interest rates to be credited on Account
Value in the Fixed Interest Account, withdrawals or exchanges from the Fixed
Interest Account will be deemed to be taken first from any portion of
Account Value allocated to the Fixed Interest Account for which the
Guarantee Period expires during the calendar month in which the withdrawal
or exchange is effected, then in the order beginning with that portion of
such Account Value which has the longest amount of time remaining before the
end of its Guarantee Period and ending with that portion which has the least
amount of time remaining before the end of its Guarantee Period. For more
information about exchanges and withdrawals from the Fixed Interest Account,
see "Exchanges and Withdrawals" below.
DEATH BENEFIT
The death benefit under the Contract will be determined in the same fashion
for a Contract that is supported by the Fixed Interest Account as for a
Contract that is supported by the Subaccounts. See "Annuity Options," page
23.
CONTRACT CHARGES
Premium taxes will be the same for Contractowners who allocate the Purchase
Payment to the Fixed Interest Account as for those who allocate the Purchase
Payment to the Subaccounts. The charge for mortality and expense risks will
not be assessed against the Fixed Interest Account, and any amounts that the
Company pays for income taxes allocable to the Subaccounts will not be
charged against the Fixed Interest Account. In addition, the investment
management fees and any other expenses paid by the Funds will not be paid
directly or indirectly by Contractowners to the extent the Contract is
supported by the Fixed Interest Account; however, such Contractowners will
not participate in the investment experience of the Subaccounts.
EXCHANGES AND WITHDRAWALS
Under Annuity Options 5 through 7 only, Account Value may be exchanged from
the Subaccounts to the Fixed Interest Account and from the Fixed Interest
Account to the Subaccounts, subject to the following limitation. Exchanges
from the Fixed Interest Account are allowed only from the portion of Account
Value, for which the Guarantee Period expires during the calendar month in
which the exchange is effected. Up to six exchanges are allowed in any
Contract Year and the minimum exchange amount is $500 or the amount
remaining in the Fixed Interest Account. The Company reserves the right to
waive or limit the number of exchanges permitted each Contract Year, to
suspend exchanges, to limit the amount that may be subject to exchanges and
the amount remaining in an account after an exchange, and to impose
conditions on the right to exchange.
The Contractowner may make a full or partial withdrawal of Account Value
allocated to the Fixed Interest Account only under Annuity Options 5 through
7. A Contractowner may make a partial withdrawal from the Fixed Interest
Account only (1) from the portion of Account Value, for which the Guarantee
Period expires during the calendar month in which the partial withdrawal is
effected, and (2) once per Contract Year in an amount up to the greater of
$5,000 or 10% of Account Value allocated to the Fixed Interest Account at
the time of the partial withdrawal. See "Full and Partial Withdrawals," page
22.
PAYMENTS FROM THE FIXED INTEREST ACCOUNT
As required by most states, the Company reserves the right to delay any full
and partial withdrawals and exchanges from the Fixed Interest Account for up
to six months after a written request in proper form is received at the T.
Rowe Price Variable Annuity Service Center. During the period of deferral,
interest at the applicable interest rate or rates will continue to be
credited to the amounts allocated to the Fixed Interest Account. The Company
does not expect to delay payments from the Fixed Interest Account and will
notify you if there will be a delay.
MORE ABOUT THE CONTRACT
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OWNERSHIP
The Contractowner is the person named as such in the application or in any
later change shown in the Company's records. While living, the Contractowner
alone has the right to receive all benefits and exercise all rights that the
Contract grants or the Company allows. The Owner may be an entity that is
not a living person, such as a trust or corporation, referred to herein as
"Non-Natural Persons." See "Federal Tax Matters," page 31.
JOINT OWNERS. The Joint Owners will be joint tenants with rights of
survivorship and upon the death of an Owner, the surviving Owner shall be
the sole Owner. Any Contract transaction requires the signature of all
persons named jointly. Joint Owners are permitted only if the Contract is
issued pursuant to a Non-Qualified Plan and the Joint Owner is an Annuitant.
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary is the individual named as such in the application or any
later change shown in the Company's records. The Contractowner may change
the Beneficiary at any time while the Contract is in force by written
request on a form provided by the Company and received at the T. Rowe Price
Variable Annuity Service Center. The change will not be binding on the
Company until it is received and recorded at the T. Rowe Price Variable
Annuity Service Center. The change will be effective as of the date the
Change of Beneficiary form is signed subject to any payments made or other
actions taken by the Company before the change is received and recorded. A
Secondary Beneficiary may be designated. The Owner may designate a permanent
Beneficiary whose rights under the Contract cannot be changed without the
Beneficiary's consent.
DIVIDENDS
The Contract is eligible to share in the surplus earnings of the Company.
However, the current dividend scale is zero, and the Company does not
anticipate that dividends will be paid.
PAYMENTS FROM THE SEPARATE ACCOUNT
The Company will pay any full or partial withdrawal benefit or death benefit
proceeds from Account Value allocated to the Subaccounts, and will effect an
exchange between Subaccounts or from a Subaccount to the Fixed Interest
Account within seven days from the Valuation Date a proper request is
received at the T. Rowe Price Variable Annuity Service Center. However, the
Company can postpone the calculation or payment of such a payment or
exchange of amounts from the Subaccounts to the extent permitted under
applicable law, for any period: (a) during which the New York Stock Exchange
is closed other than customary weekend and holiday closings, (b) during
which trading on the New York Stock Exchange is restricted as determined by
the SEC, (c) during which an emergency, as determined by the SEC, exists as
a result of which (i) disposal of securities held by the Separate Account is
not reasonably practicable, or (ii) it is not reasonably practicable to
determine the value of the assets of the Separate Account, or (d) as the SEC
may by order permit for the protection of investors.
PROOF OF AGE AND SURVIVAL
The Company may require proof of age or survival of any person on whose life
Annuity Payments depend.
MISSTATEMENTS
If the age or sex of an Annuitant has been misstated, the correct amount
paid or payable by the Company under the Contract shall be such as the
Purchase Payment under the Contract would have provided for the correct age
or sex (unless unisex rates apply).
FEDERAL TAX MATTERS
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INTRODUCTION
The Contract described in this Prospectus is designed for use by individuals
in retirement plans which may or may not be Qualified Plans under the
provisions of the Internal Revenue Code ("Code").
The ultimate effect of federal income taxes on the amounts held under a
Contract, on Annuity Payments, and on the economic benefits to the Owner,
the Annuitant, and the Beneficiary or other payee will depend upon the type
of retirement plan for which the Contract is purchased, the tax and
employment status of the individuals involved, and a number of other
factors. The discussion of the federal income tax considerations relating to
a contract contained herein and in the Statement of Additional Information
is general in nature and is not intended to be an exhaustive discussion of
all questions that might arise in connection with a Contract. It is based
upon the Company's understanding of the present federal income tax laws as
currently interpreted by the Internal Revenue Service ("IRS"), and is not
intended as tax advice. No representation is made regarding the likelihood
of continuation of the present federal income tax laws or of the current
interpretations by the IRS or the courts. Future legislation may affect
annuity contracts adversely. Moreover, no attempt has been made to consider
any applicable state or other laws. Because of the inherent complexity of
the tax laws and the fact that tax results will vary according to the
particular circumstances of the individual involved and, if applicable, the
Qualified Plan, a person should consult a qualified tax adviser regarding
the purchase of a Contract, the selection of an Annuity Option under a
Contract, the receipt of Annuity Payments under a Contract, or any other
transaction involving a Contract (including an exchange). THE COMPANY DOES
NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF, OR TAX CONSEQUENCES
ARISING FROM, ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACT.
TAX STATUS OF THE COMPANY AND THE SEPARATE ACCOUNT
GENERAL
The Company intends to be taxed as a life insurance company under Part I,
Subchapter L of the Code. Because the operations of the Separate Account
form a part of the Company, the Company will be responsible for any federal
income taxes that become payable with respect to the income of the Separate
Account and its Subaccounts.
CHARGE FOR THE COMPANY'S TAXES
A charge may be made against the Separate Account for any federal taxes
incurred by the Company that are attributable to the Separate Account, the
Subaccounts, or to the operations of the Company with respect to the
Contracts or attributable to payments, premiums, or acquisition costs under
the Contracts. The Company will review the question of a charge to the
Separate Account, the Subaccounts, or the Contract for the Company's federal
taxes periodically. Charges may become necessary if, among other reasons,
the tax treatment of the Company or of income and expenses under the
Contract is ultimately determined to be other than what the Company
currently believes it to be, if there are changes made in the federal income
tax treatment of variable annuities at the insurance company level, or if
there is a change in the Company's tax status.
Under current laws, the Company 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, the Company reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS
Each of the Portfolios will be required to adhere to regulations issued by
the Treasury Department pursuant to Section 817(h) of the Code prescribing
asset diversification requirements for investment companies whose shares are
sold to insurance company separate accounts funding variable contracts.
Pursuant to these regulations, on the last day of each calendar quarter (or
on any day within 30 days thereafter), no more than 55% of the total assets
of a Portfolio may be represented by any one investment, no more than 70%
may be represented by any two investments, no more than 80% may be
represented by any three investments, and no more than 90% may be
represented by any four investments. For purposes of Section 817(h),
securities of a single issuer generally are treated as one investment, but
obligations of the U.S. Treasury and each U.S. Governmental agency or
instrumentality generally are treated as securities of separate issuers. The
Separate Account, through the Portfolios, intends to comply with the
diversification requirements of Section 817(h).
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contractowner's gross income. The IRS has stated in published
rulings that a variable contractowner will be considered the owner of
separate account assets if the contractowner possesses incidents of
ownership in those assets, such as the ability to exercise investment
control over the assets. The Treasury Department also announced, in
connection with the issuance of regulations concerning diversification, that
those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor (i.e., the policyowner), rather than the insurance
company, to be treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by way of regulations
or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no guidance
applicable to the Contract has been issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example in the present case, the Contractowner has additional flexibility in
allocating the Purchase Payment and Account Values than in the cases
described in the rulings. These differences could result in a Contractowner
being treated as the owner of a pro rata portion of the assets of the
Separate Account. In addition, the Company does not know what standards will
be set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. The Company therefore reserves
the right to modify the Contract, as deemed appropriate by the Company, to
attempt to prevent a Contractowner from being considered the owner of a pro
rata share of the assets of the Separate Account. Moreover, in the event
that regulations or rulings are promulgated, there can be no assurance that
the Portfolios will be able to operate as currently described in the
Prospectus, or that the Funds will not have to change any Portfolio's
investment objective or investment policies.
INCOME TAXATION OF ANNUITIES IN GENERAL-NON-QUALIFIED PLANS
Section 72 of the Code governs the taxation of annuities. In general, a
Contractowner is not taxed on increases in value under an annuity contract
until some form of distribution is made under the contract. However, the
increase in value may be subject to tax currently under certain
circumstances. See "Contracts Owned by Non-Natural Persons," page 34 and
"Diversification Standards," page 32. Withholding of federal income taxes on
all distributions may be required unless a recipient who is eligible elects
not to have any amounts withheld and properly notifies the Company of that
election.
* SURRENDERS OR WITHDRAWALS PRIOR TO THE ANNUITY PAYOUT DATE Code Section 72
provides that amounts received upon a total or partial withdrawal from a
Contract prior to the Annuity Payout Date generally will be treated as gross
income to the extent that the cash value of the Contract (determined without
regard to any surrender charge in the case of a partial withdrawal) exceeds
the "investment in the contract." The "investment in the contract" is that
portion, if any, of Purchase Payments paid under a Contract less any
distributions received previously under the Contract that are excluded from
the recipient's gross income. The taxable portion is taxed at ordinary
income tax rates. For purposes of this rule, a pledge or assignment of a
Contract is treated as a payment received on account of a partial withdrawal
of a Contract. Similarly, loans under a Contract are generally treated as
distributions under the Contract.
* SURRENDERS OR WITHDRAWALS ON OR AFTER THE ANNUITY PAYOUT DATE Upon a
complete surrender, the amount received is taxable to the extent that the
cash value of the Contract exceeds the investment in the Contract. The
taxable portion of such payments will be taxed at ordinary income tax rates.
For fixed Annuity Payments, the taxable portion of each payment generally is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of Annuity Payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed at ordinary income
rates. For variable Annuity Payments, the taxable portion of each payment is
determined by using a formula known as the "excludable amount," which
establishes the non-taxable portion of each payment. The non-taxable portion
is a fixed dollar amount for each payment, determined by dividing the
investment in the Contract by the number of payments to be made. The
remainder of each variable annuity payment is taxable. Once the excludable
portion of annuity payments to date equals the investment in the Contract,
the balance of the annuity payments will be fully taxable.
* PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS With respect to amounts
withdrawn or distributed before the taxpayer reaches age 59 1/2, a penalty
tax is generally imposed equal to 10% of the portion of such amount which is
includible in gross income. However, the penalty tax is not applicable to
withdrawals: (i) made on or after the death of the owner (or where the owner
is not an individual, the death of the "primary annuitant," who is defined
as the individual the events in whose life are of primary importance in
affecting the timing and amount of the payout under the Contract); (ii)
attributable to the taxpayer's becoming totally disabled within the meaning
of Code Section 72(m)(7); (iii) which are part of a series of substantially
equal periodic payments (not less frequently than annually) made for the
life (or life expectancy) of the taxpayer, or the joint lives (or joint life
expectancies) of the taxpayer and his or her beneficiary; (iv) from certain
qualified plans; (v) under a so-called qualified funding asset (as defined
in Code Section 130(d)); (vi) under an immediate annuity contract; or (vii)
which are purchased by an employer on termination of certain types of
qualified plans and which are held by the employer until the employee
separates from service.
If the penalty tax does not apply to a surrender or withdrawal as a result
of the application of item (iii) above, and the series of payments are
subsequently modified (other than by reason of death or disability), the tax
for the first year in which the modification occurs will be increased by an
amount (determined by the regulations) equal to the tax that would have been
imposed but for item (iii) above, plus interest for the deferral period, if
the modification takes place (a) before the close of the period which is
five years from the date of the first payment and after the taxpayer attains
age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
ADDITIONAL CONSIDERATIONS
* DISTRIBUTION-AT-DEATH RULES In order to be treated as an annuity contract, a
Contract must provide the following two distribution rules: (a) if any owner
dies on or after the Annuity Payout Date, and before the entire interest in
the Contract has been distributed, the remainder of the owner's interest
will be distributed at least as quickly as the distribution method in effect
on the owner's death; and (b) if any owner dies before the Annuity Payout
Date, the entire interest in the Contract must generally be distributed
within five years after the date of death, or, if payable to a designated
beneficiary, must be annuitized over the life of that designated beneficiary
or over a period not extending beyond the life expectancy of that
beneficiary, commencing within one year after the date of death of the
owner. If the sole designated beneficiary is the spouse of the deceased
owner, the Contract (together with the deferral of tax on the accrued and
future income thereunder) may be continued in the name of the spouse as
owner.
Generally, for purposes of determining when distributions must begin under
the foregoing rules, where an owner is not an individual, the primary
annuitant is considered the owner. In that case, a change in the primary
annuitant will be treated as the death of the owner. Finally, in the case of
joint owners, the distribution-at-death rules will be applied by treating
the death of the first owner as the one to be taken into account in
determining generally when distributions must commence, unless the sole
Beneficiary is the deceased owner's spouse.
* GIFT OF ANNUITY CONTRACTS Generally, gifts of Non-Qualified Plan Contracts
prior to the Annuity Payout Date will trigger tax on the gain on the
Contract, with the donee getting a stepped-up basis for the amount included
in the donor's income. The 10% penalty tax and gift tax also may be
applicable. This provision does not apply to transfers between spouses or
incident to a divorce.
* CONTRACTS OWNED BY NON-NATURAL PERSONS If the Contract is held by a
non-natural person (for example, a corporation), the income on that Contract
(generally the increase in net surrender value less the Purchase Payments)
is includible in taxable income each year. The rule does not apply where the
Contract is acquired by the estate of a decedent, where the Contract is held
by certain types of retirement plans, where the Contract is a qualified
funding asset for structured settlements, where the Contract is purchased on
behalf of an employee upon termination of a qualified plan, and in the case
of a so-called immediate annuity. An annuity contract held by a trust or
other entity as agent for a natural person is considered held by a natural
person.
* MULTIPLE CONTRACT RULE For purposes of determining the amount of any
distribution under Code Section 72(e) (amounts not received as annuities)
that is includible in gross income, all Non-Qualified annuity contracts
issued by the same insurer to the same Contractowner during any calendar
year are to be aggregated and treated as one contract. Thus, any amount
received under any such contract prior to the contract's Annuity Payout
Date, such as a partial withdrawal, dividend, or loan, will be taxable (and
possibly subject to the 10% penalty tax) to the extent of the combined
income in all such contracts.
In addition, the Treasury Department has broad regulatory authority in
applying this provision to prevent avoidance of the purposes of this rule.
It is possible that, under this authority, the Treasury Department may apply
this rule to amounts that are paid as annuities (on and after the Annuity
Payout Date) under annuity contracts issued by the same company to the same
owner during any calendar year. In this case, annuity payments could be
fully taxable (and possibly subject to the 10% penalty tax) to the extent of
the combined income in all such contracts and regardless of whether any
amount would otherwise have been excluded from income because of the
"exclusion ratio" under the contract.
* POSSIBLE TAX CHANGES In recent years, legislation has been proposed that
would have adversely modified the federal taxation of certain annuities.
There is always the possibility that the tax treatment of annuities could
change by legislation or other means (such as IRS regulations, revenue
rulings, and judicial decisions). Moreover, although unlikely, it is also
possible that any legislative change could be retroactive (that is,
effective prior to the date of such change).
* TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A CONTRACT A transfer of ownership
of a Contract, the designation of an Annuitant, Payee, or other Beneficiary
who is not also the Owner, the selection of certain Annuity Payout Dates or
the exchange of a Contract may result in certain tax consequences to the
Owner that are not discussed herein. An Owner contemplating any such
transfer, assignment, selection, or exchange should contact a qualified tax
adviser with respect to the potential effects of such a transaction.
QUALIFIED PLANS
The Contract may be used as a Qualified Plan that meets the requirements of
an individual retirement annuity ("IRA") under Section 408 of the Code or a
Roth IRA under Section 408A of the Code. No attempt is made herein to
provide more than general information about the use of the Contract as a
Qualified Plan. Contractowners, Annuitants, and Beneficiaries are cautioned
that the rights of any person to any benefits under such Qualified Plans may
be limited by applicable law, regardless of the terms and conditions of the
Contract issued in connection therewith.
The amount that may be contributed to a Qualified Plan is subject to
limitations under the Code. In addition, early distributions from Qualified
Plans may be subject to penalty taxes. Furthermore, most Qualified Plans are
subject to certain minimum distribution rules. Failure to comply with these
rules could result in disqualification of the Plan or subject the Owner or
Annuitant to penalty taxes. As a result, the minimum distribution rules may
limit the availability of certain Annuity Options to certain Annuitants and
their beneficiaries. These rules and requirements may not be incorporated
into our Contract administration procedures. Therefore, Contractowners,
Annuitants, and Beneficiaries are responsible for determining that
contributions, distributions, and other transactions with respect to the
Contracts comply with applicable law.
THE FOLLOWING IS A BRIEF DESCRIPTION OF QUALIFIED PLANS AND THE USE OF THE
CONTRACT THEREWITH:
* SECTION 408 AND SECTION 408A
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to establish individual retirement programs through the purchase
of Individual Retirement Annuities ("traditional IRAs"). The Contract may be
purchased as an IRA. The IRAs described in this paragraph are called
"traditional IRAs" to distinguish them from "Roth IRAs" which are described
below.
IRAs are subject to limitations on the amount that may be contributed, the
persons who may be eligible, and on the time when distributions must
commence. Depending upon the circumstances of the individual, contributions
to a traditional IRA may be made on a deductible or nondeductible basis.
IRAs may not be transferred, sold, assigned, discounted, or pledged as
collateral for a loan or other obligation. The annual premium for an IRA may
not be fixed and may not exceed $2,000. Any refund of premium must be
applied to the payment of future premiums or the purchase of additional
benefits.
Sale of the Contract for use with IRAs may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the
Contract for such purposes will be provided with such supplementary
information as may be required by the Internal Revenue Service and will have
the right to revoke the Contract under certain circumstances. See the IRA
Disclosure Statement which accompanies this Prospectus.
An individual's interest in a traditional IRA must generally be distributed
or begin to be distributed not later than April 1 of the calendar year
following the calendar year in which the individual reaches age 70 1/2
("required beginning date"). The Contractowner's retirement date, if any,
will not affect his or her required beginning date. Periodic distributions
must not extend beyond the life of the individual or the lives of the
individual and a designated beneficiary (or over a period extending beyond
the life expectancy of the individual or the joint life expectancy of the
individual and a designated beneficiary).
If an individual dies before reaching his or her required beginning date,
the individual's entire interest must generally be distributed within five
years of the individual's death. However, the five-year rule will be deemed
satisfied if distributions begin before the close of the calendar year
following the year of the individual's death to a designated beneficiary and
are made over the life of the beneficiary (or over a period not extending
beyond the life expectancy of the beneficiary). If the designated
beneficiary is the individual's surviving spouse, distributions may be
delayed until the individual would have reached age 70 1/2.
If an individual dies after reaching his or her required beginning date, the
individual's interest must generally be distributed at least as rapidly as
under the method of distribution in effect at the time of the individual's
death.
Distributions from IRAs are generally taxed under Code Section 72. Under
these rules, a portion of each distribution may be excludable from income.
The amount excludable from the individual's income is the amount of the
distribution which bears the same ratio as the individual's nondeductible
contributions to all IRAs bear to the expected return under the IRAs.
The Internal Revenue Service has not reviewed the Contract for qualification
as an IRA, and has not addressed in a ruling of general applicability
whether a death benefit provision such as the provision in the Contract
comports with IRA qualification requirements.
ROTH IRAS. Section 408A of the Code permits eligible individuals to
establish a Roth IRA, a type of IRA which became available in 1998. The
Contract may be purchased as a Roth IRA. Contributions to a Roth IRA are not
deductible, but withdrawals that meet certain requirements are not subject
to federal income tax. Sale of the contract for use with Roth IRAs may be
subject to special requirements imposed by the Internal Revenue Service.
Purchasers of the Contract for such purposes will be provided with such
supplementary information as may be required by the Internal Revenue Service
or other appropriate agency, and will have the right to revoke the Contract
under certain circumstances. Unlike a traditional IRA, Roth IRAs are not
subject to minimum required distribution rules during the Contractowner's
lifetime. Generally, however, upon the death of the Contractowner, the
amount in a remaining Roth IRA must be distributed in the same manner as a
traditional IRA as described above.
The Internal Revenue Service has not reviewed the Contract for qualification
as a Roth IRA and has not addressed in a ruling of general applicability
whether a death benefit provision such as the provision in the Contract
comports with Roth IRA qualification requirements.
* TAX PENALTIES
PREMATURE DISTRIBUTION TAX. Distributions from a Qualified Plan before the
owner reaches age 59 1/2 are generally subject to an additional tax equal to
10% of the taxable portion of the distribution. The 10% penalty tax does not
apply to distributions: (i) made on or after the death of the Owner; (ii)
attributable to the Owner's disability; (iii) which are part of a series of
substantially equal periodic payments made (at least annually) for the life
(or life expectancy) of the Owner or the joint lives (or joint life
expectancies) of the Owner and a designated beneficiary; (iv) made to pay
for certain medical expenses; (v) that are exempt withdrawals of an excess
contribution; (vi) that are rolled over or transferred in accordance with
Code requirements; (vii) which, subject to certain restrictions, do not
exceed the health insurance premiums paid by unemployed individuals in
certain cases; (viii) made to pay "qualified higher education expenses"; or
(ix) for certain "qualified first-time homebuyer distributions."
MINIMUM DISTRIBUTION TAX. If the amount distributed from all of your IRAs is
less than the minimum required distribution for the year, you are subject to
a 50% tax on the amount that was not properly distributed from the IRAs.
WITHHOLDING
Periodic distributions (e.g., annuities and installment payments) from a
Qualified Plan that will last for a period of 10 or more years are generally
subject to voluntary income tax withholding. The amount withheld on such
periodic distributions is determined at the rate applicable to wages. The
recipient of a periodic distribution may generally elect not to have
withholding apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than 10 years) from an IRA are subject to income tax
withholding at a flat 10% rate. The recipient of such a distribution may
elect not to have withholding apply.
The above description of the federal income tax consequences applicable to
Qualified Plans which may be funded by the Contract offered by this
Prospectus is only a brief summary and is not intended as tax advice. The
rules governing the provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have adverse tax
consequences. A prospective Contractowner considering adoption of a
Qualified Plan and purchase of a Contract in connection therewith should
first consult a qualified and competent tax adviser, with regard to the
suitability of the Contract as an investment vehicle for the Qualified Plan.
OTHER INFORMATION
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VOTING OF FUND SHARES
You indirectly (through the Separate Account) purchase shares of the
Portfolios when you allocate purchase payments to the Subaccounts. The
Company owns shares of the Portfolios in the Separate Account for your
benefit. Under current law, the Company will vote shares of the Portfolios
held in the Subaccounts in accordance with voting instructions received from
Owners having the right to give such instructions. You will have the right
to give voting instructions to the extent that you have Account Value
allocated to the particular Subaccount. The Company will vote all shares it
owns through the Subaccount in the same proportion as the shares for which
it receives voting instructions from Owners. The Company votes shares in
accordance with its current understanding of the federal securities laws. If
the Company later determines that it may vote shares of the Funds in its own
right, it may elect to do so.
