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File No. 33-85592
File No. 811-8836
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Post-Effective Amendment No. 2 |X|
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 3 |X|
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(Check appropriate box or boxes)
VARIFLEX LS
(Exact Name of Registrant)
Security Benefit Life Insurance Company
(Name of Depositor)
700 Harrison Street, Topeka, Kansas 66636-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, Including Area Code:
(913) 295-3000
Copies to:
Amy J. Lee, Associate General Counsel Jeffrey S. Puretz, Esq.
Security Benefit Group Dechert, Price & Rhoads
700 Harrison Street 1500 K Street, N.W.
Topeka, KS 66636-0001 Washington, DC 20005
(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 April 29, 1996 pursuant to paragraph (b) of Rule 485
|_| 60 days after filing pursuant to paragraph (a)(i) of Rule 485
|_| on April 29, 1996, pursuant to paragraph (a)(i) of Rule 485
|_| 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
|_| on April 29, 1996, pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
--------------------
Pursuant to Regulation 270.24f-2 of the Investment Company Act of 1940, the
Registrant has elected to register an indefinite number of securities. The
Registrant filed the Notice required by 24f-2 on February 27, 1996.
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Cross Reference Sheet
Pursuant to Rule 495(a)
Showing Location in Part A (Prospectus) and Part B
(Statement of Additional Information) of Registration
Statement of Information Required by Form N-4
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PART A
ITEM OF FORM N-4 PROSPECTUS CAPTION
1. Cover Page.............................. Cover Page
2. Definitions............................. Definitions
3. Synopsis................................ Summary; Expense Table; Contractual
Expenses; Annual Separate Account
Expenses; Annual Mutual Fund
Expenses
4. Condensed Financial Information
(a) Accumulated Unit Values............. N/A
(b) Performance Data.................... Performance Information
(c) Additional Financial Information.... Additional Information; Financial
Statements
5. General Description of Registrant,
Depositor, and Portfolio Companies
(a) Depositor........................... Information about Security Benefit,
the Separate Account, and the
Mutual Fund; Security Benefit Life
Insurance Company
(b) Registrant.......................... Separate Account; Information about
Security Benefit, the Separate
Account, and the Mutual Fund
(c) Portfolio Company................... Information about Security Benefit,
the Separate Account, and the
Mutual Fund; SBL Fund; The
Investment Adviser
(d) Fund Prospectus..................... SBL Fund
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(e) Voting Rights....................... Voting of Mutual Fund Shares
(f) Administrators...................... Security Benefit Life Insurance
Company
6. Deductions and Expenses
(a) General............................. Charges and Deductions; Mortality
and Expense Risk Charge;
Administrative Charge; Premium Tax
Charge; Other Charges; Variations
in Charges; Guarantee of Certain
Charges; Mutual Fund Expenses;
Contract Charges
(b) Sales Load %........................ N/A
(c) Special Purchase Plan............... N/A
(d) Commissions......................... N/A
(e) Fund Expenses....................... Annual Mutual Fund Expenses
(f) Organization Expenses............... N/A
7. General Description of Contracts
(a) Persons with Rights................. The Contract; More About the
Contract; Ownership; Joint Owners;
Contract Benefits; The Fixed
Account; Reports to Owners
(b) (i) Allocation of Purchase
Payments....................... Purchase Payments; Allocation of
Purchase Payments
(ii) Transfers...................... Transfers of Contract Value;
Telephone Transfer Privileges;
Dollar Cost Averaging Option; Asset
Reallocation Option; Full and
Partial Withdrawals
Exchanges...................... N/A
(c) Changes............................. Substitution of Investments;
Changes to Comply with Law and
Amendments
(d) Inquiries........................... Contacting Security Benefit
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8. Annuity Period.......................... Annuity Period; General; Annuity
Options; Selection of an Option
9. Death Benefit........................... Death Benefit
10. Purchases and Contract Value
(a) Purchases........................... The Contract; General; Application
for a Contract; Purchase Payments;
Dollar Cost Averaging Option; Asset
Reallocation Option
(b) Valuation........................... Contract Value; Determination of
Contract Value; Transfers of
Contract Value; Interest
(c) Daily Calculation................... Determination of Contract Value
Underwriter......................... Security Benefit Life Insurance
Company
11. Redemptions
(a) - By Owners......................... Full and Partial Withdrawals;
Systematic Withdrawals; Payments
from the Separate Account; Payments
from the Fixed Account;
Restrictions on Withdrawals from
Qualified Plans; Loans
- By Annuitant...................... Annuity Options
(b) Texas ORP........................... N/A
(c) Check Delay......................... N/A
(d) Lapse............................... Full and Partial Withdrawals
(e) Free Look........................... Free-Look Right
12. Taxes................................... Federal Tax Matters; Introduction;
Tax Status of Security Benefit and
the Separate Account; Income
Taxation of Annuities in General --
Non-Qualified Plans; Additional
Considerations; Qualified Plans
13. Legal Proceedings....................... Legal Proceedings; Legal Matters
14. Table of Contents for the Statement of
Additional Information.................. Statement of Additional Information
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PART B
STATEMENT OF ADDITIONAL
ITEM OF FORM N-4 INFORMATION CAPTION
15. Cover Page.............................. Cover Page
16. Table of Contents....................... Table of Contents
17. General Information and History......... General Information and History
18. Services
(a) Fees and Expenses of Registrant.... N/A
(b) Management Contracts............... N/A
(c) Custodian.......................... N/A
Independent Public Accountant...... Independent Accountants