Unless otherwise required by applicable law, the number of shares of a
particular Portfolio as to which you may give voting instructions to the
Company is determined by dividing your Account Value in a Subaccount on a
particular date by the net asset value per share of that Portfolio as of the
same date. Fractional votes will be counted. The number of votes as to which
voting instructions may be given will be determined as of the date
established by the Fund for determining shareholders eligible to vote at the
meeting of the Fund. If required by the SEC, the Company reserves the right
to determine in a different fashion the voting rights attributable to the
shares of the Funds. Voting instructions may be cast in person or by proxy.
Voting rights attributable to your Account Value in a Subaccount for which
you do not submit timely voting instructions will be voted by the Company in
the same proportion as the voting instructions that are received in a timely
manner for Contracts participating in that Subaccount.
SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to compliance with the law as then
in effect, to make additions to, deletions from, substitutions for, or
combinations of the securities that are held by the Separate Account or any
Subaccount or that the Separate Account or any Subaccount may purchase. If
shares of any or all of the Portfolios of the Funds should no longer be
available for investment, or if the Company receives an opinion from counsel
acceptable to Investment Services that substitution is in the best interest
of Contractowners and that further investment in shares of the Portfolio(s)
would cause undue risk to the Company, the Company may substitute shares of
another Portfolio of the Funds or of a different fund for shares already
purchased, or to be purchased in the future under the Contract. The Company
may also purchase, through the Subaccount, other securities for other
classes of contracts, or permit a conversion between classes of contracts on
the basis of requests made by Owners.
In connection with a substitution of any shares attributable to an Owner's
interest in a Subaccount or the Separate Account, the Company will, to the
extent required under applicable law, provide notice, seek Owner approval,
seek prior approval of the SEC, and comply with the filing or other
procedures established by applicable state insurance regulators.
The Company also reserves the right to establish additional Subaccounts of
the Separate Account that would invest in a new Portfolio of one of the
Funds or in shares of another investment company, a series thereof, or other
suitable investment vehicle. New Subaccounts may be established by the
Company with the consent of Investment Services, and any new Subaccount will
be made available to existing Owners on a basis to be determined by the
Company and Investment Services. The Company may also eliminate or combine
one or more Subaccounts if marketing, tax, or investment conditions so
warrant.
Subject to compliance with applicable law, the Company may transfer assets
to the General Account with the consent of Investment Services. The Company
also reserves the right, subject to any required regulatory approvals, to
transfer assets of any Subaccount of the Separate Account to another
separate account or Subaccount with the consent of Investment Services.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in these and other contracts as
may be necessary or appropriate to reflect such substitution or change. If
deemed by the Company to be in the best interests of persons having voting
rights under the Contracts, the Separate Account may be operated as a
management investment company under the 1940 Act or any other form permitted
by law; it may be deregistered under that Act in the event such registration
is no longer required; or it may be combined with other separate accounts of
the Company or an affiliate thereof. Subject to compliance with applicable
law, the Company also may combine one or more Subaccounts and may establish
a committee, board, or other group to manage one or more aspects of the
operation of the Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend
sales of the Contract as presently offered and to make any change to the
provisions of the Contract to comply with, or give Owners the benefit of,
any federal or state statute, rule, or regulation, including but not limited
to requirements for annuity contracts and retirement plans under the
Internal Revenue Code and regulations thereunder or any state statute or
regulation.
REPORTS TO OWNERS
A statement will be sent annually to you setting forth a summary of the
transactions that occurred during the year, and indicating any Account Value
as of the end of each year. In addition, the statement will indicate the
allocation of Account Value among the Fixed Interest Account and the
Subaccounts and any other information required by law. Confirmations will
also be sent out upon the initial Purchase Payment, exchanges and full and
partial withdrawals. Annuity Payments will be confirmed quarterly.
You will also receive an annual and semiannual report containing financial
statements for the Portfolios, which will include a list of the portfolio
securities of the Portfolios, as required by the 1940 Act, and/or such other
reports as may be required by federal securities laws.
TELEPHONE EXCHANGE PRIVILEGES
You may request an exchange of Account Value or Payment Units by telephone
if you elected telephone exchanges in the application, or an Authorization
for Telephone Requests form ("Telephone Authorization") has been completed,
signed, and filed at the T. Rowe Price Variable Annuity Service Center. The
Company has established procedures to confirm that instructions communicated
by telephone are genuine and will not be liable for any losses due to
fraudulent or unauthorized instructions, provided that it complies with its
procedures. The Company's procedures require that any person requesting an
exchange by telephone provide the account number and the Owner's tax
identification number and such instructions must be received on a recorded
line. The Company reserves the right to deny any telephone exchange request.
If all telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), Contractowners might not be
able to request exchanges by telephone and would have to submit written
requests.
By authorizing telephone exchanges, you authorize the Company to accept and
act upon telephonic instructions for exchanges involving your Contract, and
agree that neither the Company, nor any of its affiliates, nor the Funds,
nor any of their directors, trustees, officers, employees, or agents, will
be liable for any loss, damages, cost, or expense (including attorney's
fees) arising out of any requests effected in accordance with the Telephone
Authorization and believed by the Company to be genuine, provided that the
Company has complied with its procedures. As a result of this policy on
telephone requests, the Contractowner will bear the risk of loss arising
from the telephone exchange privileges. The Company may discontinue, modify,
or suspend telephone exchange privileges at any time.
DISTRIBUTION OF THE CONTRACT
T. Rowe Price Investment Services, Inc. ("Investment Services") is the
distributor of the Contracts. Investment Services also acts as the
distributor of certain mutual funds advised by T. Rowe Price and
Price-Fleming. Investment Services is registered with the SEC as a
broker-dealer under the Securities Exchange Act of 1934, and in all 50
states, the District of Columbia, and Puerto Rico. Investment Services is a
member of the National Association of Securities Dealers, Inc. Investment
Services is a wholly owned subsidiary of T. Rowe Price and is an affiliate
of the Funds.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Separate Account is a
party, or which would materially affect the Separate Account.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Contracts
described in this Prospectus, the Company's authority to issue the Contracts
under Kansas law, and the validity of the forms of the Contracts under
Kansas law have been passed upon by Amy J. Lee, Esq., the Company's
Associate General Counsel.
Legal matters relating to the federal securities and federal income tax laws
have been passed upon by Dechert Price & Rhoads, Washington, D.C.
PERFORMANCE INFORMATION
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Performance information for the Subaccounts of the Separate Account,
including the yield and total return of all Subaccounts may appear in
advertisements, reports, and promotional literature to current or
prospective Owners.
Current yield for the Prime Reserve Subaccount will be based on investment
income received by a hypothetical investment over a given seven-day period
(less expenses accrued during the period), and then "annualized" (i.e.,
assuming that the seven-day yield would be received for 52 weeks, stated in
terms of an annual percentage return on the investment). "Effective yield"
for the Prime Reserve Subaccount is calculated in a manner similar to that
used to calculate yield but reflects the compounding effect of earnings.
For the other Subaccounts, quotations of yield will be based on all
investment income per Accumulation Unit earned during a given 30-day period,
less expenses accrued during the period ("net investment income"), and will
be computed by dividing net investment income by the value of an
Accumulation Unit on the last day of the period. Quotations of average
annual total return for any Subaccount will be expressed in terms of the
average annual compounded rate of return on a hypothetical investment in a
Contract over a period of 1, 5, and 10 years (or, if less, up to the life of
the Subaccount), and will reflect the deduction of the mortality and expense
risk charge and may simultaneously be shown for other periods. Where the
Portfolio in which a Subaccount invests was established prior to inception
of the Subaccount, quotations of total return may include quotations for
periods beginning prior to the Subaccount's date of inception. Such
quotations of total return are based upon the performance of the
Subaccount's corresponding Portfolio adjusted to reflect deduction of the
mortality and expense risk charge.
Performance information for any Subaccount reflects only the performance of
a hypothetical Contract under which Account Value is allocated to a
Subaccount during a particular time period on which the calculations are
based. Performance information should be considered in light of the
investment objectives and policies, characteristics, and quality of the
Portfolio in which the Subaccount invests, and the market conditions during
the given time period, and should not be considered as a representation of
what may be achieved in the future. For a description of the methods used to
determine yield and total return for the Subaccounts and the usage of other
performance related information, see the Statement of Additional
Information.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT
A Registration Statement under the 1933 Act has been filed with the SEC
relating to the offering described in this Prospectus. This Prospectus has
been filed as a part of the Registration Statement and does not contain all
of the information set forth in the Registration Statement and exhibits
thereto, and reference is made to such Registration Statement and exhibits
for further information relating to the Company and the Contract. Statements
contained in this Prospectus, as to the content of the Contract and other
legal instruments, are summaries. For a complete statement of the terms
thereof, reference is made to the instruments filed as exhibits to the
Registration Statement. The Registration Statement and the exhibits thereto
may be inspected and copied at the SEC's office, located at 450 Fifth
Street, N.W., Washington, D.C.
FINANCIAL STATEMENTS
The consolidated financial statements of Security Benefit Life Insurance
Company and Subsidiaries at December 31, 1999 and 1998, and for each of the
three years in the period ended December 31, 1999, and the financial
statements of the Separate Account at December 31, 1999, and for each of the
two years in the period ended December 31, 1999, are included in the
Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to the Company and the Separate Account.
The Table of Contents of the Statement of Additional Information is set
forth below.
TABLE OF CONTENTS
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General Information and History 3
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Distribution of the Contract 3
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Limits on Premiums Paid Under Tax-Qualified Retirement Plans 3
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Experts 4
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Performance Information 4
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Financial Statements 6
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<PAGE>
IRA DISCLOSURE STATEMENT
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This Disclosure Statement describes the statutory and regulatory provisions
applicable to the operation of Individual Retirement Annuities. Internal
Revenue Service regulations require that this be given to each person
desiring to establish an Individual Retirement Annuity. Further information
can be obtained from any district office of the Internal Revenue Service.
RIGHT TO REVOKE
You may revoke your Individual Retirement Annuity within seven days of the
date your first Purchase Payment is received by Security Benefit Life
Insurance Company. To revoke your Individual Retirement Annuity and receive
a refund of the entire amount you paid, you must mail or deliver a written
notice of revocation, signed exactly as your signature appears on your
variable annuity application to: T. Rowe Price Variable Annuity Service
Center, P.O. Box 750440, Topeka, KS 66675-0440, 1-800-888-2461.
If you send your revocation notice by First Class Mail, we will consider
that you have notified us as of the date of the postmark on the envelope. If
you send it by Certified or Registered Mail, you will have notified us as of
the certification or registration date on the label. In either case, the
revocation notice must be properly addressed and mailed, with postage
prepaid. Upon receipt of a timely revocation notice, the entire amount of
your contribution will be returned to you without adjustment for sales
commissions, administrative fees, or market value fluctuation.
WHAT ARE THE STATUTORY REQUIREMENTS?
An Individual Retirement Annuity contract must meet the following
requirements:
1. The amount in your Individual Retirement Annuity must be fully vested at
all times.
2. The contract must provide that you cannot transfer it to someone else.
3. The contract must have flexible premiums.
4. You must start receiving distributions by April 1 of the year following
the year in which you reach age 70 1/2 (see "Required Minimum
Distributions").
5. The contract must provide that you cannot contribute more than $2,000
for any year. (This requirement does not apply to rollovers. See
"Rollovers and Direct Transfers.")
6. The contract must provide that any refund of premium will be applied
before the close of the calendar year following the year of refund
toward the payment of future premiums or the purchase of additional
benefits.
The Individual Retirement Annuity contract contains the provisions described
above. The contract has not, however, been approved as to form by the
Internal Revenue Service.
ROLLOVERS AND DIRECT TRANSFERS
1. A rollover is a tax-free transfer of cash or other assets from one
retirement program to another. There are two kinds of rollover payments.
In one, you transfer amounts from one Individual Retirement Annuity or
Individual Retirement Account (collectively referred to herein as an
"IRA") to another. With the other, you transfer amounts from a qualified
employee benefit plan or tax-sheltered annuity to an IRA. While you may
make rollover contributions to the Individual Retirement Annuity, you
cannot deduct them on your tax return.
2. You must complete a tax-free rollover by the 60th day after the date you
receive the distribution from your IRA or other qualified employee
benefit plan.
3. A rollover distribution from an IRA may be made to you only once a year.
The one-year period begins on the date you receive the IRA distribution,
not on the date you roll it over (reinvest it) into another IRA.
4. A direct transfer of funds in an IRA from one trustee or insurance
company to another is not a rollover. It is a transfer that is not
affected by the one-year waiting period.
5. All or part of the premium for the contract may be paid from an IRA
rollover, qualified pension or profit-sharing plan or tax-sheltered
annuity rollover, or from a direct transfer from another IRA. The
proceeds from this contract may be used as a rollover contribution to
another IRA.
ALLOWANCE OF DEDUCTION
1. In general, the amount you can contribute each year to the Annuity
contract is the lesser of $2,000 or your taxable compensation for the
year. If you have more than one IRA, the limit applies to the total
contributions made to your IRAs for the year. Wages, salaries, tips,
professional fees, bonuses, and other amounts you receive for providing
personal services are compensation. If you own and operate your own
business as a sole proprietor, your net earnings reduced by your
deductible contributions on your behalf to self-employed retirement
plans is compensation. If you are an active partner in a partnership and
provide services to the partnership, your share of partnership income
reduced by deductible contributions made on your behalf to qualified
retirement plans is compensation. All taxable alimony and separate
maintenance payments received under a decree of divorce or separate
maintenance are compensation.
2. Generally, if you are not covered by a qualified retirement plan, the
amount you can deduct in a year for contributions to your IRA is the
lesser of $2,000 or your taxable compensation for the year. However, if
you are not covered by a qualified retirement plan, but your spouse is,
the amount you may deduct for IRA contributions will be phased out if
your joint adjusted gross income ("AGI") is between $150,000 and
$160,000.
3. If you are covered by a qualified retirement plan, the amount of IRA
contributions you may deduct in a year may be reduced or eliminated
based on your AGI for the year. The AGI level at which a single
taxpayer's deduction for 1999 is affected, $31,000, will increase
annually to $50,000 in 2005. The AGI level at which a married taxpayer's
deduction for 1999 is affected, $51,000, will increase annually to
$80,000 in 2007.
4. Contributions to your IRA can be made at any time. If you make a
contribution between January 1 and April 15, however, you may elect to
treat the contribution as made either in that year or in the preceding
year. You may file a tax return claiming a deduction for your IRA
contribution before the contribution is actually made. You must,
however, make the contribution by the due date of your return not
including extensions.
5. You cannot make a contribution other than a rollover contribution to
your IRA for the year in which you reach age 70 1/2 or thereafter.
6. If both you and your spouse have compensation, you can each set up your
own IRA. The contribution for each of you is figured separately and
depends on how much each earns. Both of you cannot participate in the
same IRA account or contract.
7. If you and your spouse file a joint federal income tax return, each of
you may contribute up to $2,000 to your own IRA annually if your joint
income is $4,000 or more. The maximum amount the higher compensated
spouse may contribute for the year is the lesser of $2,000 or 100% of
that spouse's compensation. The maximum the lower-compensated spouse may
contribute is the lesser of (i) $2,000 or (ii) 100% of that spouse's
compensation plus the amount by which the higher compensated spouse's
compensation exceeds the amount the higher compensated spouse
contributes to his or her IRA.
SEP-IRAS
If you are participating in a Simplified Employee Pension Plan (SEP), the
contributions made by your employer into your IRA after 1986 are excluded
from your income. If the SEP contains a salary reduction arrangement, you
may elect to reduce your salary by up to the lesser of 15% of compensation
or $9,500 (indexed annually) and have that amount contributed to your
SEP-IRA. The maximum SEP contributions, including salary reduction amounts
and employer contributions to your account in any year is generally limited
to the lesser of $30,000 (indexed) or 15% of your total compensation from
such employer for that year. Employers that have established salary
reduction SEPs before 1997 may continue to maintain and contribute to them.
However, no new salary reduction SEPs may be established after 1996.
Instead, eligible employers may establish SIMPLE IRA programs for years
after 1996, which permit salary reduction contributions. This IRA may not be
used in connection with a SIMPLE plan.
If an IRA is being used in connection with a SEP, contributions must bear a
uniform relationship to the total compensation (not in excess of the first
$160,000 indexed) of each employee participating under the SEP. If you are a
participant in a SEP, you will be considered to be an active participant in
an employee pension plan for purposes of your deductible contribution limits
for your IRA (see "Allowance of Deduction" section). For further information
concerning participation and contributions, please refer to IRS Form
5305-SEP (which must be completed and executed by your employer in order to
establish a SEP).
TAX STATUS OF THE CONTRACT AND DISTRIBUTIONS
1. Earnings of your Individual Retirement Annuity contract are not taxed
until they are distributed to you.
2. In general, taxable distributions are included in your gross income in
the year you receive them.
3. Distributions are non-taxable to the extent they represent a return of
non-deductible contributions. The non-taxable percentage of a
distribution is determined by dividing your total undistributed,
non-deductible IRA contributions by the value of all your IRAs
(including SEPs and rollovers).
4. You cannot choose the special five-year or ten-year averaging that may
apply to lump sum distributions from qualified employer plans.
Amounts held in IRAs are generally subject to the imposition of federal
estate taxes. In addition, if you elect to have all or any part of your
account payable to a beneficiary (or beneficiaries) upon your death, the
election generally will not subject you to any gift tax liability.
REQUIRED MINIMUM DISTRIBUTIONS
You must start receiving minimum distributions from your Individual
Retirement Annuity starting with the year you reach age 70 1/2 . Ordinarily,
the required minimum distribution for a particular year must be received by
December 31 of that year. However, you may delay the required minimum
distribution for the year you reach age 70 1/2 until April 1 of the
following year (your "required beginning date").
Figure your required minimum distribution for each year by dividing the
value of your Individual Retirement Annuity on December 31 of the preceding
year by the applicable life expectancy. The applicable life expectancy is
your remaining life expectancy or the remaining joint life and last survivor
expectancy of you and your designated beneficiary. If a designated
beneficiary is more than 10 years younger than you, that beneficiary is
assumed to be exactly 10 years younger. Life expectancies are determined
using the expected return multiple tables shown in IRS Publication 590
"Individual Retirement Arrangements." To obtain a free copy of IRS
Publication 590 and other IRA forms, write the IRS Forms Distribution Center
for your area as shown in your income tax return instructions.
Annuity payments which begin by April 1 of the year following the year you
reach age 70 1/2 satisfy the minimum distribution requirement if they
provide for non-increasing payments over your life or the lives of you and
your spouse, provided that, if installments are guaranteed, the maximum
guaranty period may be less than the applicable life expectancy.
If you have more than one IRA, you must determine the required minimum
distribution separately for each IRA; however, you can take the actual
distribution of these amounts from any one or more of your IRAs.
If the actual distribution from your IRA is less than the minimum amount
that should be distributed in accordance with the rules set forth above, the
difference is an excess accumulation. There is a 50% excise tax on any
excess accumulations.
If you die after your required beginning date, your entire remaining account
balance must be distributed to your designated beneficiary at least as
rapidly as under the method of distribution in effect on your date of death.
If you die before your required beginning date, the general rule is that
your entire balance must be distributed within five (5) years of your death.
However, if the balance of your IRA account is payable to your designated
beneficiary, your designated beneficiary may elect that the amount be paid
in substantially equal installments over a fixed period not exceeding the
designated beneficiary's life expectancy, beginning no later than December
31 of the year following the year in which you died. If your spouse is your
designated beneficiary, such distribution need not commence until December
31 of the year during which you would have attained 70 1/2 had you survived.
Alternatively, if your designated beneficiary is your spouse, he or she may
elect to treat your IRA as his or her own IRA.
WHAT HAPPENS IF EXCESS CONTRIBUTIONS ARE MADE TO MY INDIVIDUAL RETIREMENT
ANNUITY?
1. You must pay a 6% excise tax each year on excess contributions that
remain in your Individual Retirement Annuity. Generally, an excess
contribution is the amount contributed to your Individual Retirement
Annuity that is above the maximum amount you can contribute for the
year. The excess is taxed in the year contributed and each year after
that until you correct it.
2. You will not have to pay the 6% excise tax if you withdraw the excess
amount by the date your tax return is due, including extensions, for the
year of the contribution. You do not have to include in your gross
income an excess contribution that you withdraw from your Individual
Retirement Annuity before your tax return is due if the income earned on
the excess was also withdrawn and no deduction was allowed for the
excess contribution.
ARE THERE ANY PENALTIES FOR PREMATURE DISTRIBUTIONS?
There is an additional tax on premature distributions equal to 10% of the
amount of the premature distribution that you must include in your gross
income. Premature distributions are generally amounts you withdraw from your
IRA before you are age 59 1/2. However, the tax on premature distributions
does not apply:
1. To distributions that are rolled over tax free to another IRA, a
qualified employee benefit plan, or a tax-sheltered annuity.
2. To a series of substantially equal periodic payments made over your life
or life expectancy, or the joint life or life expectancy of you and your
beneficiary.
3. To amounts distributed to a beneficiary, or the individual's estate, on
or after the death of the individual.
4. If you are permanently disabled. You are considered disabled if you
cannot do any substantial gainful activity because of your physical or
mental condition. A physician must determine that the condition has
lasted or can be expected to last continuously for 12 months or more or
that the condition can be expected to lead to death.
5. To a distribution which does not exceed the amount of your medical
expenses that could be deducted for the year (generally speaking,
medical expenses paid during a year are deductible to the extent they
exceed 7 1/2% of your adjusted gross income for the year).
6. To a distribution (subject to certain restrictions) that does not exceed
the premiums you paid for health insurance coverage for yourself, your
spouse, and dependents if you have been unemployed and received
unemployment compensation for at least 12 weeks.
7. To a "qualified first-time homebuyer distribution," within the meaning
of Code 72(t)(8), up to a $10,000 lifetime limit.
8. To a distribution for post-secondary education costs for you, your
spouse, or any child or grandchild of you or your spouse (i.e.,
"qualified higher education expenses").
IRA EXCISE TAX REPORTING
Use Form 5329, Return for Individual Retirement Arrangement Taxes, to report
the excise taxes on excess contributions, premature distributions, and
excess accumulations. If you do not owe any IRA excise taxes, you do not
need Form 5329. Further information can be obtained from any district office
of the Internal Revenue Service.
BORROWING
If you borrow money under your Individual Retirement Annuity contract or use
it as security for a loan, you must include in gross income the fair market
value of the Individual Retirement Annuity contract as of the first day of
your tax year, and the penalty tax on premature distributions may apply.
(Note: This contract does not allow borrowings under it, nor may it be
assigned or pledged as collateral for a loan.)
FINANCIAL INFORMATION
Contributions to your Individual Retirement Annuity contract are not subject
to sales charges. A mortality and expense risk charge of 0.55% on an annual
basis is deducted as described in the attached variable annuity prospectus.
(This charge is not deducted with respect to contract value allocated to the
fixed interest account option.) See the accompanying prospectus for the
underlying mutual funds for information about the charges associated with
the funds. Contractowners who allocate contract value to the Subaccounts
bear a pro rata share of the fees and expenses of the underlying funds. The
growth in value of the Individual Retirement Annuity contract is neither
guaranteed, nor projected, but is based upon the investment experience of
the underlying mutual fund portfolios that correspond to the Subaccounts to
which you have allocated contract value.
<PAGE>
ROTH INDIVIDUAL RETIREMENT ANNUITY DISCLOSURE STATEMENT
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This Disclosure Statement describes the statutory and regulatory provisions
applicable to the operation of Roth IRAs. Internal Revenue Service
regulations require that this be given to each person desiring to establish
a Roth IRA. Further information can be obtained from any district office of
the Internal Revenue Service.
YOUR RIGHT TO REVOKE
You may revoke your Roth IRA within seven days of the date your first
purchase payment is received by Security Benefit Life Insurance Company. To
revoke your Roth IRA and receive a refund of the entire amount you paid, you
must mail or deliver a written notice of revocation, signed exactly as your
signature appears on your variable annuity application, to: T. Rowe Price
Variable Annuity Service Center, P.O. Box 750440, Topeka, KS 66675-0440,
1-800-888-2461.
If you send your revocation notice by First Class Mail, we will consider
that you have notified us as of the date of the postmark on the envelope. If
you send it by Certified or Registered Mail, you will have notified us as of
the certification or registration date on the label. In either case, the
revocation notice must be properly addressed and mailed, with postage
prepaid. Upon receipt of a timely revocation notice, the entire amount of
your contribution will be returned to you without adjustment for sales
commissions, administrative fees or market value fluctuation.
WHAT ARE THE REQUIREMENTS?
A Roth IRA contract must meet the following requirements:
1. The amount in your Roth IRA must be fully vested at all times.
2. The contract must provide that you cannot transfer it to someone else.
3. The contract must have flexible premiums.
4. If you die before your entire interest in the contract has been
distributed, your beneficiary may need to receive distributions within a
specified time frame (see "Required Minimum Distributions" below).
5. The contract must provide that you cannot contribute more than $2,000
for any year. This requirement does not apply to qualified rollover
contributions. (See "Rollovers and Direct Transfers" below).
6. The contract must provide that any refund of premium will be applied
before the close of the calendar year following the year of refund
toward the payment of future premiums or the purchase of additional
benefits.
The Roth IRA contract contains the provisions described above. The contract
has not, however, been approved as to form by the Internal Revenue Service.
ROLLOVERS AND DIRECT TRANSFERS
1. You may make a qualified rollover contribution to this contract from
another Roth IRA or from a traditional IRA, and such a contribution will
not count toward the annual limit on contributions to the contract. You
may make a qualified rollover contribution from a traditional IRA only
if your modified adjusted gross income for the year in which the
rollover will occur is $100,000 or less, and if you are married, you and
your spouse have joint income of $100,000 or less and you file a joint
income tax return for the year in which the rollover occurs. You and
your spouse will not be subject to the requirements for married
individuals if you have lived apart for the entire year of contribution.
2. The amount distributed from your traditional IRA and rolled over will be
subject to federal income taxes, except to the extent such amounts
relate to nondeductible contributions. However, if the distribution was
made before 1999, the amount to be included in your taxable income would
be evenly divided over a four-year period. If you die before the end of
the four-year period, the amount that was not included at the time of
your death in your income because you elected to divide your income over
a four-year period must be included in your final return, unless your
spouse is the sole beneficiary of all your Roth IRAs. If your spouse is
the sole beneficiary of all your Roth IRAs, he or she will continue to
include the amounts converted from your traditional IRA over the
four-year period. If you become divorced during the four-year period, or
you are married and file a separate income tax return during the
four-year period, you must continue to recognize income over the
four-year period.
3. You must complete a qualified rollover contribution by the 60th day
after the date you receive the distribution from your IRA.
4. A direct transfer of funds in a Roth IRA or a traditional IRA from one
trustee or insurance company to this Roth IRA does not constitute a
rollover.
5. You may make a direct transfer of funds in a traditional IRA to this
Roth IRA.
6. You may not make a rollover contribution from a qualified pension or
profit-sharing plan or tax-sheltered annuity to this Roth IRA. A
distribution from this Roth IRA may be used as a rollover contribution
to another Roth IRA. You may not transfer a Roth IRA to a traditional
IRA.
7. You may not rollover minimum required distributions from your
traditional IRA into this Roth IRA.
8. A rollover contribution from one IRA to another IRA, other than a
qualified rollover contribution from a traditional IRA to a Roth IRA,
may be made only once a year. The one-year period begins on the date you
receive the distribution from the first IRA, not on the date you roll it
over (reinvest it) into another IRA. A conversion from a traditional IRA
to a Roth IRA is not treated as a rollover for purposes of the one-year
rule.
AMOUNT OF ANNUAL CONTRIBUTION
1. In general, the amount you can contribute each year to the contract is
the lesser of $2,000 or your taxable compensation for the year. If you
have more than one IRA (either a Roth IRA or a traditional IRA), the
limit applies to the total contributions made to your IRAs for the year.
Wages, salaries, tips, professional fees, bonuses and other amounts you
receive for providing personal services are compensation. If you own and
operate your own business as a sole proprietor, your net earnings
reduced by your deductible contributions on your behalf to self-employed
retirement plans is compensation. If you are an active partner in a
partnership and provide services to the partnership, your share of
partnership income reduced by deductible contributions made on your
behalf to qualified retirement plans is compensation. All taxable
alimony and separate maintenance payments received under a decree of
divorce or separate maintenance are compensation.
2. No amount you contribute to the contract will be deductible for federal
income tax purposes.
3. Contributions to your Roth IRA can be made at any time. If you make a
contribution between January 1 and April 15, however, you may elect to
treat the contribution as made either in that year or in the preceding
year.
4. If both you and your spouse have compensation you can each set up your
own Roth IRA. The contribution for each of you is figured separately and
depends on how much each earns. Both of you cannot participate in the
same Roth IRA or contract.
5. If you and your spouse file a joint federal income tax return, each of
you may contribute up to $2,000 to your own Roth IRA annually if your
joint income is $4,000 or more. The maximum amount the higher
compensated spouse may contribute for the year is the lesser of $2,000
or 100% of that spouse's compensation. The maximum the lower compensated
spouse may contribute is the lesser of (i) $2,000 or (ii) 100% of that
spouse's compensation plus the amount by which the higher compensated
spouse's compensation exceeds the amount the higher compensated spouse
contributes to his or her Roth IRA.
6. Your maximum annual contribution amount shall be phased-out if you are
single and have an adjusted gross income between $95,000 and $110,000,
or if you are married and you and your spouse have a combined adjusted
gross income between $150,000 and $160,000 in accordance with Section
ss.408A(c)(3) of the Internal Revenue Code (the "Code").
TAX STATUS OF DISTRIBUTIONS
1. Since your contributions to the contract will be made with after-tax
dollars, when your contributions are distributed to you they will not be
subject to federal income tax. Distributions from the contract will be
considered as coming first from your contributions and then from the
earnings on your contributions. You will owe no federal income tax when
earnings on your contributions are distributed to you, provided they are
distributed in a "qualified distribution."
2. "Qualified distributions" from the contract will not be subject to
federal income tax or the additional 10% early withdrawal tax. To be
qualified, a distribution must:
(a) occur after the five-year period beginning on the first day of the
year you made your initial contribution to the contract, and
(b) must be:
(1) made on or after the date on which you attain age 59 1/2;
(2) made to a beneficiary (or your estate) on or after your death;
(3) attributable to your being disabled; or
(4) a distribution to pay for "qualified first-time homebuyer
expenses" under Code Section 72(t)(8) up to $10,000.
3. You will owe federal income tax, and perhaps an additional 10% early
withdrawal tax, as a result of obtaining a "nonqualified distribution."
A nonqualified distribution is subject to federal income tax and the
early withdrawal tax to the extent that the sum of the distribution PLUS
all other distributions from the Roth IRA (whether qualified or
nonqualified) MINUS the amount of your previous distributions that were
taxable EXCEEDS your contribution to all of your Roth IRAs.
4. Your surviving spouse will be treated as the owner of your Roth IRA for
purposes of determining whether a distribution is a "nonqualified
distribution." This means that a distribution to your surviving spouse
from your Roth IRA will be satisfied only if the above requirements are
satisfied with respect to your surviving spouse. However, the period
during which you held the Roth IRA prior to your death will be taken
into account for purposes of determining whether your spouse has
satisfied the five-year requirement in 2(a) above.
5. Amounts held in Roth IRAs are generally subject to the imposition of
federal estate taxes. If you elect to have all or any part of your
account payable to a beneficiary (or beneficiaries) upon your death, the
election generally will not subject you to any gift tax liability.
6. Taxable distributions from a Roth IRA are not eligible for special
five-year or ten-year averaging that may apply to lump sum distributions
from qualified employer retirement plans.
7. Distributions that are rolled over as a qualified rollover contribution
to another Roth IRA will be treated as a "qualified distribution."
8. Substantially equal periodic payments from a Roth IRA that was formerly
a traditional IRA from which you were receiving substantially equal
periodic payments will be treated as nonqualified distributions.
However, such distributions will not be subject to the 10% penalty on
premature distributions (see below).
REQUIRED MINIMUM DISTRIBUTIONS
1. You are not required to receive required minimum distributions from your
Roth IRA during your lifetime.
2. If you die before the entire balance in your Roth IRA has been
distributed, the general rule is that the entire balance must be
distributed within five (5) years of your death. However, if the balance
in your Roth IRA account is payable to your designated beneficiary, you
may elect or your designated beneficiary may elect that the amount be
paid in substantially equal installments over a fixed period not
exceeding the designated beneficiary's life expectancy, beginning no
later than December 31 of the year following the year in which you died.
If your spouse is the sole designated beneficiary of your Roth IRA on
your date of death, these rules do not apply and the Roth IRA will be
treated as your spouse's IRA, and no distributions from the Roth IRA to
your spouse will be required during your spouse's lifetime.
3. Life expectancies are determined using the expected return multiple
tables shown in IRS Publication 590 "Individual Retirement
Arrangements." To obtain a free copy of IRS Publication 590, write the
IRS Forms Distribution Center for your area as shown in your income tax
return instructions.
4. If the actual distribution from your Roth IRA is less than the minimum
amount that should be distributed in accordance with the rules set forth
above, the difference is subject to a 50% excise tax.
WHAT HAPPENS IF EXCESS CONTRIBUTIONS ARE MADE TO MY ROTH IRA?
1. You must pay a 6% excise tax if you make excess contributions to your
Roth IRA. Generally, an excess contribution is the amount contributed to
your Roth IRA that is above the maximum amount you can contribute for
the year.
2. You will not have to pay the 6% excise tax if you withdraw the excess
amount, plus the net income on those excess contributions, by the date
your tax return is due, including extensions, for the year of the
contribution. The net earnings on these excess contributions will be
included in your income for the year in which the contributions were
made.
3. If your excess contributions, plus the net income on those
contributions, are distributed AFTER the due date of your tax return for
the year of contribution, the earnings on those contributions may be
subject to federal income tax and the 10% tax on premature
distributions. However, if you choose to leave the excess contributions
in your Roth IRA after the due date of your income tax return for the
year of contribution, the excess contributions will be treated as deemed
Roth IRA contributions for subsequent years, to the extent you
contribute less than $2,000 for those subsequent years.
ARE THERE ANY PENALTIES FOR PREMATURE DISTRIBUTIONS?
There is an additional tax on premature distributions which are part of a
nonqualified distribution equal to 10% of the amount of the premature
distribution that you must include in your gross income. (See the discussion
above on the "Tax Status of Distributions.") Premature distributions are
generally amounts you withdraw from your Roth IRA before you are age 59 1/2.
Distributions to your surviving spouse will be treated as premature
distributions if your surviving spouse withdraws amounts from your Roth IRA
before he or she is 59 1/2. However, the tax on premature distributions does
not apply:
1. To distributions that constitute qualified rollover contributions to
another Roth IRA.
2. To a series of substantially equal periodic payments made over your life
or life expectancy, or the joint life expectancy of you and your
beneficiary.
3. To amounts distributed to a beneficiary, or your estate, on or after
your death.
4. If you are permanently disabled. You are considered disabled if you
cannot do any substantial gainful activity because of your physical or
mental condition. A physician must determine that the condition has
lasted or can be expected to last continuously for 12 months or more or
the condition can be expected to lead to death.
5. To a distribution which does not exceed the amount of your medical
expenses that could be deducted for the year (generally speaking,
medical expenses paid during a year are deductible to the extent they
exceed 7 1/2% of your adjusted gross income for the year).
6. To a distribution (subject to certain restrictions) that does not exceed
the premiums you paid for health insurance coverage for yourself, your
spouse and dependents if you have been unemployed and received
unemployment compensation for at least 12 weeks.
7. To a "qualified first-time homebuyer distribution," within the meaning
of Code Section 72(t)(8), up to $10,000.
8. To a distribution for post-secondary education costs for you, your
spouse or any child or grandchild of you or your spouse.
IRA EXCISE TAX REPORTING
Use Form 5329, Return for Individual Retirement Arrangement Taxes, to report
the excise taxes on excess contributions and premature distributions. If you
do not owe any excise taxes, you do not need Form 5329. Further information
can be obtained from any district office of the Internal Revenue Service.
TRANSACTIONS WITH YOUR ROTH IRA
If you engage in a so-called prohibited transaction with respect to your
Roth IRA, the IRA will lose its exemption from tax. In this event, you will
be taxed on the fair market value of the contract even if you do not
actually receive a distribution. In addition, if you are less than 59 1/2,
your taxes may be further increased by a penalty tax in an amount equal to
10% of the fair market value of the contract. These prohibited transactions
include borrowing money from your Roth IRA, using your Roth IRA account as
security for a loan or a number of other financial transactions with your
Roth IRA. If you pledge your Roth IRA as security for a loan, then the
amount or portion pledged is considered to be distributed to you and also
must be included in your gross income. (Note: This contract does not allow
borrowings under it, nor may it be assigned or pledged as collateral for a
loan.)
FINANCIAL INFORMATION
Contributions to your Roth IRA contract are not subject to sales charges. A
mortality and expense risk charge of 0.55% on an annual basis is deducted as
described in the attached variable annuity prospectus. (This charge is not
deducted with respect to contract value allocated to the fixed interest
account option.) See the accompanying prospectus for the underlying mutual
funds for information about the charges associated with the funds.
Contractowners who allocate contract value to the Subaccounts bear a pro
rata share of the fees and expenses of the underlying funds. The growth in
value of the Roth IRA contract is neither guaranteed, nor projected, but is
based upon the investment experience of the underlying mutual fund
portfolios that correspond to the Subaccounts to which you have allocated
contract value.
IMPORTANT: The discussion of the tax rules for Roth IRAs in this Disclosure
Statement is based upon the best available information. However, the rules
that apply to Roth IRAs, including those applicable to the conversion and
reconversion of IRAs, are complex and may have consequences that are
specific to your personal tax or financial situation. Therefore, you should
consult your tax advisor for the latest developments and for advice about
how maintaining a Roth IRA will affect your personal tax or financial
situation.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
T. ROWE PRICE NO-LOAD VARIABLE ANNUITY
T. ROWE PRICE NO-LOAD IMMEDIATE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: MAY 1, 2000
- --------------------------------------------------------------------------------
ISSUED BY: MAILING ADDRESS:
Security Benefit T. Rowe Price Variable
Life Insurance Company Annuity Service Center
700 SW Harrison Street P.O. Box 750440
Topeka, Kansas 66636-0001 Topeka, Kansas 66675-0440
1-800-888-2461 1-800-469-6587
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current Prospectus for the T. Rowe Price No-Load
Variable Annuity or the T. Rowe Price No-Load Immediate Variable Annuity dated
May 1, 2000. A copy of the Prospectus may be obtained from the T. Rowe Price
Variable Annuity Service Center by calling 1-800-469-6587 or by writing P.O. Box
750440, Topeka, Kansas 66675-0440.
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
General Information and History 3
----------------------------------------------------------------------------
Distribution of the Contract 3
----------------------------------------------------------------------------
Limits on Premiums Paid Under Tax-Qualified Retirement Plans 3
----------------------------------------------------------------------------
Experts 4
----------------------------------------------------------------------------
Performance Information 4
----------------------------------------------------------------------------
Financial Statements 6
----------------------------------------------------------------------------
<PAGE>
GENERAL INFORMATION AND HISTORY
- --------------------------------------------------------------------------------
For a description of the Individual Flexible Premium Deferred Variable
Annuity Contract or the Single Premium Immediate Variable Annuity (each
referred to herein as the "Contract"), Security Benefit Life Insurance
Company (the "Company"), and the T. Rowe Price Variable Annuity Account (the
"Separate Account"), see the appropriate Prospectus. This Statement of
Additional Information contains information that supplements the information
in the respective Prospectuses. Defined terms used in this Statement of
Additional Information have the same meaning as terms defined in the section
entitled "Definitions" in the Prospectus.
SAFEKEEPING OF ASSETS
The Company is responsible for the safekeeping of the assets of the
Subaccounts. These assets, which consist of shares of the Portfolios of the
Funds in non-certificated form, are held separate and apart from the assets
of the Company's General Account and its other separate accounts.
DISTRIBUTION OF THE CONTRACT
- --------------------------------------------------------------------------------
T. Rowe Price Investment Services, Inc. ("Investment Services"), a Maryland
corporation formed in 1980 as a wholly owned subsidiary of T. Rowe Price
Associates, Inc., is Principal Underwriter of the Contract. Investment
Services is registered as a broker/dealer with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934 and is a member
of the National Association of Securities Dealers, Inc. ("NASD"). The
offering of the Contract is continuous.
Investment Services serves as Principal Underwriter under a Distribution
Agreement with the Company. Investment Services' registered representatives
are required to be authorized under applicable state regulations to make the
Contract available to its customers. Investment Services is not compensated
under its Distribution Agreement with the Company. Investment Services, or
an affiliate thereof, however, may receive compensation for the
administrative services it provides to the Company under other agreements.
LIMITS ON PREMIUMS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS
- --------------------------------------------------------------------------------
SECTION 408
Premiums (other than rollover contributions) paid under a Contract used in
connection with an individual retirement annuity (IRA) that is described in
Section 408 of the Internal Revenue Code are subject to the limits on
contributions to IRAs under Section 219(b) of the Internal Revenue Code.
Under Section 219(b) of the Code, contributions (other than rollover
contributions) to an IRA are limited to the lesser of $2,000 per year or the
Owner's annual earned income. An additional $2,000 may be contributed if the
Owner has a spouse with little or no earned income for the year, provided
distinct accounts are maintained for the Owner and his or her spouse, and no
more than $2,000 is contributed to either account in any one year. The
extent to which an Owner may deduct contributions to an IRA depends on the
type of IRA (Traditional or Roth) and the modified gross income of the Owner
and his or her spouse for the year and whether either participates in
another employer-sponsored retirement plan.
Premiums under a Contract used in connection with a simplified employee
pension plan described in Section 408 of the Internal Revenue Code are
subject to limits under Section 402(h) of the Internal Revenue Code. Section
402(h) currently limits employer contributions and salary reduction
contributions (if permitted) under a simplified employee pension plan to the
lesser of (a) 15% of the compensation of the participant in the Plan, or (b)
$30,000. Salary reduction contributions, if any, are subject to additional
annual limits. Salary reduction simplified employee pensions ("SARSEPs")
have been repealed; however, SARSEPs established prior to January 1, 1997,
may continue to receive contributions.
EXPERTS
- --------------------------------------------------------------------------------
Ernst & Young LLP, independent auditors, perform certain auditing services
for Security Benefit Life Insurance Company and Subsidiaries and the
Separate Account. The consolidated financial statements of Security Benefit
Life Insurance Company and Subsidiaries at December 31, 1999 and 1998, and
for each of the three years in the period ended December 31, 1999, are
contained in this Statement of Additional Information. Financial statements
of the Separate Account as of December 31, 1999, and for the years ended
December 31, 1999 and 1998, are also included in this Statement of
Additional Information. These financial statements have been audited by
Ernst & Young LLP, as set forth in their reports thereon appearing herein
and are included in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Performance information for the Subaccounts of the Separate Account,
including the yield and total return of all Subaccounts, may appear in
advertisements, reports, and promotional literature provided to current or
prospective Owners.
Quotations of yield for the Prime Reserve Subaccount will be based on the
change in the value, exclusive of capital changes, of a hypothetical
investment in a Contract over a particular seven-day period, less a
hypothetical charge reflecting deductions from the Contract during the
period (the "base period") and stated as a percentage of the investment at
the start of the base period (the "base period return"). The base period
return is then annualized by multiplying by 365/7, with the resulting yield
figure carried to at least the nearest one hundredth of one percent. Any
quotations of effective yield for the Prime Reserve Subaccount assume that
all dividends received during an annual period have been reinvested.
Calculation of "effective yield" begins with the same "base period return"
used in the yield calculation, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1
For the seven-day period ended December 31, 1999, the yield of the Prime
Reserve Subaccount was 5.03% and the effective yield of the Subaccount was
5.16%.
Quotations of yield for the Subaccounts, other than the Prime Reserve
Subaccount, will be based on all investment income per Accumulation Unit
earned during a particular 30-day period, less expenses accrued during the
period ("net investment income"), and will be computed by dividing net
investment income by the value of the Accumulation Unit on the last day of
the period, according to the following formula:
YIELD = 2[(a - b + 1)6 - 1]
-----
cd
where a = net investment income earned during the period by the
Portfolio attributable to shares owned by the Subaccount,
b = expenses accrued for the period (net of any reimbursements),
c = the average daily number of Accumulation Units outstanding
during the period that were entitled to receive dividends, and
d = the maximum offering price per Accumulation Unit on the last day
of the period.
For the 30-day period ended December 31, 1999, the yield of the Limited-Term
Bond Subaccount was 5.64%.
Quotations of average annual total return for any Subaccount will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Contract over a period of 1, 5, or 10 years
(or, if less, up to the life of the Subaccount), calculated pursuant to the
following formula: P(1 + T)n = ERV (where P = a hypothetical initial payment
of $1,000, T = the average annual total return, n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period). All total return figures reflect the deduction
of the mortality and expense risk charge. Quotations of total return may
simultaneously be shown for other periods.
Where the Portfolio in which a Subaccount invests was established prior to
inception of the Subaccount, quotations of total return may include
quotations for periods beginning prior to the Subaccount's date of
inception. Such quotations of total return are based upon the performance of
the Subaccount's corresponding Portfolio adjusted to reflect deduction of
the mortality and expense risk charge.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1999
---------------------------------------
FROM DATE OF INCEPTION
SUBACCOUNT ONE-YEAR (APRIL 3, 1995)
- --------------------------------------------------------------------------------
International 32.56% 15.72%
New America Growth 12.10 21.78
Mid-Cap Growth 23.08 20.85*
Equity Income 3.23 17.02
Personal Strategy Balanced 7.76 15.04
Limited-Term Bond 0.32 4.62
- --------------------------------------------------------------------------------
*Average annual total return from Mid-Cap Growth Subaccount's date of
inception, December 31, 1996.
- --------------------------------------------------------------------------------
Performance information for a Subaccount may be compared, in reports and
promotional literature, to (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, the Lehman Brothers Government Corporate Index, the
Morgan Stanley Capital International's EAFE Index, or other indices that
measure performance of a pertinent group of securities so that investors may
compare a Subaccount's results with those of a group of securities widely
regarded by investors as representative of the securities markets in general
or representative of a particular type of security; (ii) other variable
annuity separate accounts, mutual funds, or other investment products
tracked by Lipper Analytical Services, a widely used independent research
firm that ranks mutual funds and other investment companies by overall
performance, investment objectives, and assets, or tracked by The Variable
Annuity Research and Data Service ("VARDS"), an independent service that
monitors and ranks the performance of variable annuity issues by investment
objectives on an industry-wide basis or tracked by Morningstar, Inc., a
widely used independent research firm that rates mutual funds and variable
annuities by overall performance, investment objectives and assets, or
tracked by other services, companies, publications, or persons who rank such
investment companies on overall performance or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment in the Contract. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Performance information for any Subaccount reflects only the performance of
a hypothetical Contract under which an Owner's Account Value is allocated to
a Subaccount during a particular time period on which the calculations are
based. Performance information should be considered in light of the
investment objectives and policies, characteristics and quality of the
Portfolio of the Funds in which the Subaccount invests, and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future.
Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of
variable annuity separate accounts, insurance products funds, or other
investment products tracked by Lipper Analytical Services, Morningstar,
Inc., or by other rating services, companies, publications, or other persons
who rank separate accounts or other investment products on overall
performance or other criteria, (ii) the effect of a tax-deferred compounding
on a Subaccount's investment returns, or returns in general, which may be
illustrated by graphs, charts, or otherwise, and which may include a
comparison, at various points in time, of the return from an investment in a
Contract (or returns in general) on a tax-deferred basis (assuming one or
more tax rates) with the return on a taxable basis, and (iii) personal or
general hypothetical illustrations of accumulation and payout period Account
Values and annuity payments. From time to time information may be provided
in advertising, sales literature and other written material regarding the
appropriateness of the various annuity options as well as their advantages
and disadvantages to contractholders and prospective investors.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Security Benefit Life Insurance
Company and Subsidiaries at December 31, 1999 and 1998, and for each of the
three years in the period ended December 31,1999, and the financial
statements of the Separate Account at December 31, 1999, and for the years
ended December 31, 1999 and 1998, are set forth herein, starting on page 7.
The consolidated financial statements of Security Benefit Life Insurance
Company and Subsidiaries, which are included in this Statement of Additional
Information, should be considered only as bearing on the ability of Security
Benefit Life Insurance Company and Subsidiaries to meet its obligations
under the Contracts. They should not be considered as bearing on the
investment performance of the assets held in the Separate Account.
CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Auditors 7
----------------------------------------------------------------------------
Audited Financial Statements
Balance Sheet 8
----------------------------------------------------------------------------
Statements of Operations and Changes in Net Assets 9
----------------------------------------------------------------------------
Notes to Financial Statements 11
----------------------------------------------------------------------------
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Contract Owners of T. Rowe Price Variable Annuity Account and The Board
of Directors of Security Benefit Life Insurance Company
We have audited the accompanying individual and combined balance sheets of
T. Rowe Price Variable Annuity Account (comprised of the individual series
as indicated therein) as of December 31, 1999, and the related statements of
operations and changes in net assets for each of the two years in the period
then ended. These financial statements are the responsibility of Security
Benefit Life Insurance 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 auditing standards generally
accepted in the United States. 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, 1999, by correspondence with the transfer agent. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the individual and combined financial position of
the individual series of T. Rowe Price Variable Annuity Account at December
31, 1999, and the individual and combined results of their operations and
changes in their net assets for each of the two years in the period then
ended in conformity with accounting principles generally accepted in the
United States.