(d) Assets of Registrant............... N/A
(e) Affiliated Persons................. N/A
(f) Principal Underwriter.............. N/A
19. Purchase of Securities Being Offered.... Distribution of the Contract;
Limits on Purchase Payments Paid
Under Tax-Qualified Retirement
Plans
20. Underwriters............................ Distribution of the Contract
21. Calculation of Performance Data......... Performance Information
22. Annuity Payments........................ N/A
23. Financial Statements.................... Financial Statements
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VARIFLEX LS
VARIABLE
ANNUITY
PROSPECTUS
MAY 1, 1996
Also including a
prospectus for
SBL Fund, a Member
of the Security Benefit
Group of Companies
[SBLIC LOGO]
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VARIFLEX LS VARIABLE ANNUITY
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY:
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
1-800-888-2461
MAILING ADDRESS:
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
This Prospectus describes the Variflex LS Variable Annuity -- an individual
flexible purchase payment deferred variable annuity contract (the "Contract")
offered by Security Benefit Life Insurance Company ("Security Benefit"). The
Contract is available for individuals as a non-tax qualified retirement plan
("Non-Qualified Plan") or in connection with a retirement plan qualified under
Section 401, 403(b), 408, or 457 of the Internal Revenue Code ("Qualified
Plan"). The Contract is designed to give Contractowners flexibility in planning
for retirement and other financial goals.
During the Accumulation Period, the Contract provides for the accumulation
of a Contractowner's value on either a variable basis, a fixed basis, or both.
The Contract also provides several options for annuity payments on either a
variable basis, a fixed basis, or both to begin on the Annuity Start Date. The
minimum initial purchase payment is $25,000. Subsequent purchase payments are
flexible, though they must be for at least $1,000. Purchase payments may be
allocated at the Contractowner's discretion to one or more of the Subaccounts
that comprise a separate account of Security Benefit called the Variable Annuity
Account VIII (the "Separate Account"), or to the Fixed Account of Security
Benefit. Each Subaccount of the Separate Account invests in a corresponding
portfolio ("Series") of the SBL Fund (the "Mutual Fund"), which currently
consists of eleven Series: (1) Growth Series, (2) Growth-Income Series, (3)
Money Market Series, (4) Worldwide Equity Series, (5) High Grade Income Series,
(6) Social Awareness Series, (7) Emerging Growth Series, (8) Global Aggressive
Bond Series, (9) Specialized Asset Allocation Series, (10) Managed Asset
Allocation Series, and (11) Equity Income Series. The Contract Value in the
Fixed Account will accrue interest at rates that are paid by Security Benefit as
described in "The Fixed Account" on page 19. Contract Value in the Fixed Account
is guaranteed by Security Benefit.
The Contract Value in the Subaccounts under a Contract will vary based on
investment performance of the Subaccounts to which the Contract Value is
allocated. No minimum amount of Contract Value is guaranteed.
A Contract may be returned according to the terms of its Free-Look Right.
(See "Free-Look Right," page 15.)
This Prospectus concisely sets forth information about the Contract and the
Separate Account that a prospective investor should know before purchasing the
Contract. Certain additional information is contained in a "Statement of
Additional Information," dated May 1, 1996, which has been filed with the
Securities and Exchange Commission (the "SEC"). The Statement of Additional
Information, as it may be supplemented from time to time, is incorporated by
reference into this Prospectus and is available at no charge, by writing
Security Benefit at 700 Harrison Street, Topeka, Kansas 66636 or by calling
1-800-888-2461. The table of contents of the Statement of Additional Information
is set forth on page 32 of this Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE SBL FUND. BOTH
PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THE CONTRACT INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND IS NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THE CONTRACT
IS NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
DATE: MAY 1, 1996
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1
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TABLE OF CONTENTS
Page
DEFINITIONS............................................................... 5
SUMMARY................................................................... 5
Purpose of the Contract................................................. 5
The Separate Account and the Mutual Fund................................ 6
Fixed Account........................................................... 6
Purchase Payments....................................................... 6
Contract Benefits....................................................... 6
Free-Look Right......................................................... 6
Charges and Deductions.................................................. 6
Mortality and Expense Risk Charge..................................... 6
Administrative Charge................................................. 7
Premium Tax Charge.................................................... 7
Other Expenses........................................................ 7
Contacting Security Benefit............................................. 7
EXPENSE TABLE............................................................. 7
Contractual Expenses.................................................... 7
Annual Separate Account Expenses........................................ 7
Annual Mutual Fund Expenses............................................. 7
Examples................................................................ 7
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND THE
MUTUAL FUND............................................................. 9
Security Benefit Life Insurance Company................................. 9
Published Ratings....................................................... 9
Separate Account........................................................ 9
SBL Fund................................................................ 9
Series A (Growth