Ernst & Young LLP
Kansas City, Missouri
February 4, 2000
<PAGE>
T. ROWE PRICE VARIABLE ANNUITY ACCOUNT
BALANCE SHEET
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS -
EXCEPT PER SHARE AND UNIT VALUES)
ASSETS
Investments:
T. Rowe Price Portfolios:
New America Growth Portfolio - 2,023,486 shares at net
asset value of $26.18 per share (cost, $45,054)................. $ 52,974
International Stock Portfolio - 1,642,889 shares at
net asset value of $19.04 per share (cost, $23,241)............. 31,281
Equity Income Portfolio - 3,570,581 shares at net
asset value of $18.73 per share (cost, $67,476) ................ 66,877
Personal Strategy Balanced Portfolio - 1,471,786 shares
at net asset value of $16.00 per share (cost, $23,173) ......... 23,549
Limited-Term Bond Portfolio - 1,869,014 shares at
net asset value of $4.79 per share (cost, $9,339) .............. 8,953
Mid-Cap Growth Portfolio - 1,756,029 shares at net
asset value of $17.46 per share (cost, $24,725) ................ 30,660
Prime Reserve Portfolio - 18,501,741 shares at net
asset value of $1.00 per share (cost, $18,502) ................. 18,502
-------
Combined assets..................................................... $232,796
=======
LIABILITIES AND NET ASSETS
Mortality guarantee payable........... $2
NUMBER UNIT
OF UNITS VALUE AMOUNT
---------------------------------------
Net assets are represented by
(Note 3):
New America Growth Subaccount:
Accumulation units................ 2,069,472 $24.91 $51,552
Annuity reserves.................. 56,976 24.91 1,419 52,971
-------
International Stock Subaccount:
Accumulation units................ 1,556,280 19.83 30,859
Annuity reserves.................. 21,317 19.83 423 31,282
-------
Equity Income Subaccount:
Accumulation units................ 3,159,785 21.07 66,592
Annuity reserves.................. 13,535 21.07 285 66,877
-------
Personal Strategy Balanced
Subaccount:
Accumulation units................ 1,207,707 19.44 23,481
Annuity reserves.................. 3,474 19.44 68 23,549
-------
Limited-Term Bond Subaccount:
Accumulation units................ 718,369 12.28 8,821
Annuity reserves.................. 10,746 12.28 132 8,953
-------
Mid-Cap Growth Subaccount:
Accumulation units................ 1,730,183 17.47 30,221
Annuity reserves.................. 25,112 17.47 439 30,660
-------
Prime Reserve Subaccount:
Accumulation units................ 1,614,807 11.44 18,477
Annuity reserves.................. 2,251 11.44 25 18,502
------------------
Combined net assets................... 232,794
--------
Combined liabilities and net assets... $232,796
========
See accompanying notes.
<PAGE>
T. ROWE PRICE VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
PERSONAL
NEW AMERICA INTERNATIONAL EQUITY STRATEGY
GROWTH STOCK INCOME BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend distributions................................. $ --- $ 112 $ 1,326 $ 706
Expenses (NOTE 2):
Mortality and expense risk fee...................... (277) (136) (389) (130)
-----------------------------------------------------------
Net investment income (loss)........................... (277) (24) 937 576
Capital gain distributions............................. 3,052 354 2,950 1,361
Realized gain (loss) on investments.................... 4,537 1,203 3,804 978
Unrealized appreciation (depreciation) on investments.. (1,476) 6,053 (5,591) (1,146)
-----------------------------------------------------------
Net realized and unrealized gain (loss) on investments. 6,113 7,610 1,163 1,193
-----------------------------------------------------------
Net increase in net assets resulting from operations... 5,836 7,586 2,100 1,769
Net assets at beginning of year........................ 51,590 23,475 70,234 22,714
Variable annuity deposits (NOTES 2 AND 3).............. 9,207 5,823 12,166 4,966
Terminations and withdrawals (NOTES 2 AND 3)........... (13,598) (5,592) (17,507) (5,897)
Annuity payments (NOTES 2 AND 3)....................... (61) (11) (119) (3)
Net mortality guarantee transfer....................... (3) 1 3 ---
-----------------------------------------------------------
Net assets at end of year.............................. $ 52,971 $31,282 $ 66,877 $23,549
===========================================================
</TABLE>
<TABLE>
<CAPTION>
LIMITED- PRIME
TERM BOND MID-CAP GROWTH RESERVE
SUBACCOUNT SUBACCOUNT SUBACCOUNT COMBINED
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend distributions................................. $ 554 $ --- $ 784 $ 3,482
Expenses (NOTE 2):
Mortality and expense risk fee...................... (55) (136) (90) (1,213)
-----------------------------------------------------------
Net investment income (loss)........................... 499 (136) 694 2,269
Capital gain distributions............................. --- 312 --- 8,029
Realized gain (loss) on investments.................... (50) 1,985 --- 12,457
Unrealized appreciation (depreciation) on investments.. (429) 3,383 --- 794
-----------------------------------------------------------
Net realized and unrealized gain (loss) on investments. (479) 5,680 --- 21,280
-----------------------------------------------------------
Net increase in net assets resulting from operations... 20 5,544 694 23,549
Net assets at beginning of year........................ 11,485 21,643 15,024 216,165
Variable annuity deposits (NOTES 2 AND 3).............. 2,385 11,227 16,127 61,901
Terminations and withdrawals (NOTES 2 AND 3)........... (4,936) (7,749) (13,341) (68,620)
Annuity payments (NOTES 2 AND 3)....................... (2) (5) (3) (204)
Net mortality guarantee transfer....................... 1 --- 1 3
-----------------------------------------------------------
Net assets at end of year.............................. $ 8,953 $30,660 $ 18,502 $232,794
===========================================================
</TABLE>
See accompanying notes.
<PAGE>
T. ROWE PRICE VARIABLE ANNUITY ACCOUNT
Statement of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
PERSONAL
NEW AMERICA INTERNATIONAL EQUITY STRATEGY
GROWTH STOCK INCOME BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend distributions................................. $ --- $ 271 $ 1,403 $ 603
Expenses (NOTE 2):
Mortality and expense risk fee...................... (251) (123) (378) (106)
-----------------------------------------------------------
Net investment income (loss)........................... (251) 148 1,025 497
Capital gain distributions............................. 1,019 94 2,162 810
Realized gain on investments........................... 3,409 798 6,302 920
Unrealized appreciation (depreciation) on investments.. 2,861 1,970 (4,068) 206
-----------------------------------------------------------
Net realized and unrealized gain on investments........ 7,289 2,862 4,396 1,936
-----------------------------------------------------------
Net increase in net assets resulting from operations... 7,038 3,010 5,421 2,433
Net assets at beginning of year........................ 39,153 20,472 65,084 15,625
Variable annuity deposits (NOTES 2 AND 3).............. 17,228 5,717 22,321 8,764
Terminations and withdrawals (NOTES 2 AND 3)........... (11,826) (5,720) (22,547) (4,105)
Annuity payments (NOTES 2 AND 3)....................... (2) (4) (42) (3)
Net mortality guarantee transfer....................... (1) --- (3) ---
-----------------------------------------------------------
Net assets at end of year.............................. $ 51,590 $23,475 $ 70,234 $22,714
===========================================================
</TABLE>
<TABLE>
<CAPTION>
LIMITED- PRIME
TERM BOND MID-CAP GROWTH RESERVE
SUBACCOUNT SUBACCOUNT SUBACCOUNT COMBINED
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend distributions................................. $ 500 $ --- $ 651 $ 3,428
Expenses (NOTE 2):
Mortality and expense risk fee...................... (49) (93) (70) (1,070)
-----------------------------------------------------------
Net investment income (loss)........................... 451 (93) 581 2,358
Capital gain distributions............................. 22 311 --- 4,418
Realized gain on investments........................... 92 1,748 --- 13,269
Unrealized appreciation (depreciation) on investments.. (3) 1,129 --- 2,095
-----------------------------------------------------------
Net realized and unrealized gain on investments........ 111 3,188 --- 19,782
-----------------------------------------------------------
Net increase in net assets resulting from operations... 562 3,095 581 22,140
Net assets at beginning of year........................ 7,287 13,009 8,068 168,698
Variable annuity deposits (NOTES 2 AND 3).............. 8,087 13,294 26,964 102,375
Terminations and withdrawals (NOTES 2 AND 3)........... (4,449) (7,755) (20,586) (76,988)
Annuity payments (NOTES 2 AND 3)....................... (2) --- (3) (56)
Net mortality guarantee transfer....................... --- --- --- (4)
-----------------------------------------------------------
Net assets at end of year.............................. $11,485 $21,643 $ 15,024 $216,165
===========================================================
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
T. Rowe Price Variable Annuity Account (the Account) is a separate account
of Security Benefit Life Insurance Company (SBL). The Account is registered
as a unit investment trust under the Investment Company Act of 1940, as
amended. The Account currently is divided into seven subaccounts. Each
subaccount invests exclusively in shares of a single corresponding mutual
fund or series thereof. Purchase payments received by the Account are
invested in one of the portfolios of T. Rowe Price Equity Series, Inc., T.
Rowe Price Fixed Income Series, Inc. or T. Rowe Price International Series,
Inc. mutual funds not otherwise available to the public. As directed by the
owners, purchase payments are invested in shares of New America Growth
Portfolio - emphasis on long-term capital growth through investments
primarily in common stocks of domestic companies, International Stock
Portfolio - emphasis on long-term capital growth through investments
primarily in common stocks of established foreign companies, Equity Income
Portfolio - emphasis on substantial dividend income and capital appreciation
by investing primarily in dividend-paying common stocks, Personal Strategy
Balanced Portfolio - emphasis on both capital appreciation and income,
Limited-Term Bond Portfolio - emphasis on income with moderate price
fluctuation by investing primarily in short- and intermediate-term
investment-grade debt securities, Mid-Cap Growth Portfolio - emphasis on
long-term capital appreciation through investments primarily in common
stocks of medium-sized growth companies and Prime Reserve Portfolio -
emphasis on preservation of capital and liquidity while generating current
income by investing primarily in high-quality money market securities.
T. Rowe Price Associates, Inc. (T. Rowe Price) serves as the investment
advisor to each portfolio except the International Stock Portfolio, which is
managed by Rowe Price-Fleming International, Inc., an affiliate of T. Rowe
Price. The investment advisors are responsible for managing the Portfolio's
assets in accordance with the terms of the investment advisory contracts.
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 for the
years ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------
COST OF PROCEEDS C0ST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
-----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
New America Growth Portfolio................ $13,148 $14,825 $18,940 $12,773
International Stock Portfolio............... 6,787 6,237 6,348 6,113
Equity Income Portfolio..................... 17,827 19,400 26,941 24,022
Personal Strategy Balanced Portfolio........ 7,587 6,584 10,669 4,706
Limited-Term Bond Portfolio................. 3,066 5,119 8,752 4,643
Mid-Cap Growth Portfolio.................... 12,607 8,958 14,083 8,326
Prime Reserve Portfolio..................... 17,623 14,145 28,398 21,442
</TABLE>
ANNUITY RESERVES
Annuity reserves relate to contracts which have matured and are in the
payout stage. Such reserves are computed on the basis of published mortality
tables using assumed interest rates that will provide reserves as prescribed
by law. In cases where the payout option selected is life contingent, SBL
periodically recalculates the required annuity reserves, and any resulting
adjustment is either charged or credited to SBL and not to the Account.
REINVESTMENT OF DIVIDENDS
Dividend and capital gains distributions paid by the mutual fund to the
Account are reinvested in additional shares of each respective portfolio.
Dividend income and capital gains distributions are recorded as income on
the ex-dividend date.
FEDERAL INCOME TAXES
The operations of the Account are a part of the operations of SBL. Under
current law, no federal income taxes are allocated by SBL to the operations
of the Account.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
2. VARIABLE ANNUITY CONTRACT CHARGES
Mortality and expense risks assumed by SBL are compensated for by a fee
equivalent to an annual rate of 0.55% of the average daily net assets of
each account.
When applicable, an amount for state premium taxes is deducted as provided
by pertinent state law either from the purchase payments or from the amount
applied to effect an annuity at the time annuity payments commence.
3. SUMMARY OF UNIT TRANSACTIONS
UNITS
----------------------
YEAR ENDED DECEMBER 31
1999 1998
----------------------
(IN THOUSANDS)
New America Growth Subaccount:
Variable annuity deposits......................... 453 827
Terminations, withdrawals and annuity payments.... 598 587
International Stock Subaccount:
Variable annuity deposits......................... 372 397
Terminations, withdrawals and annuity payments.... 351 404
Equity Income Subaccount:
Variable annuity deposits......................... 569 1,132
Terminations, withdrawals and annuity payments.... 835 1,148
Personal Strategy Balanced Subaccount:
Variable annuity deposits......................... 270 520
Terminations, withdrawals and annuity payments.... 318 245
Limited-Term Bond Subaccount:
Variable annuity deposits......................... 202 667
Terminations, withdrawals and annuity payments.... 400 367
Mid-Cap Growth Subaccount:
Variable annuity deposits......................... 763 1,029
Terminations, withdrawals and annuity payments.... 516 621
Prime Reserve Subaccount:
Variable annuity deposits......................... 1,442 2,510
Terminations, withdrawals and annuity payments.... 1,195 1,910
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Auditors 15
----------------------------------------------------------------------------
Audited Consolidated Financial Statements
Consolidated Balance Sheets 16
----------------------------------------------------------------------------
Consolidated Statements of Income 17
----------------------------------------------------------------------------
Consolidated Statements of Changes in Stockholder's Equity 18
----------------------------------------------------------------------------
Consolidated Statements of Cash Flows 19
----------------------------------------------------------------------------
Notes to Consolidated Financial Statements 21
----------------------------------------------------------------------------
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying consolidated balance sheets of Security
Benefit Life Insurance Company and Subsidiaries (the Company), an indirect
wholly-owned subsidiary of Security Benefit Mutual Holding Company, as of
December 31, 1999 and 1998, and the related consolidated statements of
income, changes in stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Security
Benefit Life Insurance Company and Subsidiaries at December 31, 1999 and
1998, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United
States.
Ernst & Young LLP
Kansas City, Missouri
February 4, 2000
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
1999 1998
-------------------------
(IN THOUSANDS)
ASSETS
Investments:
Securities available-for-sale:
Fixed maturities................................ $2,292,899 $2,142,032
Equity securities............................... 302,613 158,291
Fixed maturities held-to-maturity................. 157,772 264,283
Equity securities, trading........................ 14,925 10,917
Mortgage loans.................................... 23,468 57,400
Real estate....................................... 834 2,875
Policy loans...................................... 91,800 88,385
Cash.............................................. 17,785 28,419
Short-term investments............................ 18,002 ---
Other invested assets............................. 28,139 16,728
-------------------------
Total investments.................................... 2,948,237 2,769,330
Accrued investment income............................ 35,288 31,740
Accounts receivable.................................. 35,175 20,373
Reinsurance recoverable.............................. 413,146 407,891
Property and equipment, net.......................... 9,342 20,869
Deferred policy acquisition costs.................... 227,415 168,483
Other assets......................................... 18,452 17,381
Separate account assets.............................. 5,051,367 4,416,194
-------------------------
$8,738,422 $7,852,261
=========================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy reserves and annuity account values........ $2,958,813 $2,699,894
Policy and contract claims........................ 7,350 9,768
Other policyholder funds.......................... 19,878 20,496
Accounts payable and accrued expenses............. 57,668 47,168
Income taxes payable.............................. 27,812 24,622
Deferred income tax liability..................... 35,828 60,724
Long-term debt and other borrowings............... 55,000 60,000
Other liabilities................................. 17,457 14,276
Separate account liabilities...................... 5,051,367 4,416,194
-------------------------
Total liabilities.................................... 8,231,173 7,353,142
Stockholder's equity:
Common stock, $10 par value; 1,000,000 shares
authorized; 700,010 issued and outstanding...... 7,000 7,000
Accumulated other comprehensive income (loss), net (31,221) 30,100
Retained earnings................................. 531,470 462,019
-------------------------
Total stockholder's equity........................... 507,249 499,119
-------------------------
$8,738,422 $7,852,261
=========================
See accompanying notes to consolidated financial statements.
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Insurance premiums and other considerations........... $ 23,721 $ 24,187 $ 24,640
Net investment income................................. 197,460 174,787 185,629
Asset based fees...................................... 102,643 88,721 72,025
Other product charges................................. 9,156 7,749 9,163
Realized gains ....................................... 10,232 5,414 5,495
Other revenues........................................ 17,965 17,307 21,389
-------------------------------------
Total revenues........................................... 361,177 318,165 318,341
Benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances............... 113,119 94,552 102,640
Benefit claims in excess of account balances........ 2,384 4,662 4,985
Traditional life insurance benefits................... 13,784 12,617 17,472
Supplementary contract payments....................... 7,971 9,694 9,660
Increase (decrease) in traditional life reserves...... (2,286) 1,699 7,050
Other benefits........................................ 15,138 13,227 7,801
-------------------------------------
Total benefits........................................... 150,110 136,451 149,608
Commissions and other operating expenses................. 80,661 65,890 60,796
Amortization of deferred policy acquisition costs........ 27,387 25,447 26,179
Interest expense......................................... 4,765 5,075 5,305
Other expenses........................................... 4,815 3,354 3,381
-------------------------------------
Total benefits and expenses.............................. 267,738 236,217 245,269
-------------------------------------
Income before income taxes............................... 93,439 81,948 73,072
Income taxes............................................. 23,988 22,361 21,567
-------------------------------------
Net income............................................... $ 69,451 $ 59,587 $ 51,505
=====================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON COMPREHENSIVE RETAINED
STOCK INCOME (LOSS) EARNINGS TOTAL
--------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996........... $ --- $ (479) $357,927 $357,448
Comprehensive income:
Net income........................ --- --- 51,505 51,505
Unrealized gains, net............. --- 25,928 --- 25,928
--------
Comprehensive income................ 77,433
--------------------------------------------------
Balance at December 31, 1997........... --- 25,449 409,432 434,881
Common stock issued................. 7,000 --- (7,000) ---
Comprehensive income:
Net income........................ --- --- 59,587 59,587
Unrealized gains, net............. --- 4,651 --- 4,651
--------
Comprehensive income................ 64,238
--------------------------------------------------
Balance at December 31, 1998........... 7,000 30,100 462,019 499,119
Comprehensive income:
Net income........................ --- --- 69,451 69,451
Unrealized losses, net............ --- (61,321) --- (61,321
--------
Comprehensive income................ 8,130
--------------------------------------------------
Balance at December 31, 1999........... $7,000 $(31,221) $531,470 $507,249
==================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................................... $ 69,451 $ 59,587 $ 51,505
Adjustments to reconcile net income to
net cash provided by operating activities:
Annuity and interest sensitive life products:
Interest credited to account balances......................... 113,119 94,552 102,640
Charges for mortality and administration...................... --- (297) (10,582)
Increase (decrease) in traditional life policy reserves......... (2,286) 1,699 (3,101)
(Increase) decrease in accrued investment income................ (3,548) (1,706) 2,127
Policy acquisition costs deferred............................... (41,592) (34,068) (37,999)
Policy acquisition costs amortized.............................. 27,387 25,447 26,179
Accrual of discounts on investments............................. (2,257) (2,708) (2,818)
Amortization of premiums on investments......................... 4,962 8,452 9,138
Depreciation and amortization................................... 4,901 4,441 3,959
Realized gains.................................................. (10,232) (5,414) (5,495)
Other........................................................... (8,775) 16,078 (1,451)
------------------------------------
Net cash provided by operating activities.......................... 151,130 166,063 134,102
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities available-for-sale............................. 349,219 436,773 368,901
Fixed maturities held-to-maturity............................... 107,475 157,729 124,013
Equity securities available-for-sale............................ 60,578 13,293 48,495
Mortgage loans.................................................. 35,239 8,924 3,739
Real estate..................................................... --- --- 946
Separate account assets......................................... --- --- 9,180
Other invested assets........................................... 2,882 2,929 7,865
------------------------------------
555,393 619,648 563,139
Acquisition of investments:
Fixed maturities available-for-sale............................. (653,078) (878,753) (219,736)
Fixed maturities held-to-maturity............................... (964) (1,287) (1,188)
Equity securities, available-for-sale........................... (179,916) (42,641) (67,004)
Net purchases of equity securities, trading..................... (1,879) (520) (1,498)
Mortgage loans.................................................. (1,132) (2,054) (1,447)
Real estate..................................................... (166) (756) (712)
Increase in short-term investments, net......................... (17,994) --- ---
Other invested assets........................................... (12,947) (7,441) (7,518
(868,076) (933,452) (299,103)
------------------------------------
Purchase of property and equipment................................. (2,025) (4,617) (4,144)
Proceeds from sales of property and equipment...................... 20,750 --- ---
Net increase in policy loans....................................... (3,415) (2,627) (8,654)
Net cash transferred per coinsurance agreement..................... --- --- (218,043)
------------------------------------
Net cash provided by (used in) investing activities................ (297,373) (321,048) 33,195
</TABLE>
<PAGE>
SECURITY BENEFIT LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-----------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Repayment of long-term debt and other borrowings................... $ (5,000) $ (5,000) $ ---
Annuity and interest sensitive life products:
Deposits credited to account balances........................... 969,280 475,522 167,517
Withdrawals from account balances............................... (828,671) (318,014) (312,228)
------------------------------------
Net cash provided by (used in) financing activities................ 135,609 152,508 (144,711)
------------------------------------
Increase (decrease) in cash........................................ (10,634) (2,477) 22,586
Cash at beginning of year.......................................... 28,419 30,896 8,310
------------------------------------
Cash at end of year................................................ $ 17,785 $ 28,419 $ 30,896
====================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest........................................................ $ 4,765 $ 5,443 $ 5,307
====================================
Income taxes.................................................... $ 25,019 $ 8,269 $ 27,920
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND ORGANIZATION
The operations of Security Benefit Life Insurance Company (SBL or the
Company) consist primarily of marketing and distributing annuities, mutual
funds, life insurance and related products throughout the United States. The
Company and/or its subsidiaries offer a diversified portfolio of investment
products comprised primarily of individual and group annuities and mutual
fund products through multiple distribution channels. In recent years, the
Company's new business activities increasingly have been concentrated in the
individual flexible premium variable annuity markets.
On July 31, 1998, the Company converted from a mutual life insurance company
to a stock life insurance company under a mutual holding company structure
pursuant to a Plan of Conversion (the Conversion). In connection with the
Conversion, Security Benefit Corp. (SBC), a Kansas domiciled intermediate
stock holding company, and Security Benefit Mutual Holding Company (SBMHC),
a Kansas domiciled mutual holding company, were formed. On the same date,
all of the initial shares of common stock of SBL, except for shares issued
to SBL Directors in accordance with Kansas law, were issued to SBC. In
addition, all of the initially issued shares of common stock of SBC,
consisting of 1,000 shares of Class B common stock, were issued to SBMHC. As
a result of the Conversion, SBMHC indirectly owned, through its ownership of
SBC, all of the issued and outstanding common stock of SBL (except shares
required by law to be held by SBL Directors). In accordance with Kansas law,
SBMHC must at all times hold at least 51% of the voting stock of SBC.
BASIS OF PRESENTATION
The consolidated financial statements include the operations and accounts of
the Company and its subsidiaries, including Security Management Company, LLC
and Security Benefit Group, Inc. (which includes First Security Benefit Life
Insurance and Annuity Company of New York; Security Distributors, Inc.;
Security Benefit Academy, Inc.; and Security Financial Resources, Inc.).
Significant intercompany transactions have been eliminated in consolidation.
PENDING ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivatives embedded
in other contracts, and for hedging activities. SFAS No. 133 requires that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative under SFAS No. 133 depends on
the intended use of the derivative and its hedging designation. The Company
is required to adopt SFAS No. 133 effective January 1, 2001. The Company
does not believe SFAS No. 133 will have a material impact on its results of
operations, liquidity or financial position.
USE OF ESTIMATES
The preparation of consolidated financial statements requires management to
make estimates and assumptions that affect amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
INVESTMENTS
Fixed maturities are classified as either held-to-maturity or
available-for-sale. Fixed maturities are classified as held-to-maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost, adjusted
for amortization of premiums and accrual of discounts. The Company holds
certain equity securities, classified as trading, which are related to
certain deferred compensation liabilities. These securities are stated at
fair value with the change in fair value reported as realized gains or
losses.
Fixed maturities not classified as held-to-maturity and equity securities
not classified as trading are classified as available-for-sale. Securities
available-for-sale are reported in the accompanying consolidated financial
statements at fair value. Any valuation changes resulting from changes in
the fair value of these securities are reflected as a component of
accumulated other comprehensive income or loss. These unrealized gains or
losses in accumulated other comprehensive income or loss are reported, net
of taxes and adjustments to deferred policy acquisition costs. Equity
securities are comprised of common stocks, preferred stocks and mutual
funds.
The amortized cost of fixed maturities is adjusted for amortization of
premiums and accrual of discounts. Premiums and discounts are recognized
over the estimated lives of the assets adjusted for prepayment activity.
Distributions from mutual funds are included in net investment income.
Realized gains and losses on sales of investments are recognized in revenues
on the specific-identification method.
Mortgage loans are reported at amortized cost. Real estate investments are
carried at the lower of depreciated cost or estimated realizable value.
Policy loans are reported at unpaid principal. Investments accounted for by
the equity method include investments in, and advances to, various joint
ventures and partnerships.
The operations of the Company are subject to risk resulting from interest
rate fluctuations to the extent that there is a difference between the
amount of the Company's interest-earning assets and the amount of
interest-bearing liabilities that are prepaid/withdrawn, mature or reprice
in specified periods. The principal objective of the Company's
asset/liability management activities is to provide maximum levels of net
investment income while maintaining acceptable levels of interest rate and
liquidity risk and while facilitating the funding needs of the Company. The
Company periodically may use derivative financial instruments to modify its
interest rate sensitivity to levels deemed to be appropriate based on the
Company's current economic outlook.
Such derivative financial instruments are for purposes other than trading
and are classified as available-for-sale. Accordingly, these instruments are
stated at fair value with the change in fair value reported as a component
of accumulated other comprehensive income.
Cash includes cash on hand, money market mutual funds and other investments
with initial maturities of less than 90 days.
Short-term investments are carried at market value and represent fixed
maturity securities with initial maturities of greater than 90 days but less
than one year.
DEFERRED POLICY ACQUISITION COSTS
To the extent recoverable from future policy revenues and gross profits,
commissions and other policy-issue, underwriting and marketing costs that
are primarily related to the acquisition or renewal of life insurance and
deferred annuity business have been deferred.
Traditional life insurance deferred policy acquisition costs are being
amortized in proportion to premium revenues over the premium-paying period
of the related policies using assumptions consistent with those used in
computing policy benefit reserves.
For interest sensitive life and deferred annuity business, deferred policy
acquisition costs are amortized in proportion to the present value
(discounted at the crediting rate) of expected gross profits from
investment, mortality and expense margins. That amortization is adjusted
retrospectively when estimates of current or future gross profits to be
realized from a group of products are revised. Deferred policy acquisition
costs are adjusted for the impact on estimated gross profits of net
unrealized gains and losses on securities.
PROPERTY AND EQUIPMENT
Property and equipment, including home office real estate, furniture and
fixtures, and data-processing hardware and related systems, are recorded at
cost, less accumulated depreciation. The provision for depreciation of
property and equipment is computed using the straight-line method over the
estimated lives of the related assets. The Company sold its home office
building and furniture and equipment to the state of Kansas on December 22,
1999 under a sale-leaseback agreement, see NOTE 11.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying
balance sheets represent funds that are separately administered for the
benefit of contractholders who bear the investment risk. The separate
account assets and liabilities are carried at fair value. Revenues and
expenses related to separate account assets and liabilities, to the extent
of benefits paid or provided to the separate account contractholders, are
excluded from the amounts reported in the consolidated statements of income.
Investment income and gains or losses arising from separate accounts accrue
directly to the contractholders and, therefore, are not included in
investment earnings in the accompanying statements of income. Revenues to
the Company from the separate accounts consist principally of contract
maintenance charges, administrative fees, and mortality and expense risk
charges.
POLICY RESERVES AND ANNUITY ACCOUNT VALUES
Liabilities for future policy benefits for traditional life products are
computed using a net level-premium method, including assumptions as to
investment yields, mortality and withdrawals, and other assumptions that
approximate expected experience.
Liabilities for future policy benefits for interest sensitive life and
deferred annuity products represent accumulated contract values without
reduction for potential surrender charges and deferred front-end contract
charges that are amortized over the life of the policy. Interest on
accumulated contract values is credited to contracts as earned. Crediting
rates ranged from 3.4% to 12.0% during 1999, from 3.4% to 8.0% during 1998
and from 3.8% to 7.25% during 1997.
INCOME TAXES
Deferred income tax assets and liabilities are determined based on
differences between the financial reporting and income tax bases of assets
and liabilities and are measured using the enacted tax rates and laws.
Deferred income tax expenses or credits reflected in the Company's
statements of income are based on the changes in deferred tax assets or
liabilities from period to period (excluding unrealized gains and losses on
securities available-for-sale).
RECOGNITION OF REVENUES
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these traditional products are
recognized as revenues when due. Revenues from interest sensitive life
insurance products and deferred annuities consist of policy charges for the
cost of insurance, policy administration charges and surrender charges
assessed against contractholder account balances during the period.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturities are based on
quoted market prices if available. For fixed maturities not actively
traded, fair values are estimated using values obtained from independent
pricing services or estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality and
maturity of the investments. The fair values for equity securities are
based on quoted market prices.
Mortgage loans and policy loans: Fair values for mortgage loans and policy
loans are estimated using discounted cash flow analyses based on market
interest rates for similar loans to borrowers with similar credit ratings.
Loans with similar characteristics are aggregated for purposes of the
calculations. The carrying amounts reported in the consolidated balance
sheets approximate their fair values.
Investment-type contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using the assumption
reinsurance method, whereby the amount of statutory profit the assuming
company would realize from the business is calculated. Those amounts are
then discounted at a rate of return commensurate with the rate presently
offered by the Company on similar contracts.
Long-term debt: Fair values for long-term debt are estimated using
discounted cash flow analyses based on current borrowing rates for similar
types of borrowing arrangements.
2. INVESTMENTS
Information as to the amortized cost, gross unrealized gains and losses, and
fair values, determined as set forth in NOTE 1, of the Company's portfolio
of fixed maturities and equity securities available-for-sale and fixed
maturities held-to-maturity at December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............ $ 217,050 $ 95 $ 7,403 $ 209,742
Obligations of states and political
subdivisions......................... 24,094 203 567 23,730
Corporate securities.................... 1,152,870 2,503 66,602 1,088,771
Mortgage-backed securities.............. 806,045 659 32,402 774,302
Asset-backed securities................. 200,258 22 3,926 196,354
-----------------------------------------------------------------
Totals.................................. $2,400,317 $ 3,482 $110,900 $2,292,899
=================================================================
Equity securities....................... $ 265,270 $ 42,998 $ 5,655 $ 302,613
=================================================================
HELD-TO-MATURITY
Obligations of states and political
subdivisions......................... $ 43,747 $ --- $ 1,202 $ 42,545
Corporate securities.................... 79,541 1,053 2,225 78,369
Mortgage-backed securities.............. 28,815 507 13 29,309
Asset-backed securities................. 5,669 --- 30 5,639
-----------------------------------------------------------------
Totals.................................. $ 157,772 $ 1,560 $ 3,470 $ 155,862
=================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............ $ 204,414 $ 5,254 $ 8 $ 209,660
Obligations of states and political
subdivisions......................... 27,583 2,310 --- 29,893
Corporate securities.................... 1,073,925 34,920 10,716 1,098,129
Mortgage-backed securities.............. 628,020 12,530 2,550 638,000
Asset-backed securities................. 166,144 2,113 1,907 166,350
-----------------------------------------------------------------
Totals.................................. $2,100,086 $57,127 $15,181 $2,142,032
=================================================================
Equity securities....................... $ 140,999 $18,271 $ 979 $ 158,291
=================================================================
HELD-TO-MATURITY
Obligations of states and political
subdivisions......................... $ 61,473 $ 3,196 $ --- $ 64,669
Corporate securities.................... 93,413 7,718 360 100,771
Mortgage-backed securities.............. 96,987 1,640 --- 98,627
Asset-backed securities................. 12,410 289 --- 12,699
-----------------------------------------------------------------
Totals.................................. $ 264,283 $12,843 $ 360 $ 276,766
=================================================================
</TABLE>
The following amounts were included in accumulated other comprehensive
income (loss) for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during the year.... $(119,081) $12,700 $ 62,404
Less realized gains included in net income................... 10,232 5,414 5,495
--------------------------------------------
Other comprehensive income (loss), before deferred taxes
and the unlocking of deferred policy acquisition costs.... (129,313) 7,286 56,909
Deferred income taxes, net of valuation allowance............ 23,069 (3,553) (15,113)
Unlocking of deferred policy acquisition costs............... 44,923 918 (15,868)
--------------------------------------------
Other comprehensive income (loss), net....................... $ (61,321) $ 4,651 $ 25,928
============================================
</TABLE>
The change in net unrealized holding gains on trading securities, which are
included in realized gains, was $2,172,000, $1,153,000 and $566,000 for
1999, 1998 and 1997, respectively.
The Company holds $74,356,000 of common stock of the Federal Home Loan Bank
of Topeka (FHLB), which is in excess of 10% of stockholder's equity of
December 31, 1999.
The amortized cost and fair value of fixed maturities at December 31, 1999,
by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
-----------------------------------------------------------------
AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less................. $ 11,111 $ 11,128 $ 136 $ 139
Due after one year through five years... 246,132 239,030 18,430 18,544
Due after five years through 10 years... 619,779 587,670 43,946 42,617
Due after 10 years...................... 516,992 484,415 60,776 59,614
Mortgage-backed securities.............. 806,045 774,302 28,815 29,309
Asset-backed securities................. 200,258 196,354 5,669 5,639
-----------------------------------------------------------------
$2,400,317 $2,292,899 $157,772 $155,862
=================================================================
</TABLE>
The composition of the Company's portfolio of fixed maturities by quality
rating at December 31, 1999 is as follows:
QUALITY RATING CARRYING AMOUNT %
-----------------------------------------------------------------------
(IN THOUSANDS)
AAA.................................... $1,069,041 43.6%
AA..................................... 369,204 15.1
A...................................... 411,220 16.8
BBB.................................... 397,162 16.2
Noninvestment grade.................... 204,044 8.3
-----------------------
$2,450,671 100.0%
=======================
Major categories of net investment income for the years ended December 31,
1999, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest on fixed maturities............................ $175,938 $154,529 $167,646
Dividends and distributions on equity securities........ 12,434 11,684 8,012
Interest on mortgage loans.............................. 4,502 5,388 6,017
Interest on policy loans................................ 5,510 5,381 6,282
Interest on short-term investments...................... 2,686 2,377 2,221
Other................................................... 597 865 (166)
-------------------------------------------------
Total investment income................................. 201,667 180,224 190,012
Less investment expenses................................ 4,207 5,437 4,383
-------------------------------------------------
Net investment income................................... $197,460 $174,787 $185,629
=================================================
</TABLE>
Proceeds from sales of fixed maturities and equity securities available-for-sale
and related realized gains and losses, including valuation adjustments, for the
years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
----------------------------------------
(IN THOUSANDS)
Proceeds from sales............ $180,289 $196,849 $333,498
Gross realized gains........... 9,857 9,801 11,889
Gross realized losses.......... 5,674 4,939 6,640
Net realized gains, net of associated amortization of deferred policy
acquisition costs, for the years ended December 31, 1999, 1998 and 1997 consist
of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities........................................ $ (751) $2,976 $ 861
Equity securities....................................... 7,062 3,039 4,954
Gain on sale of home office building
and furniture and equipment.......................... 4,173 --- ---
Other................................................... (56) (105) (320)
-------------------------------------------------
10,428 5,910 5,495
Amortization of deferred policy acquisition costs....... (196) (496) ---
-------------------------------------------------
Net realized gains...................................... $10,232 $5,414 $5,495
=================================================
</TABLE>
There were no outstanding agreements to sell securities at December 31,
1999, 1998 or 1997. The notional amount of certain interest rate exchange
agreements outstanding at December 31, 1999 was $109,000,000. These
agreements have maturities ranging from June 2002 to December 2005. Under
these agreements, the Company receives variable interest rates based on the
three-month LIBOR rate and pays fixed interest rates ranging from 5.54% to
7.5%. Additionally, the Company has an interest rate exchange agreement with
a notional amount of $6,450,000 in which it pays variable interest rates
based on the three-month LIBOR rate paid in British pounds and receives
variable interest rates based on the three-month LIBOR rate in U.S. dollars.
The Company has a portfolio of commercial and residential mortgage loans
outstanding in 14 states. The loans are somewhat geographically concentrated
in the midwestern and southwestern United States with the largest
outstanding balances at December 31, 1999 being in the states of Kansas
(19%), Oklahoma (18%) and Texas (14%).
At December 31, 1999, the Company had approximately $420.9 million in
securities held as collateral in relation to its structured institutional
products.
3. EMPLOYEE BENEFIT PLANS
Substantially all Company employees are covered by a qualified,
noncontributory defined benefit pension plan sponsored by the Company and
certain of its affiliates. Benefits are based on years of service and an
employee's highest average compensation over a period of five consecutive
years during the last 10 years of service. The Company's policy has been to
contribute funds to the plan in amounts required to maintain sufficient plan
assets to provide for accrued benefits. In applying this general policy, the
Company considers, among other factors, the recommendations of its
independent consulting actuaries, the requirements of federal pension law
and the limitations on deductibility imposed by federal income tax law. Plan
assets are invested in public mutual funds with varying investment
objectives which are managed by an affiliated entity.
In addition to the Company's defined benefit pension plan, the Company
provides certain medical and life insurance benefits to full-time employees
who have retired after the age of 55 with five years of service. The plan is
contributory, with retiree contributions adjusted annually, and contains
other cost-sharing features such as deductibles and coinsurance.
Contributions vary based on the employee's years of service earned after age
40. The Company's portion of the costs is frozen after 2002 with all future
cost increases passed on to the retirees. Retirees in the plan prior to July
1, 1993 are covered 100% by the Company.
The following table sets forth the plans' funded status and amounts
recognized in the financial statements at December 31 and for the years then
ended:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-----------------------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Benefit obligation at year end.......... $(12,836) $(13,306) $(4,930) $(4,733)
Fair value of plan assets at year end... 13,990 11,363 --- ---
-----------------------------------------------------------------
Funded status of the plan............... $ 1,154 $ (1,943) $(4,930) $(4,733)
=================================================================
Accrued benefit cost recognized in
the consolidated balance sheets...... $ (286) $ (253) $(5,634) $(5,527)
Net periodic benefit cost............... 999 719 538 474
Benefits paid........................... 389 2,475 284 235
Contributions........................... 966 870 43 34
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate........................... 7.50% 6.75% 7.50% 6.75%
Expected return on plan assets.......... 9.00% 9.00% --- ---
Rate of compensation increase........... 4.50% 4.50% --- ---
</TABLE>
The annual assumed rate of increase in the per capita cost of covered
benefits is 7% for 1999 and 8% for 1998 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, 1999 by $229,000 and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1999 by $67,000.
The Company has a profit-sharing and savings plan for which substantially
all employees are eligible after one year of employment with the Company.
Company contributions to the profit-sharing and savings plan charged to
operations were $2,565,000, $2,171,000 and $2,065,000 for 1999, 1998 and
1997, respectively.
4. REINSURANCE
Principal reinsurance transactions for the years ended December 31, 1999,
1998 and 1997 are summarized as follows:
1999 1998 1997
---------------------------------------
(IN THOUSANDS)
Reinsurance ceded:
Premiums paid............. $47,074 $46,391 $33,872
=======================================
Commissions received...... $ 4,570 $ 5,647 $ 5,173
=======================================
Claim recoveries.......... $25,008 $20,166 $12,136
=======================================
In the accompanying consolidated financial statements, premiums, benefits,
settlement expenses and deferred policy acquisition costs are reported net
of reinsurance ceded; policy liabilities and accruals are reported gross of
reinsurance ceded. The Company remains liable to policyholders if the
reinsurers are unable to meet their contractual obligations under the
applicable reinsurance agreements. To minimize its exposure to significant
losses from reinsurance insolvencies, the Company evaluates the financial
condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities or economic
characteristics of reinsurers. At December 31, 1999 and 1998, the Company
had established receivables totaling $413,146,000 and $407,891,000,
respectively, for reserve credits, reinsurance claims and other receivables
from its reinsurers. Substantially all of these receivables are
collateralized by assets of the reinsurers held in trust. Life insurance in
force ceded at December 31, 1999 and 1998 was $6.8 billion and $7.0 billion,
respectively. The amount of reinsurance assumed is not significant.
In 1997, the Company transferred, through a 100% coinsurance agreement, $318
million in policy reserves and claim liabilities reduced by a ceding
commission of $63 million and other related items. The agreement related to
a block of universal life and traditional life insurance business. The
Company recorded a pretax gain of $14,625,000 which is deferred in other
liabilities and amortized to income over the estimated life of the business
transferred, estimated to be 15 years. Amortization of this deferred gain
amounted to $1,830,000, $1,414,000 and $427,000 during 1999, 1998 and 1997,
respectively.
5. INCOME TAXES
The Company files a life/nonlife consolidated federal income tax return with
SBMHC. The provision for income taxes includes current federal income tax
expense or benefit and deferred income tax expense or benefit due to
temporary differences between the financial reporting and income tax bases
of assets and liabilities. Such differences relate principally to
liabilities for future policy benefits and accumulated contract values,
deferred compensation, deferred policy acquisition costs, postretirement
benefits, deferred selling commissions, depreciation expense and unrealized
gains (losses) on securities available-for-sale.
Income tax expense (benefit) consists of the following for the years ended
December 31, 1999, 1998 and 1997:
1999 1998 1997
----------------------------------------
(IN THOUSANDS)
Current ................... $28,209 $21,931 $32,194
Deferred................... (4,221) 430 (10,627)
----------------------------------------
$23,988 $22,361 $21,567
========================================
The provision for income taxes differs from the amount computed at the
statutory federal income tax rate due primarily to dividends-received
deductions and tax credits.
Net deferred income tax assets or liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-----------------------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Net unrealized loss on securities available-for-sale................. $22,510 $ ---
Future policy benefits............................................... 6,217 5,432
Employee benefits.................................................... 12,916 8,110
Deferred gain on coinsurance agreement............................... 3,887 4,475
Other................................................................ 10,879 11,147
-----------------------
Total deferred income tax assets........................................ 56,409 29,164
Valuation allowance for deferred income tax asset....................... (7,500) ---
-----------------------
Net deferred income tax assets.......................................... 48,909 29,164
Deferred income tax liabilities:
Deferred policy acquisition costs.................................... 73,678 55,540
Net unrealized gain on securities available-for-sale................. --- 20,034
Deferred gain on investments......................................... 7,366 7,772
Other................................................................ 3,693 6,542
-----------------------
Total deferred income tax liabilities................................... 84,737 89,888
-----------------------
Net deferred income tax liability....................................... $35,828 $60,724
=======================
</TABLE>
SFAS No. 109, "Accounting for Income Taxes," requires companies to determine
whether a deferred income tax asset will be realized in future years. The
Company has evaluated the recoverability of its deferred tax assets and
established a $7,500,000 valuation allowance related to the net unrealized
loss on securities available-for-sale.
6. CONDENSED FAIR VALUE INFORMATION
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosures of fair value information about financial instruments,
whether recognized or not recognized in a company's balance sheet, for which
it is practicable to estimate that value. The methods and assumptions used
by the Company to estimate the following fair value disclosures for
financial instruments are set forth in NOTE 1.
SFAS No. 107 excludes certain insurance liabilities and other nonfinancial
instruments from its disclosure requirements. However, the liabilities under
all insurance contracts are taken into consideration in the Company's
overall management of interest rate risk that minimizes exposure to changing
interest rates through the matching of investment maturities with amounts
due under insurance contracts. The fair value amounts presented herein do
not include an amount for the value associated with customer or agent
relationships, the expected interest margin (interest earnings in excess of
interest credited) to be earned in the future on investment-type products or
other intangible items. Accordingly, the aggregate fair value amounts
presented herein do not necessarily represent the underlying value of the
Company; likewise, care should be exercised in deriving conclusions about
the Company's business or financial condition based on the fair value
information presented herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-----------------------------------------------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
-----------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Supplementary contracts
without life contingencies........... $ 25,694 $ 26,008 $ 27,105 $ 27,353
Individual and group annuities.......... 2,509,309 2,305,743 2,147,665 1,940,943
Long-term debt.......................... 55,000 53,600 60,000 69,909
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases various equipment under several operating lease
agreements. Total expense for all operating leases amounted to $1,396,000,
$1,155,000 and $1,018,000 during 1999, 1998 and 1997, respectively. The
Company has aggregate future lease commitments at December 31, 1999 of
$9,196,000 for noncancelable operating leases consisting of $2,595,000 in
2000, $2,565,000 in 2001, $1,523,000 in 2002, $833,000 in 2003 and
$1,680,000 between 2004 and 2006. There are no noncancelable lease
commitments beyond 2006.
In addition, in 2001, under the terms of one of the operating leases, the
Company has the option to renew the lease for another five years, purchase
the asset for approximately $4.7 million or return the asset to the lessor
and pay a termination charge of approximately $3.7 million.
In connection with its investments in certain limited partnerships, the
Company is committed to invest additional capital of $6,900,000 over the
next few years as required by the general partner.
Guaranty fund assessments are levied on the Company by life and health
guaranty associations in most states in which it is licensed to cover losses
of policyholders of insolvent or rehabilitated insurers. At December 31,
1999 and 1998, the Company has reserved $2,182,000 and $2,142,000,
respectively, to cover current and estimated future assessments, net of
related premium tax credits.
8. LONG-TERM DEBT AND OTHER BORROWINGS
The Company has a $213.6 million line-of-credit facility from the FHLB. Any
borrowings in connection with this facility bear interest at 0.1% over the
Federal Funds rate (5.1% at December 31, 1999). No amounts were outstanding
at December 31, 1999 and 1998.
The Company has a $5 million advance from the FHLB due February 28, 2001 at
an interest rate of 6.04%.
The Company has $50 million of 8.75% surplus notes maturing on May 15, 2016.
The surplus notes were issued pursuant to Rule 144A under the Securities Act
of 1933. The surplus notes have repayment conditions and restrictions
whereby each payment of interest on or principal of the surplus notes may be
made only with the prior approval of the Kansas Insurance Commissioner and
only out of surplus funds that the Kansas Insurance Commissioner determines
to be available for such payment under the Kansas Insurance Code.
9. RELATED-PARTY TRANSACTIONS
The Company owns shares of mutual funds managed by Security Management
Company, LLC with net asset values totaling $197,098,000 and $108,285,000 at
December 31, 1999 and 1998, respectively. These amounts are included in
equity securities on the consolidated balance sheets.
10. STATUTORY INFORMATION
The Company and its insurance subsidiary prepare statutory-basis financial
statements in accordance with accounting practices prescribed or permitted
by the Kansas and New York Insurance regulatory authorities, respectively.
Accounting practices used to prepare statutory-basis financial statements
for regulatory filings of life insurance companies differ in certain
instances from accounting principles generally accepted in the United
States. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners (NAIC),
as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices
not so prescribed; such practices may differ from state to state, may differ
from company to company within a state and may change in the future. In
addition, the NAIC and the state of Kansas have adopted the codification of
Statutory Accounting Principles (the Codification) effective January 1,
2001. When implemented, the definitions of what comprises prescribed versus
permitted statutory accounting practices may result in changes to accounting
policies that insurance enterprises use to prepare their statutory financial
statements. The Company does not expect a material impact on its statutory
financial statements resulting from the implementation of Codification.
Statutory capital and surplus of the insurance operations are $470,187,000
and $427,350,000 at December 31, 1999 and 1998, respectively. Statutory net
income of the insurance operations are $55,139,000, $50,371,000 and
$42,950,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
11. SALE-LEASEBACK OF HOME OFFICE BUILDING AND FURNITURE AND EQUIPMENT
On December 22, 1999, the Company sold its home office building and
furniture and equipment to the state of Kansas for $20,750,000. Concurrent
with the sale, the Company leased the building and the furniture and
equipment back for a period of not less than 24 months and not more than 30
months. The transaction resulted in a gain of $7,322,000 on the building. In
accordance with SFAS No. 13, "Accounting for Leases," and SFAS No. 28,
"Accounting for Sales with Leasebacks," the Company has recognized a gain of
$4,173,000 in 1999. The remaining gain will be deferred and recorded in
earnings over the lease term. The future minimum lease payments under the
terms of the related operating lease agreement are $1,349,000 for both 2000
and 2001.
12. IMPACT OF YEAR 2000 (UNAUDITED)
Over the past several years, the Company had been assessing the potential
impact of the year 2000 on its systems, procedures, customers and business
processes. This assessment provided information on system components that
needed to be replaced or modified. All identified modifications to the
Company's operating systems were completed during 1998 and 1999. Subsequent
to December 31, 1999, the Company has experienced no significant impact on
its business operations resulting from the year 2000. The Company continues
to assess and test its systems to ensure continued compliance and expects no
significant future impact.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The consolidated financial statements of Security Benefit Life
Insurance Company and Subsidiaries at December 31, 1999 and 1998, and
for each of the three years in the period ended December 31, 1999 are
incorporated herein by reference to the financial statements filed with
the SBL Variable Annuity Account VIII Extra Credit's Pre-Effective
Amendment No. 1 under the Securities Act of 1933 and Post-Effective
Amendment No. 14 under the Investment Company Act of 1940 to
Registration Statement No. 333-93947 (filed March 29, 2000).
Financial statements for the T. Rowe Price Variable Annuity Account are
included in Part B of this Registration statement.
(b) Exhibits
(1) Certified Resolution of the Board of Directors of Security
Benefit Life Insurance Company ("SBL") authorizing
establishment of the Separate Account(a)
(2) Not Applicable
(3) Amended and Restated Distribution Agreement(a)
(4) (a) Individual DVA Contract (Form V6021 4-94)
(b) Individual IVA Contract (Form V6027 8-98)(a)
(c) TSA Loan Endorsement (Form V6846 R1-97)(b)
(d) SIMPLE IRA Endorsement (Form 4453C-5S 2-97)(b)
(e) IRA Endorsement (Form V6842A 1-97)(b)
(f) TSA Endorsement (Form V6832A R9-96)(b)
(g) Roth IRA Endorsement (Form V6851 10-97)(c)
(h) 457 Endorsement (Form V6054 1-98)(d)
(i) Options 8&9 Endorsement (Form V6056 8-98)(a)
(j) 403(a) Endorsement (Form V6057 10-98) (f)
(5) (a) DVA Application (Form V6844 R1-98)(a)
(b) IVA Application (Form V7588 8-98)(a)
(6) (a) Composite of Articles of Incorporation of SBL(e)
(b) Bylaws of SBL(e)
(7) Not Applicable
(8) (a) Amended and Restated Participation Agreement(a)
(b) Amended and Restated Master Agreement(a)
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) Not Applicable
(12) Not Applicable
(13) Schedule of Computation of Performance
(14) Powers of Attorney of Sister Loretto Marie Colwell, John C.
Dicus, Steven J. Douglass, Howard R. Fricke, Kris A. Robbins,
William W. Hanna, John E. Hayes, Jr., Frank C. Sabatini, and
Robert C. Wheeler
(a) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 8 under the Securities Act of
1933 and Amendment No. 9 under the Investment Company Act of 1940 to
Registration Statement No. 33-83238 (filed February 18, 1999).
(b) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 6 under the Securities Act of
1933 and Amendment No. 7 under the Investment Company Act of 1940 to
Registration Statement No. 33-83238 (filed April 30, 1997).
(c) Incorporated herein by reference to the Exhibits filed with the Variflex
Separate Account Post-Effective Amendment No. 19 under the Securities Act
of 1933 and Amendment No. 18 under the Investment Company Act of 1940 to
Registration Statement No. 2-89328 (filed April 30, 1998).
(d) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 7 under the Securities Act of
1933 and Amendment No. 8 under the Investment Company Act of 1940 to
Registration Statement No. 33-83238 (filed April 30, 1998).
(e) Incorporated herein by reference to the Exhibits filed with the Variflex
Separate Account Post-Effective Amendment No. 20 under the Securities Act
of 1933 and Amendment No. 19 under the Investment Company Act of 1940 to
Registration Statement No. 2-89328 (filed August 17, 1998).
(f) Incorporated herein by reference to the Exhibits filed with the Variflex
Separate Account Post-Effective Amendment No. 22 under the Securities Act
of 1933 and Amendment No. 21 under the Investment Company Act of 1940 to
Registration Statement No. 2-89328 (filed April 29, 1999).
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR
Howard R. Fricke* Chairman of the Board, Chief
Executive Officer and Director
Kris A. Robbins* President, Chief Operating Officer
and Director
Sister Loretto Marie Colwell Director
1700 SW 7th Street
Topeka, Kansas 66044
John C. Dicus Director
700 Kansas Avenue
Topeka, Kansas 66603
Steven J. Douglass Director
3231 E. 6th Street
Topeka, Kansas 66607
William W. Hanna Director
P.O. Box 2256
Wichita, KS 67201
John E. Hayes, Jr. Director
200 Gulf Blvd.
Bellair Shore, FL 33786
Frank C. Sabatini Director
120 SW 6th Street
Topeka, Kansas 66603
Robert C. Wheeler Director
P.O. Box 148
Topeka, Kansas 66601
Donald J. Schepker* Senior Vice President, Chief Financial
Officer and Treasurer
Roger K. Viola* Senior Vice President, General Counsel
and Secretary
Malcolm E. Robinson* Senior Vice President and Assistant to
the Chairman and CEO
Richard K Ryan* Senior Vice President
John D. Cleland* Senior Vice President
Terry A. Milberger* Senior Vice President
Venette K. Davis* Senior Vice President
J. Craig Anderson* Senior Vice President
Gregory Garvin* Senior Vice President
Kalman Bakk, Jr.* Senior Vice President
Amy J. Lee* Associate General Counsel, Vice
President and Assistant Secretary
James R. Schmank* Senior Vice President
Tom Swank* Senior Vice President and
Chief Investment Officer
*Located at 700 SW Harrison Street, Topeka, Kansas 66636.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Depositor, Security Benefit Life Insurance Company ("SBL"), is
controlled by Security Benefit Corp. through the ownership of 700,000
of SBL's 700,010 issued and outstanding shares of common stock. One
share each of SBL's issued and outstanding common stock is owned by
each director of SBL, in accordance with the requirements of Kansas
law. Security Benefit Corp. is wholly-owned by Security Benefit Mutual
Holding Company ("SBMHC"), which in turn is controlled by SBL
policyholders. As of December 31, 1999 no one person holds more than
approximately 0.0004% of the voting power of SBMHC. The Registrant is a
segregated asset account of SBL.
The following chart indicates the persons controlled by or under common
control with T. Rowe Price Variable Annuity Account or SBL:
Percent of
Jurisdiction of Voting Securities
Name Incorporation Owned by SMBHC
---- ------------- ------------------------
(directly or indirectly)
Security Benefit Mutual Kansas --
Holding Company
(Holding Company)
Security Benefit Corp. Kansas 100%
(Holding Company)
Security Benefit Life Kansas 100%
Insurance Company
(Stock Life Insurance Company)
Security Benefit Group, Inc. Kansas 100%
(Holding Company)
Security Management Kansas 100%
Company, LLC
(Investment Adviser)
Security Distributors, Inc. Kansas 100%
(Broker/Dealer,Principal
Underwriter of Mutual Funds)
Security Benefit Academy, Inc. Kansas 100%
(Daycare Company)
Security Financial Resources, Inc. Kansas 100%
(Financial Services Company)
First Advantage Insurance Kansas 100%
Agency, Inc.
(Insurance Agency)
First Security Benefit Life New York 100%
Insurance and Annuity
Company of New York
(Stock Life Insurance Company)
SBL is also the depositor of the following separate accounts: SBL
Variable Annuity Accounts I, III, IV, VIII, X, XI, Variflex Separate
Account, SBL Variable Life Insurance Account Varilife, Security
Varilife Separate Account and Parkstone Variable Annuity Separate
Account.
Through the above-referenced separate accounts, SBL might be deemed to
control the open-end management investment companies listed below. As
of December 31, 1999, the approximate percentage of ownership by the
separate accounts for each company is as follows:
Security Ultra Fund 42.0% SBL Fund 100%
Security Growth and Income Fund 40.0% Advisor's Fund 100%
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 1, 2000, there were 4,054 owners of the Contract.
ITEM 28. INDEMNIFICATION
The bylaws of Security Benefit Life Insurance Company provide that the
Company shall, to the extent authorized by the laws of the State of
Kansas, indemnify officers and directors for certain liabilities
threatened or incurred in connection with such person's capacity as
director or officer.
The Articles of Incorporation include the following provision:
A Director shall not be personally liable to the Corporation or to
its policyholders for monetary damages for breach of fiduciary duty
as a director, provided that this sentence shall not eliminate nor
limit the liability of a director
A. for any breach of his or her duty of loyalty to the Corporation
or its policyholders;
B. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
C. under the provisions of K.S.A. 17-6424 and amendments thereto; or
D. for any transaction from which the director derived an improper
personal benefit.
This Article Eighth shall not eliminate or limit the liability of a
director for any act or omission occurring prior to the date this
Article Eighth becomes effective.
Insofar as indemnification for a liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Depositor has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Depositor will, unless in the opinion
of its counsel the matter has been settled by a controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The principal underwriter for the Registrant is T. Rowe Price
Investment Services, Inc. ("Investment Services"). Investment
Services acts as the principal underwriter for eighty-eight mutual
funds, including the following investment companies: T. Rowe Price
Growth Stock Fund, Inc., T. Rowe Price New Horizons Fund, Inc., T.
Rowe Price New Era Fund, Inc., T. Rowe Price New Income Fund,
Inc., T. Rowe Price Prime Reserve Fund, Inc., T. Rowe Price
Tax-Free Income Fund, Inc., T. Rowe Price Tax-Exempt Money Fund,
Inc., T. Rowe Price International Funds, Inc., T. Rowe Price
Growth & Income Fund, Inc., T. Rowe Price Tax-Free
Short-Intermediate Fund, Inc., T. Rowe Price Short-Term Bond Fund,
Inc., T. Rowe Price High Yield Fund, Inc., T. Rowe Price Tax- Free
High Yield Fund, Inc., T. Rowe Price New America Growth Fund, T.
Rowe Price Equity Income Fund, T. Rowe Price GNMA Fund, T. Rowe
Price Capital Appreciation Fund, T. Rowe Price California Tax-Free
Income Trust, T. Rowe Price State Tax-Free Income Trust, T. Rowe
Price Science & Technology Fund, Inc., T. Rowe Price Small-Cap
Value Fund, Inc., Institutional International Funds, Inc., T. Rowe
Price U.S. Treasury Funds, Inc., T. Rowe Price Index Trust, Inc.,
T. Rowe Price Spectrum Fund, Inc., T. Rowe Price Balanced Fund,
Inc., T. Rowe Price Short-Term U.S. Government Fund, Inc., T. Rowe
Price Mid-Cap Growth Fund, Inc., T. Rowe Price Small-Cap Stock
Fund, Inc., T. Rowe Price Tax-Free Intermediate Bond Fund, Inc.,
T. Rowe Price Dividend Growth Fund, Inc., T. Rowe Price Blue Chip
Growth Fund, Inc., T. Rowe Price Summit Funds, Inc., T. Rowe Price
Summit Municipal Funds, Inc., T. Rowe Price Equity Series, Inc.,
T. Rowe Price International Series, Inc., T. Rowe Price Fixed
Income Series, Inc., T. Rowe Price Personal Strategy Funds, Inc.,
T. Rowe Price Value Fund, Inc., T. Rowe Price Capital Opportunity
Fund, Inc., T. Rowe Price Corporate Income Fund, Inc., T. Rowe
Price Health Sciences Fund, Inc., T. Rowe Price Mid-Cap Value
Fund, Inc., Institutional Equity Funds, Inc., T. Rowe Price
Financial Services Fund, Inc., T. Rowe Price Diversified Small-Cap
Growth Fund, Inc., T. Rowe Price Tax-Efficient Funds, Inc.,
Reserve Investment Funds, Inc., T. Rowe Price Media &
Telecommunications Fund, Inc., and T. Rowe Price Real Estate Fund,
Inc. Investment Services is a wholly owned subsidiary of T. Rowe
Price Associates, Inc., is registered as a broker- dealer under
the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. Investment
Services will not engage in the general securities business. Since
the Contract is sold on a no-load basis, Investment Services will
not receive any commissions or other compensation for acting as
principal underwriter.
(b) The address of each of the directors and officers of Investment
Services listed below is 100 East Pratt Street, Baltimore,
Maryland 21202.
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name With Underwriter With Registrant
---- ---------------- ---------------
<S> <C> <C>
James S. Riepe Chairman of the Board and
Director
Edward C. Bernard President and Director None
Henry H. Hopkins Vice President and Director Vice President
Charles E. Vieth Vice President and Director None
Patricia M. Archer Vice President None
Steven J. Banks Vice President None
John T. Bielski Vice President None
Darrell N. Braman Vice President None
Ronae M. Brock Vice President None
Meredith C. Callanan Vice President None
John H. Cammack Vice President None
Ann R. Campbell Vice President None
Christine M. Carolan Vice President None
Joseph A. Carrier Vice President None
Laura H. Chasney Vice President None
Renee M. Christoff Vice President None
Christopher W. Dyer Vice President None
Christine S. Fahlund Vice President None
Forrest R. Foss Vice President None
Thomas A. Gannon Vice President None
Andrea G. Griffin Vice President None
Douglas E. Harrison Vice President None
David J. Healy Vice President None
Joanne M. Healey Vice President None
Joseph P. Healy Vice President None
Walter J. Helmlinger Vice President None
Valerie King-Calloway Vice President None
Eric G. Knauss Vice President None
Sharon R. Krieger Vice President None
Steven A. Larson Vice President None
Jeanette M. LeBlanc Vice President None
Keith W. Lewis Vice President None
Gayle A. Lomax Vice President None
Sarah McCafferty Vice President None
Maurice A. Minerbi Vice President None
Mark J. Mitchell Vice President None
Nancy M. Morris Vice President None
George A. Murnaghan Vice President None
Steven E. Norwitz Vice President None
Kathleen M. O'Brien Vice President None
Barbara A. O'Connor Vice President None
Wayne D. O'Melia Vice President None
David Oestreicher Vice President None
Robert Petrow Vice President None
Pamela D. Preston Vice President None
George D. Riedel Vice President None
Lucy B. Robins Vice President None
John R. Rockwell Vice President None
Kenneth J. Rutherford Vice President None
Alexander Savich Vice President None
Kristin E. Seeberger Vice President None
Donna B. Singer Vice President None
Bruce D. Stewart Vice President None
William W. Strickland, Jr. Vice President None
Jerome Tuccille Vice President None
Walter Wdowiak Vice President None
William F. Wendler II Vice President None
Jane F. White Vice President None
Thomas R. Woolley Vice President None
Barbara A. O'Connor Controller None
Theodore J. Zamerski III Assistant Vice President None
and Assistant Controller
Matthew B. Alsted Assistant Vice President None
Kimberly B. Andersen Assistant Vice President None
Richard J. Barna Assistant Vice President None
Catherine L. Berkenkemper Assistant Vice President None
Edwin J. Brooks III Assistant Vice President None
Carl A. Cox Assistant Vice President None
Charles R. Dicken Assistant Vice President None
Cheryl L. Emory Assistant Vice President None
John A. Galateria Assistant Vice President None
Edward F. Giltenan Assistant Vice President None
Jason L. Gounaris Assistant Vice President None
Janelyn A. Healey Assistant Vice President None
Sandra J. Kiefler Assistant Vice President None
Suzanne M. Knoll Assistant Vice President None
Patricia B. Lippert Assistant Vice President Secretary
Teresa M. Loeffert Assistant Vice President None
C. Lillian Matthews Assistant Vice President None
Janice D. McCrory Assistant Vice President None
Danielle N. Nicholson Assistant Vice President None
JeanneMarie B. Patella Assistant Vice President None
Kylelane Purcell Assistant Vice President None
David A. Roscum Assistant Vice President None
Matthew A. Scher Assistant Vice President None
Carole H. Smith Assistant Vice President None
John A. Stranovsky Assistant Vice President None
Nolan L. North Assistant Treasurer None
Barbara A. Van Horn Assistant Secretary None
</TABLE>
(c) Not applicable. Investment Services will not receive any
compensation with respect to its activities as underwriter for the
Contract since the Contract is sold on a no-load basis.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by Section 31(a) of
the 1940 Act and the rules under it are maintained by SBL at its
administrative offices--700 Harrison Street, Topeka, Kansas 66636-0001.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a post-effective amendment
to this Registration Statement as frequently as necessary to
ensure that the audited financial statements in the Registration
Statement are never more than sixteen (16) months old for so long
as payments under the Contract may be accepted.
(b) Registrant undertakes that it will provide, as a part of the
Application Kit, a box for the applicant to check if he or she
wishes to receive a copy of the Statement of Additional
Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form promptly upon written or oral request to
SBL at the address or phone number listed in the prospectus.
(d) Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the Registrant hereby undertakes
to file with the Securities and Exchange Commission such
supplementary and periodic information, documents, and reports as
may be prescribed by any rule or regulation of the Commission
heretofore or hereafter duly adopted pursuant to authority
conferred in that Section.
(e) Depositor represents that the fees and charges deducted under the
Contract, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the
risks assumed by the Depositor.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and 1has caused
this Registration Statement to be signed on its behalf, in the City of Topeka,
and State of Kansas on this 24th day of April, 2000.
SIGNATURES AND TITLES
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Chairman of the Board, (The Depositor)
Chief Executive Officer
and Director By: ROGER K. VIOLA
---------------------------------------
Roger K. Viola, Senior Vice President,
Kris A. Robbins General Counsel and Secretary as
President, Chief Operating Attorney-In-Fact for the Officers and
Officer and Director Directors Whose Names Appear Opposite
Sister Loretto Marie Colwell T. ROWE PRICE VARIABLE ANNUITY ACCOUNT
Director (The Registrant)
John C. Dicus By: SECURITY BENEFIT LIFE INSURANCE COMPANY
Director (The Depositor)
By: HOWARD R. FRICKE
Steven J. Douglass ---------------------------------------
Director Howard R. Fricke, Chairman of the
Board, Chief Executive Officer and
Director
William W. Hanna
Director By: DONALD J. SCHEPKER
---------------------------------------
Donald J. Schepker, Senior Vice
John E. Hayes, Jr. President, Chief Financial Officer
Director and Treasurer
Frank C. Sabatini (ATTEST): ROGER K. VIOLA
Director ----------------------------------
Roger K. Viola, Senior Vice
President, General Counsel
Robert C. Wheeler and Secretary
Director
Date: April 24, 2000
<PAGE>
EXHIBIT INDEX
(1) None
(2) None
(3) None
(4) (a) Individual DVA Contract (Form V6021 4-94)
(5) None
(6) (a) None
(b) None
(7) None
(8) None
(9) Opinion of Counsel
(10) Consent of Independent Auditors
(11) None
(12) None
(13) Schedule of Computation of Performance
(14) Powers of Attorney
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
THE COMPANY'S PROMISE
In consideration for the Purchase Payments and the attached application,
Security Benefit Life Insurance Company (the "Company") will pay the benefits of
this Contract according to its provisions.
LEGAL CONTRACT
PLEASE READ YOUR CONTRACT CAREFULLY. It is a legal Contract between the Owner
and the Company. The Contract's table of contents is on page 2.
FREE LOOK PERIOD-RIGHT TO CANCEL
IF FOR ANY REASON THE OWNER IS NOT SATISFIED WITH THIS CONTRACT, HE OR SHE MAY
RETURN IT TO THE COMPANY WITHIN 10 DAYS FROM THE DATE OF RECEIPT. IT MAY BE
RETURNED BY DELIVERING OR MAILING IT TO THE COMPANY. IF RETURNED, THIS CONTRACT
SHALL BE DEEMED VOID FROM THE CONTRACT DATE. THE COMPANY WILL REFUND ANY
PURCHASE PAYMENTS MADE AND ALLOCATED TO THE FIXED ACCOUNT AND WILL REFUND
SEPARATE ACCOUNT CONTRACT VALUE AS OF THE DATE THE RETURNED POLICY IS RECEIVED
BY THE COMPANY.
Signed for Security Benefit Life Insurance Company on the Contract Date.
ROGER K. VIOLA HOWARD R. FRICKE
Secretary President
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT.
* Purchase Payments may be made until the earlier of the Annuity Payout Date or
termination of the Contract.
* A Death Benefit may be paid prior to the Annuity Payout Date according to the
Contract provisions.
* Annuity Payments begin on the Annuity Payout Date using the method specified
in this Contract.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBG LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies
P.O. Box 750440, Topeka, KS 66675-0440
700 SW Harrison Street, Topeka, KS 66636-0001
1-800-888-2461
1-800-469-6587 FOR CUSTOMER SERVICE
Form V6021 (4-94) 15-60210-00
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
CONTRACT SPECIFICATIONS ............................................... 3
DEFINITIONS ........................................................... 4-6
GENERAL PROVISIONS .................................................... 7, 8
THE CONTRACT ....................................................... 7
COMPLIANCE ......................................................... 7
MISSTATEMENT OF AGE AND SEX ........................................ 7
EVIDENCE OF SURVIVAL ............................................... 7
INCONTESTABILITY ................................................... 7
ASSIGNMENT ......................................................... 7
EXCHANGES .......................................................... 8
CLAIMS OF CREDITORS ................................................ 8
NONFORFEITURE VALUES ............................................... 8
PARTICIPATION ...................................................... 8
STATEMENTS ......................................................... 8
OWNERSHIP, ANNUITANT AND
BENEFICIARY PROVISIONS ................................................ 9
OWNERSHIP .......................................................... 9
JOINT OWNERSHIP .................................................... 9
ANNUITANT .......................................................... 9
PRIMARY AND SECONDARY BENEFICIARIES ................................ 9
OWNERSHIP AND BENEFICIARY CHANGES .................................. 9
PURCHASE PAYMENT PROVISIONS ........................................... 10
FLEXIBLE PURCHASE PAYMENTS ......................................... 10
PURCHASE PAYMENT LIMITATIONS ....................................... 10
PURCHASE PAYMENT ALLOCATION ........................................ 10
PLACE OF PAYMENT ................................................... 10
CONTRACT VALUE AND EXPENSE PROVISIONS ................................. 10-12
CONTRACT VALUE ..................................................... 10
FIXED ACCOUNT CONTRACT VALUE ....................................... 10
FIXED ACCOUNT INTEREST CREDITING ................................... 11
SEPARATE ACCOUNT CONTRACT VALUE .................................... 11
ACCUMULATION UNIT VALUE ............................................ 11
DETERMINING ACCUMULATION UNITS ..................................... 11
MORTALITY AND EXPENSE RISK CHARGE .................................. 12
PREMIUM TAX EXPENSE ................................................ 12
MUTUAL FUND EXPENSES ............................................... 12
WITHDRAWAL PROVISIONS ................................................. 12, 13
WITHDRAWALS ........................................................ 12
WITHDRAWAL VALUE ................................................... 13
SYSTEMATIC WITHDRAWALS ............................................. 13
DATE OF REQUEST .................................................... 13
PAYMENT OF WITHDRAWAL BENEFITS ..................................... 13
DEATH BENEFIT PROVISIONS .............................................. 14, 15
DEATH BENEFIT ...................................................... 14
PROOF OF DEATH ..................................................... 14
DISTRIBUTION RULES ................................................. 14, 15
ANNUITY PAYMENT PROVISIONS ............................................ 15-19
ANNUITY PAYOUT DATE ................................................ 15
CHANGE OF ANNUITY PAYOUT DATE ...................................... 15
ANNUITY PAYOUT AMOUNT .............................................. 15
ANNUITY TABLES ..................................................... 16
ANNUITY PAYMENTS ................................................... 16
CHANGE OF ANNUITY OPTION ........................................... 16
FIXED ANNUITY PAYMENTS ............................................. 16
VARIABLE ANNUITY PAYMENTS .......................................... 16
ANNUITY UNITS ...................................................... 16, 17
NET INVESTMENT FACTOR .............................................. 17
ALTERNATE ANNUITY OPTION RATES ..................................... 17
ANNUITY OPTIONS .................................................... 18, 19
ANNUITY TABLES ........................................................ 20
AMENDMENTS OR ENDORSEMENTS, IF ANY
<PAGE>
- --------------------------------------------------------------------------------
CONTRACT SPECIFICATIONS
- --------------------------------------------------------------------------------
OWNER NAME: John A. Doe CONTRACT NUMBER: Specimen
OWNER DATE OF BIRTH: 10-30-1953 CONTRACT DATE: 6-30-1993
JOINT OWNER NAME: Mary K. Doe ISSUE DATE: 6-30-1993
JOINT OWNER DATE OF BIRTH: 7-18-1981 ANNUITY PAYOUT DATE: 7-1-2052
ANNUITANT NAME: Betty M. Doe PLAN: Non-Qualified
ANNUITANT DATE OF BIRTH: 5-13-1987 ASSIGNMENT: This Policy may be
assigned. See Assignment
ANNUITANT GENDER: Female Provision of your Policy.
PRIMARY BENEFICIARY: Linda L. Doe SECONDARY BENEFICIARY
NAME: See Application or subsequent
change form
- --------------------------------------------------------------------------------
INITIAL PURCHASE PAYMENT ......................... $10,000
MINIMUM SUBSEQUENT PURCHASE PAYMENTS ............. $1,000 or $200 through an
automatic investment program
MINIMUM SYSTEMATIC WITHDRAWAL .................... $100
MORTALITY AND EXPENSE RISK CHARGE ................ .55% Annually
GUARANTEED RATE .................................. 3%
ANNUITY OPTION ................................... Life with 10-Year Fixed
Period Option*
SUBACCOUNTS:
New America Growth Subaccount
International Stock Subaccount
Mid-Cap Growth Subaccount
Equity Income Subaccount
Personal Strategy Balanced Subaccount
Limited-Term Bond Subaccount
Prime Reserve Subaccount
METHOD FOR DEDUCTIONS:
Deductions for any Premium Taxes will be allocated proportionately to the
Owner's Contract Value in the Subaccounts and the Fixed Account.
* The Annuity Payout Date and Annuity Option are assigned automatically and may
be changed by the Owner prior to the Annuity Payout Date. See "Change of
Annuity Payout Date" and "Change of Annuity Option."
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
ACCOUNT
An Account is one of the Subaccounts or the Fixed Account.
ACCUMULATION UNIT
The Accumulation Unit is a unit of measure. It is used to compute the Separate
Account Contract Value prior to the Annuity Payout Date. It is also used to
compute the Variable Annuity Payments for Annuity Options 5 through 7.
ANNUITANT
The Annuitant is the person named by the Owner on whose life the Annuity
Payments depend for Annuity Options 1 through 4. The Annuitant receives Annuity
Payments under this Contract. Please see "Annuitant" provisions on page 9.
ANNUITY OPTION
An Annuity Option is a set of provisions that form the basis for making Annuity
Payments. The Annuity Option is set prior to the Annuity Payout Date. Please see
"Annuity Options" on pages 18 and 19.
ANNUITY PAYOUT DATE
The Annuity Payout Date is the date on which Annuity Payments are scheduled to
begin. This date may be changed by the Owner. The Annuity Payout Date is shown
on Page 3. Please see "Annuity Payout Date" on page 15.
ANNUITY UNIT
The Annuity Unit is a unit of measure used to compute Variable Annuity Payments
for Annuity Options 1 through 4.
AUTOMATIC EXCHANGES
Automatic Exchanges are Exchanges among the Subaccounts and the Fixed Account.
Such exchanges are made automatically on a periodic basis by the Company at the
written request of the Owner. The Company reserves the right to discontinue,
modify or suspend Automatic Exchanges.
COMPANY
The Company is Security Benefit Life Insurance Company, P.O. Box 750440, Topeka,
Kansas 66675-0440.
CONTRACT ANNIVERSARY
A Contract Anniversary is a 12-month anniversary of the Contract Date.
CONTRACT DATE
The Contract Date is the date the Contract begins. The Contract Date is shown on
page 3.
CONTRACT YEAR
Contract Years are measured from the Contract Date.
CURRENT INTEREST
The Company may in its discretion pay Current Interest on the Fixed Account at a
rate that exceeds the Guaranteed Rate shown on page 3. The Company will declare
the rate of Current Interest, if any, from time to time.
DESIGNATED BENEFICIARY
Upon the death of the Owner or Joint Owner, the Designated Beneficiary will be
the first person on the following list who is alive on the date of death:
1. Owner;
2. Joint Owner;
3. Primary Beneficiary;
4. Secondary Beneficiary;
5. Annuitant; and
6. the Owner's estate if no one listed above is alive.
The Designated Beneficiary receives a death benefit upon the death of the Owner.
Please see "Ownership, Annuitant, and Beneficiary Provisions" on page 9 and
"Death Benefit Provisions" on pages 14 and 15.
FIXED ACCOUNT
The Fixed Account is part of the Company's general account. The Company manages
the general account and guarantees that it will credit interest on Fixed Account
Contract Value at an annual rate at least equal to the Guaranteed Rate. This
Rate is shown on page 3.
GUARANTEE PERIOD
Current Interest, if declared, is fixed for rolling periods of one or more
years, referred to as Guarantee Periods. The Company may offer Guarantee Periods
of different durations. The Guarantee Period that applies to any Fixed Account
Contract Value: (1) starts on the date that such Contract Value is allocated to
the Fixed Account pursuant to: (a) a Purchase Payment Received by the Company;
or (b) an Exchange to the Fixed Account; and (2) ends on the last day of the
same month in the year in which the Guarantee Period expires. When any Guarantee
Period expires, a new Guarantee Period shall start for such Contract Value on
the date that follows such expiration date. Such period shall end on the
immediately preceding date in the year in which the Guarantee Period expires.
For example, assuming a one-year Guarantee Period, Contract Value exchanged to
the Fixed Account on June 1 would have a Guarantee Period starting on that date
and ending on June 30 of the following year. A new Guarantee Period for such
Contract Value would start on July 1 of that year and end on June 30 of the
following year.
HOME OFFICE
The address of the Company's Home Office is Security Benefit Life Insurance
Company, P.O. Box 750440, Topeka, Kansas 66675-0440.
ISSUE DATE
The Issue Date is the date the Company uses to determine the date the Contract
becomes incontestable. The Issue Date is shown on Page 3. Please see
"Incontestability" on page 7.
JOINT OWNER
The Joint Owner, if any, shares an undivided interest in the entire Contract
with the Owner. The Joint Owner, if any, is named on page 3. Please see "Joint
Ownership" provisions on page 9.
NONNATURAL PERSON
Any group or entity that is not a living person, such as a trust or corporation.
OWNER
The Owner is the person who has all rights under the Contract. The Owner is
named on page 3. Please see "Ownership" provisions on page 9.
PREMIUM TAX
Any Premium Taxes levied by a state or other governmental entity will be charged
against this Contract. When Premium Tax is assessed after the Purchase Payment
is applied, it will be deducted as described on page 3.
PURCHASE PAYMENT
A Purchase Payment is money Received by the Company and applied to the Contract.
RECEIVED BY THE COMPANY
The phrase "Received by the Company" means receipt by the Company in good order
at its Home Office, P.O. Box 750440, Topeka, Kansas 66675-0440.
SEPARATE ACCOUNT
The T. Rowe Price Variable Annuity Account is a Separate Account established and
maintained by the Company under Kansas law. The Separate Account is registered
with the Securities and Exchange Commission under the Investment Company Act of
1940 as a Unit Investment Trust. It was established by the Company to support
variable annuity contracts. The Company owns the assets of the Separate Account
and maintains them apart from the assets of its general account and its other
separate accounts. The assets held in the Separate Account equal to the reserves
and other Contract liabilities with respect to the Separate Account may not be
charged with liabilities arising from any other business the Company may
conduct.
Income and realized and unrealized gains and losses from assets in the Separate
Account are credited to, or charged against, the Separate Account without regard
to the income, gains or losses from the Company's general account or its other
separate accounts. The Separate Account is divided into Subaccounts shown on
page 3. Income and realized and unrealized gains and losses from assets in each
Subaccount are credited to, or charged against, the Subaccount without regard to
income, gains or losses in the other Subaccounts. The Company has the right to
transfer to its general account any assets of the Separate Account that are in
excess of the reserves and other Contract liabilities with respect to the
Separate Account. The values of the assets in the Separate Account on each
Valuation Date are determined at the end of each Valuation Date.
SUBACCOUNT NET ASSET VALUE
The Subaccount Net Asset Value is equal to: (1) the net asset value of all
shares of the underlying mutual fund held by the Subaccount; plus (2) any cash
or other assets; less (3) all liabilities of the Subaccount.
SUBACCOUNTS
The Separate Account is divided into Subaccounts which invest in shares of
mutual funds. Each Subaccount may invest its assets in a separate class or
series of a designated mutual fund or funds. The Subaccounts are shown on page
3. Subject to the regulatory requirements then in force, the Company reserves
the right to:
1. change or add designated mutual funds or other investment vehicles;
2. add, remove or combine Subaccounts;
3. add, delete or make substitutions for securities that are held or purchased
by the Separate Account or any Subaccount;
4. operate the Separate Account as a management investment company;
5. combine the assets of the Separate Account with other Separate Accounts of
the Company or an affiliate thereof;
6. restrict or eliminate any voting rights of the Owner with respect to the
Separate Account or other persons who have voting rights as to the Separate
Account; and
7. terminate and liquidate any Subaccount.
If any of these changes result in a material change to the Separate Account or a
Subaccount, the Company will notify the Owner of the change. The Company will
not change the investment policy of any Subaccount in any material respect
without complying with the filing and other procedures of the insurance
regulators of the state of issue.
VALUATION DATE
A Valuation Date is each day the New York Stock Exchange and the Company's Home
Office are open for business.
VALUATION PERIOD
A Valuation Period is the interval of time from one Valuation Date to the next
Valuation Date.
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GENERAL PROVISIONS
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THE CONTRACT
The entire Contract between the Owner and the Company consists of this Contract,
the attached Application, and any Amendments, Endorsements or Riders to the
Contract. All statements made in the Application will, in the absence of fraud,
as ruled by a court of competent jurisdiction, be deemed representations and not
warranties. The Company will use no statement made by or on behalf of the Owner
or the Annuitant to void this Contract unless it is in the written Application.
Any change in the Contract can be made only with the written consent of the
President, a Vice President, or the Secretary of the Company.
The Purchase Payment(s) and the Application must be acceptable to the Company
under its rules and practices. If they are not, the Company's liability shall be
limited to a return of the Purchase Payment(s).
COMPLIANCE
The Company reserves the right to make any change to the provisions of this
Contract to comply with or give the Owner the benefit of any federal or state
statute, rule or regulation. This includes, but is not limited to, requirements
for annuity contracts under the Internal Revenue Code or the laws of any state.
The Company will provide the Owner with a copy of any such change and will also
file such a change with the insurance regulatory officials of the state in which
the Contract is delivered.
MISSTATEMENT OF AGE AND SEX
If the age or sex of the Annuitant has been misstated, payments shall be
adjusted, when allowed by law, to the amount which would have been provided for
the correct age or sex. Proof of the age of an Annuitant may be required at any
time, in a form suitable to the Company. If payments have already commenced and
the misstatement has caused an underpayment, the full amount due will be paid
with the next scheduled payment. If the misstatement has caused an overpayment,
the amount due will be deducted from one or more future payments.
EVIDENCE OF SURVIVAL
When any payments under this Contract depend on the payee being alive on a given
date, proof that the payee is living may be required by the Company. Such proof
must be in a form accepted by the Company, and may be required prior to making
the payments.
INCONTESTABILITY
This Contract will not be contested after it has been in force for two years
from the Issue Date during the life of the Owner.
ASSIGNMENT
Please refer to page 3 to see if this Contract may be assigned. If it may be
assigned, no Assignment under this Contract is binding unless Received by the
Company in writing. The Company assumes no responsibility for the validity,
legality, or tax status of any Assignment. The Assignment will be subject to any
payment made or other action taken by the Company before the Assignment is
Received by the Company. Once filed, the rights of the Owner, Annuitant and
Beneficiary are subject to the Assignment. Any claim is subject to proof of
interest of the assignee.
EXCHANGES
The Owner may Exchange Contract Value among the Fixed Account and Subaccounts
subject to the following.
The Owner may make only six Exchanges per Contract Year. Exchanges are not
allowed within 30 days of the Annuity Payout Date. Automatic Exchanges are not
included in the six Exchanges allowed per Contract Year. After the Annuity
Payout Date, for Annuity Options 1 through 4, the Owner may Exchange Contract
Value only among Subaccounts.
The Company reserves the right to: (1) limit the amount that may be subject to
Exchanges; (2) limit the amount remaining in an account after an Exchange; (3)
waive or limit the number of Exchanges allowed each Contract Year; (4) impose
conditions on the right to Exchange; and (5) suspend Exchanges. Exchanges must
be at least $500 or, if less, the remaining balance in the Fixed Account or a
Subaccount.
Contract Value may be exchanged from the Fixed Account only: (1) during the
calendar month in which the applicable Guarantee Period expires; and (2)
pursuant to an Automatic Exchange. Exchanges of Fixed Account Contract Value
shall be made: (1) first from Fixed Account Contract Value for which the
Guarantee Period expires during the calendar month in which the Exchange is
effected; (2) then in the order that starts with Fixed Account Contract Value
which has the longest amount of time before its Guarantee Period expires; and
(3) ends with that which has the least amount of time before its Guarantee
Period expires.
The Company will effect an Exchange to or from a Subaccount on the basis of
Accumulation Unit Value (or Annuity Unit Value) determined at the end of the
Valuation Period in which the Exchange is effected. The Company will effect an
Exchange from the Fixed Account on the basis of Fixed Account Contract Value at
the end of the Valuation Period in which the Exchange is effected.
The Company reserves the right to delay Exchanges from the Fixed Account for up
to 6 months as required by most states. The Company will inform you if there
will be a delay.
CLAIMS OF CREDITORS
The Contract Value and other benefits under this Contract are exempt from the
claims of creditors of the Owner to the extent allowed by law.
NONFORFEITURE VALUES
The Death Benefits, Withdrawal Values and Annuity Payout Values will at least
equal the minimum required by law.
PARTICIPATION
The Company is a mutual life insurance company. Therefore, it pays dividends on
some of its contracts. However, the Company does not expect dividends to become
payable on this Contract. At the end of each Contract Year the Company will
determine the Contract's dividend, if any. The Owner may choose to have it: (1)
added to the Contract Value; or (2) paid in cash. If no choice is made, any
dividend will be added to the Contract Value.
STATEMENTS
At least once each Contract Year the Owner shall be sent a statement including
the current Contract Value and any other information required by law. The Owner
may send a written request for a statement at other intervals. The Company may
charge a reasonable fee for such statements.
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OWNERSHIP, ANNUITANT AND BENEFICIARY PROVISIONS
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OWNERSHIP
During the Owner's lifetime, all rights and privileges under the Contract may be
exercised only by the Owner. If the purchaser names someone other than himself
or herself as Owner, the purchaser has no rights in the Contract. No Owner may
be older than age 85 on the Contract Date.
JOINT OWNERSHIP
If a Joint Owner is named in the application, then the Owner and Joint Owner
share an undivided interest in the entire Contract as joint tenants with rights
of survivorship. When an Owner and Joint Owner have been named, the Company will
honor only requests for changes and the exercise of other Ownership rights made
by both the Owner and Joint Owner. When a Joint Owner is named, all references
to "Owner" throughout this Contract should be construed to mean both the Owner
and Joint Owner, except for the "Statements" provision on page 8 and the "Death
Benefit Provisions" on pages 14 and 15.
ANNUITANT
The Annuitant is named on page 3. The Owner may change the Annuitant prior to
the Annuity Payout Date. The request for this change must be made in writing and
Received by the Company at least 30 days prior to the Annuity Payout Date. No
Annuitant may be named who is more than 85 years old on the Contract Date. When
the Annuitant dies prior to the Annuity Payout Date, the Owner must name a new
Annuitant within 30 days or, if sooner, by the Annuity Payout Date, except where
the Owner is a Nonnatural Person. If a new Annuitant is not named, the Owner
becomes the Annuitant.
PRIMARY AND SECONDARY BENEFICIARIES
The Primary Beneficiary and any Secondary Beneficiary are named on page 3. The
Owner may change any Beneficiary as described in "Ownership and Beneficiary
Changes" below. If the Primary Beneficiary dies prior to the Owner, the
Secondary Beneficiary becomes the Primary Beneficiary. Unless the Owner directs
otherwise, when there are two or more Primary Beneficiaries, they will receive
equal shares.
OWNERSHIP AND BENEFICIARY CHANGES
Subject to the terms of any existing Assignment, the Owner may name a new Owner,
a new Primary Beneficiary or a new Secondary Beneficiary. Any new choice of
Owner, Primary Beneficiary or Secondary Beneficiary will revoke any prior
choice. Any change must be made in writing and recorded at the Home Office. The
change will become effective as of the date the written request is signed,
whether or not the Owner is living at the time the change is recorded. A new
choice of Primary Beneficiary or Secondary Beneficiary will not apply to any
payment made or action taken by the Company prior to the time it was recorded.
The Company may require the Contract be returned so these changes may be made.
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PURCHASE PAYMENT PROVISIONS
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FLEXIBLE PURCHASE PAYMENTS
The Contract becomes in force when the initial Purchase Payment is applied. The
Owner is not required to continue Purchase Payments in the amount or frequency
originally planned. The Owner may: (1) increase or decrease the amount of
Purchase Payments, subject to any Contract or administrative limits; or (2)
change the frequency of Purchase Payments. A change in frequency or amount of
Purchase Payments does not require a written request.
PURCHASE PAYMENT LIMITATIONS
Total Purchase Payments to the Contract may not be greater than $1,000,000
without prior approval by the Company. The Minimum Subsequent Purchase Payment
amount is shown on page 3.
PURCHASE PAYMENT ALLOCATION
Purchase Payments may be allocated among the Fixed Account and the Subaccounts.
The allocations may be a whole dollar amount or whole percentage. However, no
less than $25 per Purchase Payment may be allocated to any Account. The Owner
may change the allocations by written notice to the Company.
PLACE OF PAYMENT
All Purchase Payments under this Contract are to be paid to the Company at its
Home Office. Purchase Payments after the first Purchase Payment are applied as
of the end of the Valuation Period during which they are Received by the
Company.
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CONTRACT VALUE AND EXPENSE PROVISIONS
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CONTRACT VALUE
On any Valuation Date, the Contract Value is the sum of: (1) the Separate
Account Contract Value; and (2) the Fixed Account Contract Value. At any time
after the first Contract Year and before the Annuity Payout Date, the Company
reserves the right to pay to the Owner the Contract Value as a lump sum if it is
below $2,000.
FIXED ACCOUNT CONTRACT VALUE
On any Valuation Date, the Fixed Account Contract Value is equal to the first
Purchase Payment allocated under the Contract to the Fixed Account:
PLUS:
1. any other Purchase Payments allocated under the Contract to the Fixed
Account;
2. any Exchanges from the Separate Account to the Fixed Account; and
3. any interest credited to the Fixed Account.
LESS:
1. any Withdrawals deducted from the Fixed Account;
2. any Exchanges from the Fixed Account to the Separate Account;
3. any applicable Premium Taxes;
4. any Fixed Account Contract Value which is applied to any of Annuity Options
1 through 4; and
5. any Annuity Payments made under Annuity Options 5 through 7.
FIXED ACCOUNT INTEREST CREDITING
The Company shall credit interest on Fixed Account Contract Value at an annual
rate at least equal to the Guaranteed Rate shown on page 3. Also, the Company
may in its sole judgment credit Current Interest at a rate in excess of the
Guaranteed Rate. The rate of Current Interest, if declared, shall be fixed
during the Guarantee Period. Fixed Account Contract Value shall earn Current
Interest during each Guarantee Period at the rate, if any, declared by the
Company on the first day of the Guarantee Period.
The Company may credit Current Interest on Contract Value that was allocated or
exchanged to the Fixed Account during one period at a different rate than
amounts allocated or exchanged to the Fixed Account in another period. Also, the
Company may credit Current Interest on Fixed Account Contract Value at different
rates based upon the length of the Guarantee Period. Therefore, at any time,
portions of Fixed Account Contract Value may be earning Current Interest at
different rates based upon the period during which such portions were allocated
or exchanged to the Fixed Account and the length of the Guarantee Period.
SEPARATE ACCOUNT CONTRACT VALUE
On any Valuation Date, the Separate Account Contract Value is the sum of the
then current value of the Accumulation Units allocated to each Subaccount for
this Contract.
ACCUMULATION UNIT VALUE
The initial Accumulation Unit Value for each Subaccount was set at $10. Other
Accumulation Unit Values are found on each Valuation Date by dividing (1) by (2)
where:
1. is equal to:
a. the Subaccount Net Asset Value determined at the end of the current
Valuation Period; plus
b. any dividends declared by the Subaccount's underlying mutual fund that
are not part of the Subaccount Net Asset Value; less
c. the accrued Mortality and Expense Risk Charge; and
d. any taxes for which the Company has reserved which the Company deems to
have resulted from the operation of the Subaccount.
2. is the number of Accumulation Units at the start of the Valuation Period.
The Accumulation Unit Value may increase or decrease from one Valuation Period
to the next.
DETERMINING ACCUMULATION UNITS
The number of Accumulation Units allocated to a Subaccount under this Contract
is found by dividing: (1) the amount allocated to the Subaccount; by (2) the
Accumulation Unit Value for the Subaccount at the end of the Valuation Period
during which the amount is applied under the Contract. The number of
Accumulation Units allocated to a Subaccount under the Contract will not change
as a result of investment experience. Events that change the number of
Accumulation Units are:
1. Purchase Payments that are applied to the Subaccount;
2. Contract Value that is Exchanged into or out of the Subaccount;
3. Withdrawals that are deducted from the Subaccount; and
4. Premium Taxes that are deducted from the Subaccount.
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct the Mortality and Expense Risk Charge shown on page 3.
This charge will be computed and deducted from each Subaccount on each Valuation
Date. This charge is factored into the Accumulation Unit and Annuity Unit Values
on each Valuation Date.
PREMIUM TAX EXPENSE
The Company reserves the right to deduct Premium Tax when due or any time
thereafter. Any applicable Premium Taxes will be allocated as described on page
3.
MUTUAL FUND EXPENSES
Each Subaccount invests in shares of a mutual fund. The net asset value per
share of each underlying fund reflects the deduction of any investment advisory
and administration fees and other expenses of the fund. These fees and expenses
are not deducted from the assets of a Subaccount, but are paid by the underlying
funds. The Owner indirectly bears a pro rata share of such fees and expenses. An
underlying fund's fees and expenses are not specified or fixed under the terms
of this Contract.
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WITHDRAWAL PROVISIONS
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WITHDRAWALS
A full Withdrawal of the Contract Value or partial Withdrawal of Separate
Account Contract Value is allowed at any time. Partial Withdrawals of Fixed
Account Contract Value are, however, restricted as described below. This
provision is subject to any federal or state Withdrawal restrictions.
A partial Withdrawal of Fixed Account Contract Value may be made only: (1)
pursuant to Systematic Withdrawals; (2) during the calendar month in which the
applicable Guarantee Period expires; and (3) once per Contract Year in an amount
up to the greater of $5,000 or 10 percent of the Fixed Account Contract Value at
the time of the partial Withdrawal.
Upon the Owner's request for a full Withdrawal, the Company will pay the
Withdrawal Value in a lump sum.
All Withdrawals must meet the following conditions.
1. The request for Withdrawal must be Received by the Company in writing or
under other methods allowed by the Company.
2. The Owner must apply: (a) while this Contract is in force; and (b) prior to
the Annuity Payout Date.
3. The amount Withdrawn must be at least $500.00 except for Systematic
Withdrawals, as discussed below, or when terminating the Contract.
A partial Withdrawal request must state the allocations for deducting the
Withdrawal from each Account. Withdrawals of Fixed Account Contract Value shall
be made: (1) first from Fixed Account Contract Value for which the Guarantee
Period expires during the calendar month in which the Withdrawal is effected;
(2) then in the order that starts with Fixed Account Contract Value which has
the longest amount of time before its Guarantee Period expires; and (3) ends
with that which has the least amount of time before its Guarantee Period
expires.
WITHDRAWAL VALUE
The Withdrawal Value at any time will be: (1) the Contract Value; less (2) any
Premium Taxes due or paid by the Company.
SYSTEMATIC WITHDRAWALS
Systematic Withdrawals are automatic periodic distributions from the Contract in
substantially equal amounts prior to the Annuity Payout Date. In order to start
Systematic Withdrawals, the Owner must make the request in writing. The Minimum
Systematic Withdrawal is shown on page 3. The Owner must choose the type of
payment and its frequency. The payment type may be: (1) a percentage of Contract
Value; (2) a specified dollar amount; (3) all earnings in the Contract; or (4)
based upon the life expectancy of the Owner or the Owner and a Beneficiary. The
payment frequency may be: (1) monthly; (2) quarterly; (3) semiannually; or (4)
annually. Systematic Withdrawals of Fixed Account Contract Value must provide
for payments over a period of not less than 36 months. Systematic Withdrawals
may be stopped by the Owner upon proper written request Received by the Company
at least 30 days in advance. The Company reserves the right to stop, modify or
suspend Systematic Withdrawals.
DATE OF REQUEST
The Company will effect a Withdrawal of Separate Account Contract Value on the
basis of Accumulation Unit Value determined at the end of the Valuation Period
in which all the required information is Received by the Company.
PAYMENT OF WITHDRAWAL BENEFITS
The Company reserves the right to suspend an Exchange or delay payment of a
Withdrawal from the Separate Account for any period:
1. when the New York Stock Exchange is closed; or
2. when trading on the New York Stock Exchange is restricted; or
3. when an emergency exists as a result of which: (a) disposal of securities
held in the Separate Account is not reasonably practicable; or (b) it is not
reasonably practicable to fairly value the net assets of the Separate
Account; or
4. during any other period when the Securities and Exchange Commission, by
order, so permits to protect owners of securities.
Rules and regulations of the Securities and Exchange Commission will govern as
to whether the conditions set forth above exist.
The Company further reserves the right to delay payment of a Withdrawal from the
Fixed Account for up to six months as required by most states. The Company will
notify you if there will be a delay.
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DEATH BENEFIT PROVISIONS
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DEATH BENEFIT
If any Owner dies prior to the Annuity Payout Date, a Death Benefit will be paid
to the Designated Beneficiary when due Proof of Death and instructions regarding
payment are Received by the Company. If an Owner is a Nonnatural Person, then
the Death Benefit will be paid in the event of the death of the Annuitant or any
joint Owner that is a natural person prior to the Annuity Payout Date. Further,
if an Owner is a Nonnatural Person, the amount of the death benefit is based on
the age of the Annuitant or any joint Owner that is a natural person on the
Issue Date.
If the age of each Owner was 75 or younger on the Issue Date, the Death Benefit
will be the greatest of: (1) the sum of all Purchase Payments, less any Premium
Taxes due or paid by the Company and less the sum of all partial Withdrawals;
(2) the Contract Value on the date due Proof of Death and instructions regarding
payment are Received by the Company, less any Premium Taxes due or paid by the
Company; or (3) the Stepped-Up Death Benefit below.
The Stepped-Up Death Benefit is:
1. the largest Death Benefit on any Contract Anniversary that is both an exact
multiple of five and occurs prior to the oldest Owner reaching age 76; plus
2. any Purchase Payments received since the applicable fifth Contract
Anniversary; less
3. any reductions caused by Withdrawals since the applicable fifth Contract
Anniversary; less
4. any Premium Taxes due or paid by the Company.
If the age of any Owner on the Issue Date was 76 or older, the Death Benefit
will be: (1) the Contract Value on the date due Proof of Death and instructions
regarding payment are Received by the Company; less (2) any Premium Taxes due or
paid by the Company.
If a lump sum payment is requested, the payment will be made in accordance with
any laws and regulations that govern the payment of Death Benefits.
The value of the Death Benefit is determined as of the date that both Proof of
Death and instructions regarding payment are Received by the Company in good
order.
PROOF OF DEATH
Any of the following will serve as Proof of Death:
1. certified copy of the death certificate;
2. certified decree of a court of competent jurisdiction as to the finding of
death;
3. written statement by a medical doctor who attended the deceased Owner; or
4. any proof accepted by the Company.
DISTRIBUTION RULES
The entire Death Benefit with any interest shall be paid within 5 years after
the death of any Owner, except as provided below. In the event that the
Designated Beneficiary elects an Annuity Option, the length of time for the
payment period may be longer than 5 years if: (1) the Designated Beneficiary is
a natural person; (2) the Death Benefit is paid out under Annuity Options 1
through 7; (3) payments are made over a period that does not exceed the life or
life expectancy of the Designated Beneficiary; and (4) Annuity Payments begin
within one year of the death of the Owner. If the deceased Owner's spouse is the
sole Designated Beneficiary, the spouse shall become the sole Owner of the
Contract. He or she may elect to: (1) keep the Contract in force until the
sooner of the spouse's death or the Annuity Payout Date; or (2) receive the
Death Benefit.
If any Owner dies after the Annuity Payout Date, Annuity Payments shall continue
to be paid at least as rapidly as under the method of payment being used as of
the date of the Owner's death.
If the Owner is a Nonnatural Person, the distribution rules set forth above
apply in the event of the death of, or a change in, the Annuitant. This Contract
is deemed to incorporate any provision of Section 72(s) of the Internal Revenue
Code of 1986, as amended (the "Code"), or any successor provision. This Contract
is also deemed to incorporate any other provision of the Code deemed necessary
by the Company, in its sole judgment, to qualify this Contract as an annuity.
The application of the distribution rules will be made in accordance with Code
section 72(s), or any successor provision, as interpreted by the Company in its
sole judgment.
The foregoing distribution rules do not apply to a Contract which is: (1)
provided under a plan described in Code section 401(a); (2) described in Code
section 403(b); (3) an individual retirement annuity or provided under an
individual retirement account or annuity; or (4) otherwise exempt from the Code
section 72(s) distribution rules.
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ANNUITY PAYMENT PROVISIONS
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ANNUITY PAYOUT DATE
The Owner may choose the Annuity Payout Date at the time of application. If no
Annuity Payout Date is chosen, the Company will use the later of: (1) the oldest
Annuitant's seventieth birthday; or (2) the tenth Contract Anniversary. The
Annuity Payout Date must be prior to the oldest Annuitant's ninetieth birthday.
The Annuity Payout Date is the date the first payment will be made to the
Annuitant under any of the Annuity Options.
CHANGE OF ANNUITY PAYOUT DATE
The Owner may change the Annuity Payout Date. A request for the change must be
made in writing. The written request must be Received by the Company at least 30
days prior to the new Annuity Payout Date as well as 30 days prior to the
previous Annuity Payout Date.
ANNUITY PAYOUT AMOUNT
The Annuity Payout Amount is applied to one or more of the Annuity Options
listed on pages 18 and 19. The Annuity Payout Amount is: (1) the Contract Value
on the Annuity Payout Date; less (2) any Premium Taxes due or paid by the
Company. Unless otherwise directed by the Owner, Annuity Payout Amount derived
from Fixed Account Contract Value will be applied to purchase a Fixed Annuity
Option; that derived from Separate Account Contract Value will be applied to
purchase a Variable Annuity Option.
ANNUITY TABLES
The Annuity Tables show the guaranteed minimum amount of monthly Annuity Payment
that applies to the first payment for Variable Annuity Payments and to each
payment for Fixed Annuity Payments for each $1,000 of Annuity Payout Amount for
each of Annuity Options 1 through 4. The amount of each Annuity Payment for
Annuity Options 1 through 4 will depend on the Annuitant's sex and age on the
Annuity Payout Date. The Annuity Tables state values for the exact ages shown.
The values will be interpolated based on the Annuitant's exact age on the
Annuity Payout Date. On request the Company will furnish the amount of monthly
Annuity Payment per $1,000 applied for any ages not shown.
The Company bases the Tables for Annuity Options 1 through 4 on: (1) the 1983
Table "A" Mortality Table projected for mortality improvement for 45 years using
Projection Scale G; and (2) an interest rate of 3 1/2% a year.
For Annuity Options 5 through 7, age and sex are not considered. Annuity
Payments for these options are computed without reference to the Annuity Tables.
ANNUITY PAYMENTS
The Annuity Option is shown on page 3. The Owner may choose any form of Annuity
Option that is allowed by the Company. The Owner may choose an Annuity Option by
written request. This request must be Received by the Company at least 30 days
prior to the Annuity Payout Date. Several Annuity Options are listed on pages 18
and 19. No Annuity Option can be selected that requires the Company to make
periodic payments of less than $100.00. If no Annuity Option is chosen prior to
the Annuity Payout Date, the Company will use Life with 10-Year Fixed Period
Option. Each Annuity Option allows for making Annuity Payments annually,
semiannually, quarterly or monthly.
CHANGE OF ANNUITY OPTION
Prior to the Annuity Payout Date, the Owner may change the Annuity Option
chosen. The Owner must request the change in writing. This request must be
Received by the Company at least 30 days prior to the Annuity Payout Date.
FIXED ANNUITY PAYMENTS
With respect to Fixed Annuity Payments, the amounts shown on the Tables are the
guaranteed minimum for each Annuity Payment for Annuity Options 1 through 4.
VARIABLE ANNUITY PAYMENTS
With respect to Variable Annuity Payments, the amounts shown on the Tables are
the first Annuity Payment, based on the assumed interest rate of 3 1/2% for
Annuity Options 1 through 4. The amount of each Annuity Payment after the first
for these options is computed by means of Annuity Units.
ANNUITY UNITS
The number of Annuity Units is found by dividing the first Annuity Payment by
the Annuity Unit Value for the selected Subaccount on the Annuity Payout Date.
The number of Annuity Units for the Subaccount then remains constant, unless an
Exchange of Annuity Units is made. After the first Annuity Payment, the dollar
amount of each subsequent Annuity Payment is equal to the number of Annuity
Units times the Annuity Unit Value for the Subaccount on the due date of the
Annuity Payment.
The Annuity Unit Value for each Subaccount was first set at $1.00. The Annuity
Unit Value for any subsequent Valuation Date is equal to (a) times (b) times
(c), where:
(a) is the Annuity Unit Value on the immediately preceding Valuation Date;
(b) is the Net Investment Factor for the day;
(c) is a factor used to adjust for an assumed interest rate of 3 1/2% per year
used to determine the Annuity Payment amounts. The assumed interest rate is
reflected in the Annuity Tables.
NET INVESTMENT FACTOR
The Net Investment Factor for any Subaccount at the end of any Valuation Period
is found by dividing (1) by (2) and subtracting (3) from the result, where:
1. is equal to:
a. the net asset value per share of the mutual fund held in the Subaccount,
found at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions paid
by the Subaccount's underlying mutual fund that is not included in the
net asset value per share; plus or minus
c. a per share charge or credit for any taxes reserved for, which the
Company deems to have resulted from the operation of the Subaccount.
2. is the net asset value per share of the Subaccount's underlying mutual fund
as found at the end of the prior Valuation Period.
3. is a factor representing the Mortality and Expense Risk Charge deducted from
the Separate Account.
Underlying mutual funds may declare dividends on a daily basis and pay such
dividends once a month. The Net Investment Factor allows for the monthly
reinvestment of these daily dividends. As described above, the gains and losses
from each Subaccount are credited or charged against the Subaccount without
regard to the gains or losses in the Company or other Subaccounts.
ALTERNATE ANNUITY OPTION RATES
The Company may, at the time of election of an Annuity Option, offer more
favorable rates in lieu of the guaranteed rates shown in the Annuity Tables.
ANNUITY OPTIONS
OPTION 1
LIFE OPTION: This option provides payments for the life of the Annuitant. Table
A shows some of the guaranteed rates for this option.
OPTION 2
LIFE WITH FIXED PERIOD OPTION: This option provides payments for the life of the
Annuitant. A fixed period of 5, 10, 15 or 20 years may be chosen. Payments will
be made to the end of this period even if the Annuitant dies prior to the end of
the period. If the Annuitant dies before receiving all the payments during the
fixed period, the remaining payments will be made to the Designated Beneficiary.
Table A shows some of the guaranteed rates for this option.
OPTION 3
LIFE WITH INSTALLMENT OR UNIT REFUND OPTION: This option provides payments for
the life of the Annuitant, with a period certain determined by dividing the
Annuity Payout Amount by the amount of the first payment. A fixed number of
payments will be made even if the Annuitant dies. If the Annuitant dies before
receiving the fixed number of payments, any remaining payments will be made to
the Designated Beneficiary. Table A shows some of the guaranteed rates for this
option.
OPTION 4
JOINT AND LAST SURVIVOR OPTION: This option provides payments for the life of
the Annuitant and Joint Annuitant. Payments will be made as long as either is
living. Table B shows some of the guaranteed rates for this option.
OPTION 5
FIXED PERIOD OPTION: This option provides payments for a fixed number of years
between 5 and 20. If the Contract Value is held in the Fixed Account, then the
amount of the payments will vary as a result of the interest rate (as adjusted
periodically) credited on the Fixed Account. This rate is guaranteed to be no
less than the Guaranteed Rate shown on page 3. If the Contract Value is held in
the Separate Account, then the amount of the payments will vary as a result of
the investment performance of the Subaccounts chosen. If all the Annuitants die
before receiving the fixed number of payments, any remaining payments will be
made to the Designated Beneficiary.
OPTION 6
FIXED PAYMENT OPTION: This option provides a fixed payment amount. This amount
is paid until the amount applied, including daily interest adjustments, is paid.
If the Contract Value is held in the Fixed Account, then the number of payments
will vary as a result of the interest rate (as adjusted periodically) credited
on the Fixed Account. This rate is guaranteed to be no less than the Guaranteed
Rate shown on page 3. If the Contract Value is held in the Separate Account,
then the number of payments will vary as a result of the investment performance
of the Subaccounts chosen. If all the Annuitants die before receiving all the
payments, any remaining payments will be made to the Designated Beneficiary.
OPTION 7 AGE RECALCULATION OPTION: This option provides for payments based upon
the Annuitant's life expectancy, or the joint life expectancies of the Annuitant
and a beneficiary, at the Annuitant's attained age (and the Annuitant's
beneficiary's attained or adjusted age, if applicable) each year. The payments
are computed by reference to actuarial tables prescribed by the Treasury
Secretary. Payments are made until the amount applied is exhausted. If the
Contract Value is held in the Fixed Account, then the number of payments will
vary as a result of the interest rate (as adjusted periodically) credited on the
Fixed Account. This rate is guaranteed to be not less than the Guaranteed Rate
shown on page 3. If the Contract Value is held in the Separate Account, then the
number of payments will vary as a result of the investment performance of the
Subaccounts chosen. If all the Annuitants die before receiving the remaining
payments, such payments will be made to the Designated Beneficiary.
<PAGE>
ANNUITY TABLES
- --------------------------------------------------------------------------------
Table A
Guaranteed Minimum Amount
of Monthly Payment for
each $1,000 applied
SINGLE LIFE ANNUITY
- --------------------------------------------------------------------------------
AGE OF MONTHLY PAYMENTS CERTAIN INSTALLMENT
PAYEE 0 60 120 180 240 REFUND
- --------------------------------------------------------------------------------
MALE
55 4.45 4.44 4.41 4.37 4.30 4.31
56 4.52 4.51 4.48 4.43 4.36 4.37
57 4.60 4.59 4.56 4.50 4.42 4.44
58 4.68 4.67 4.64 4.57 4.47 4.51
59 4.77 4.76 4.72 4.65 4.53 4.58
60 4.87 4.85 4.81 4.72 4.60 4.65
61 4.97 4.95 4.90 4.80 4.66 4.73
62 5.07 5.05 5.00 4.89 4.72 4.82
63 5.19 5.17 5.10 4.97 4.79 4.90
64 5.31 5.29 5.20 5.06 4.85 5.00
65 5.44 5.41 5.32 5.15 4.92 5.09
66 5.58 5.55 5.44 5.24 4.98 5.20
67 5.73 5.69 5.56 5.34 5.05 5.30
68 5.89 5.84 5.69 5.44 5.11 5.41
69 6.06 6.00 5.82 5.54 5.17 5.53
70 6.24 6.17 5.97 5.64 5.23 5.66
FEMALE
55 4.11 4.11 4.10 4.08 4.05 4.05
56 4.17 4.17 4.16 4.14 4.10 4.10
57 4.23 4.23 4.22 4.19 4.15 4.15
58 4.30 4.29 4.28 4.25 4.21 4.21
59 4.37 4.36 4.35 4.32 4.27 4.27
60 4.44 4.44 4.42 4.38 4.33 4.34
61 4.52 4.51 4.49 4.45 4.39 4.40
62 4.60 4.59 4.57 4.52 4.45 4.47
63 4.69 4.68 4.65 4.60 4.52 4.55
64 4.78 4.77 4.74 4.68 4.58 4.63
65 4.88 4.87 4.84 4.76 4.65 4.71
66 4.99 4.98 4.93 4.85 4.72 4.80
67 5.10 5.09 5.04 4.94 4.79 4.89
68 5.23 5.21 5.15 5.04 4.86 4.99
69 5.36 5.34 5.27 5.14 4.94 5.09
70 5.50 5.48 5.39 5.24 5.01 5.20
RATES NOT SHOWN WILL BE PROVIDED ON REQUEST. THE GUARANTEED MINIMUM MONTHLY
PAYMENTS SHOWN APPLY TO THE INITIAL PAYMENT FOR VARIABLE ANNUITY PAYMENTS AND TO
EACH PAYMENT FOR FIXED ANNUITY PAYMENTS.
- --------------------------------------------------------------------------------
JOINT & LAST |
SURVIVOR ANNUITY |
TABLE B - MONTHLY FEMALE | MALE AGE
INSTALLEMNTS AGE | 55 60 62 65 70
- --------------------------------|-----------------------------------------------
Until last Death 55 | 3.85 3.93 3.95 3.99 4.03
of Two Payees 60 | 3.98 4.10 4.15 4.21 4.29
per $1,000 of 62 | 4.03 4.18 4.23 4.30 4.40
benefit amount 65 | 4.11 4.28 4.35 4.45 4.59
70 | 4.21 4.45 4.54 4.69 4.92
ANNUAL, SEMIANNUAL, OR QUARTERLY PAYMENTS CAN BE DETERMINED FROM TABLE A OR B BY
MULTIPLYING THE MONTHLY PAYMENTS BY 11.812854, 5.9572233, AND 2.9914201,
RESPECTIVELY.
<PAGE>
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT.
* Purchase Payments may be made until the earlier of the Annuity Payout Date
or termination of the Contract.
* A Death Benefit may be paid prior to the Annuity Payout Date according to
the Contract provisions.
* Annuity Payments begin on the Annuity Payout Date using the method as
specified in this Contract.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBG LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies
P.O. Box 750440, Topeka, KS 66675-0440
700 SW Harrison Street, Topeka, KS 66636-0001
1-800-888-2461
1-800-469-6587 FOR CUSTOMER SERVICE
<PAGE>
[SBG LOGO]
- --------------------------------------------------------------------------------
Security Benefit Life Insurance Company 700 SW Harrison St.
Security Benefit Group, Inc. Topeka, Kansas 66636-0001
Security Distributors, Inc. (785) 431-3000
Security Management Company, LLC
April 28, 2000
Security Benefit Life Insurance Company
700 SW Harrison Street
Topeka, KS 66636-0001
Dear Sir/Madam:
This letter is with reference to the Registration Statement of T. Rowe Price
Variable Annuity Account of which Security Benefit Life Insurance Company
(hereinafter "SBL") is the Depositor. Said Registration Statement is being filed
with the Securities and Exchange Commission for the purpose of registering the
variable annuity contracts issued by SBL and the interests of T. Rowe Price
Variable Annuity Account under such variable annuity contracts which will be
sold pursuant to an indefinite registration.
I have examined the Articles of Incorporation and Bylaws of SBL, minutes of the
meetings of its Board of Directors and other records, and pertinent provisions
of the Kansas insurance laws, together with applicable certificates of public
officials and other documents which I have deemed relevant. Based on the
foregoing, it is my opinion that:
1. SBL is duly organized and validly existing as a stock life insurance company
under the laws of Kansas.
2. T. Rowe Price Variable Annuity Account has been validly created as a
Separate Account in accordance with the pertinent provisions of the
insurance laws of Kansas.
3. SBL has the power, and has validly and legally exercised it, to create and
issue the variable annuity contracts which are administered within and by
means of T. Rowe Price Variable Annuity Account.
4. The amount of variable annuity contracts to be sold pursuant to the
indefinite registration, when issued, will represent binding obligations of
SBL in accordance with their terms providing said contracts were issued for
the considerations set forth therein and evidenced by appropriate policies
and certificates.
I hereby consent to the inclusion in the Registration Statement of my foregoing
opinion.
Respectfully submitted,
AMY J. LEE
Amy J. Lee, Esq.
Associate General Counsel and Vice President
Security Benefit Life Insurance Company
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 4, 2000, with respect to the condolidated
financial statements of Security Benefit Life Insurance Company and Subsidiaries
and the financial statements of T. Rowe Price Variable Annuity Account included
in Post-Effective Amendment No. 10 to the Registration Statement under the
Securities Act of 1933 (Registration No. 33-83238) and Post-Effective Amendment
No. 11 to the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-8724) on Form N-4 and the related Statement of Additional
Information accompanying the Prospectus of The T. Rowe Price No-Load Variable
Annuity.
Ernst & Young LLP
Kansas City, Missouri
April 26, 2000
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 4, 2000, with respect to the condolidated
financial statements of Security Benefit Life Insurance Company and Subsidiaries
and the financial statements of T. Rowe Price Variable Annuity Account included
in Post-Effective Amendment No. 10 to the Registration Statement under the
Securities Act of 1933 (Registration No. 33-83238) and Post-Effective Amendment
No. 11 to the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-8724) on Form N-4 and the related Statement of Additional
Information accompanying the Prospectus of T. Rowe Price No-Load Immediate
Variable Annuity.
Ernst & Young LLP
Kansas City, Missouri
April 26, 2000
<PAGE>
Item 24.b Exhibit (13)
EQUITY INCOME
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
1 Year
1000 (1+T)^1 = 1,032.30
((1+T)^1)^1 = (1.0323)^1
1+T = 1.0323
T = .0323
4.75 Years (From Date of Inception 4/3/95)
1000 (1+T)^4.75 = 2,109.77
((1+T)^4.75)^4.75 = (2.10977)^4.75
1+T = 1.1702
T = .1702
INTERNATIONAL STOCK
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
1 Year
1000 (1+T)^1 = 1,325.60
((1+T)^1)^1 = (1.3256)^1
1+T = 1.3256
T = .3256
4.75 Years (From Date of Inception 4/3/95)
1000 (1+T)^4.75 = 2,000.74
((1+T)^4.75)^4.75 = (2.00074)^4.75
1+T = 1.1572
T = .1572
<PAGE>
LIMITED-TERM BOND
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
1 Year
1000 (1+T)^1 = 1,003.20
((1+T)^1)^1 = (1.0032)^1
1+T = 1.0032
T = .0032
4.75 Years (From Date of Inception 4/3/95)
1000 (1+T)^4.75 = 1,239.28
((1+T)^4.75)^4.75 = (1.23928)^4.75
1+T = 1.0462
T = .0462
NEW AMERICA GROWTH
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
1 Year
1000 (1+T)^1 = 1,121
((1+T)^1)^1 = (1.121)^1
1+T = 1.121
T = .121
4.75 Years (From Date of Inception 4/3/95)
1000 (1+T)^4.75 = 2,549.68
((1+T)^4.75)^4.75 = (2.54968)^4.75
1+T = 1.21780
T = .2178
<PAGE>
PERSONAL STRATEGY BALANCED
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
1 Year
1000 (1+T)^1 = 1,077.6
((1+T)^1)^1 = (1.0776)^1
1+T = 1.0776
T = .0776
4.75 Years (From Date of Inception 4/3/95)
1000 (1+T)^4.75 = 1,945.50
((1+T)^4.75)^4.75 = (1.9455)^4.75
1+T = 1.15040
T = .1504
MID-CAP GROWTH
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
1 Year
1000 (1+T)^1 = 1,230.80
((1+T)^1)^1 = (1.2308)^1
1+T = 1.2308
T = .2308
3 Years (From Date of Inception 12/31/96)
1000 (1+T)^3 = 1,764.98
((1+T)^3)^3 = (1.76498)^3
1+T = 1.2085
T = .2085
<PAGE>
PRIME RESERVE
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1999
1 Year
1000 (1+T)^1 = 1,042.80
((1+T)^1)^1 = (1.0428)^1
1+T = 1.0428
T = .0428
3 Years (From Date of Inception 12/31/96)
1000 (1+T)^3 = 1,144.12
((1+T)^3)^3 = (1.14412)^3
1+T = 1.0459
T = .0459
PRIME RESERVE
Money Market Yield as of December 31, 1999
CALCULATION OF CHANGE IN UNIT VALUE:
- -----------------------------------
( Unrounded Unrounded )
( Price Price )
( 12-31-99 - 12-23-99 ) = 11.441355930923 - 11.430330195142 = .00096460344
------------------------- ---------------------------------
( Unrounded Price ) 11.430330195142
( 12-23-99 )
ANNUALIZED YIELD:
- ----------------
365/7(.00096460344) = 5.03%
EFFECTIVE YIELD:
- ---------------
(1 + .00096460344)^365/7 - 1 = 5.16%
<PAGE>
LIMITED - TERM BOND
30 DAY YIELD CALCULATION AS OF DECEMBER 31, 1999
[[ (41,764.58) ]6]
2[[------------------------ + 1] ] - 1
[[ (725,572.6197 x 12.39) ] ]
[( (41,764.58) )6]
2[(------------------------ + 1) ] - 1
[( (8,989,844.76) ) ]
2[((.00464575 + 1)^6 ) - 1]
2[((1.00464575)^6) - 1]
2[(1.02820) - 1]
2(.0282)
= .0564 or 5.64% December 31, 1999
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Sister Loretto Marie Colwell, being a Director of SECURITY BENEFIT LIFE
INSURANCE COMPANY (the "Company"), by these presents do make, constitute and
appoint Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them,
my true and lawful attorneys, each with full power and authority for me and in
my name and behalf to sign, as my agent, any Registration Statement applicable
to separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
SISTER LORETTO MARIE COLWELL
------------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
JULIA A. SMRHA
------------------------------
Notary Public
My Commission Expires:
7-8-2000
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John C. Dicus, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of April, 2000.
JOHN C. DICUS
-----------------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 6th day of April, 2000.
MARY R. FALTER
-----------------------
Notary Public
My Commission Expires:
1-30-2004
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Steven J. Douglass, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
STEVEN J. DOUGLASS
-----------------------
Steven J. Douglass
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
NANCY A. LEWIS
------------------------
Notary Public
My Commission Expires:
10-16-00
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Howard R. Fricke, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint James
R. Schmank and Roger K. Viola, and each of them, my true and lawful attorneys,
each with full power and authority for me and in my name and behalf to sign, as
my agent, any Registration Statement applicable to separate accounts of the
Company, as well as any pre-effective amendment, post-effective amendment and
any application for exemptive relief (including amendments to such applications)
for such separate accounts (now or hereafter established by the Company) and
filed pursuant to the Investment Company Act of 1940 or the Securities Act of
1933, each as amended, any instrument or document filed as part thereof, or in
connection therewith or in any way related thereto, with like effect as though
said Registration Statement or other document had been signed and filed
personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
HOWARD R. FRICKE
------------------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
ANNETTE E. CRIPPS
------------------------
Notary Public
My Commission Expires:
7/8/2001
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SEDGWICK )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, William W. Hanna, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
WILLIAM W. HANNA
------------------------
William W. Hanna
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
DOROTHY A. HERR
------------------------
Notary Public
My Commission Expires:
8-21-2002
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF FLORIDA )
) SS.
COUNTY OF PINELLAS )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John E. Hayes, Jr., being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of April, 2000.
JOHN E. HAYES, JR.
------------------------
John E. Hayes, Jr.
SUBSCRIBED AND SWORN to before me this 4th day of April, 2000.
DEBORAH K. WEST
-------------------------
Notary Public
My Commission Expires:
July 6, 2002
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Kris A. Robbins, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
KRIS A. ROBBINS
------------------------
Kris A. Robbins
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
ANNETTE E. CRIPPS
------------------------
Notary Public
My Commission Expires:
7/8/2001
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Frank C. Sabatini, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
FRANK C. SABATINI
------------------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
PATRICIA A. CLARK
------------------------
Notary Public
My Commission Expires:
3-5-2002
- ---------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE )
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Robert C. Wheeler, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY (the "Company"), by these presents do make, constitute and appoint
Howard R. Fricke, James R. Schmank and Roger K. Viola, and each of them, my true
and lawful attorneys, each with full power and authority for me and in my name
and behalf to sign, as my agent, any Registration Statement applicable to
separate accounts of the Company, as well as any pre-effective amendment,
post-effective amendment and any application for exemptive relief (including
amendments to such applications) for such separate accounts (now or hereafter
established by the Company) and filed pursuant to the Investment Company Act of
1940 or the Securities Act of 1933, each as amended, any instrument or document
filed as part thereof, or in connection therewith or in any way related thereto,
with like effect as though said Registration Statement or other document had
been signed and filed personally by me in the capacity aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of April, 2000.
ROBERT C. WHEELER
--------------------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 3rd day of April, 2000.
NANCY G. DEBACKER
--------------------------
Notary Public
My Commission Expires:
12/15/03
- ---------------------
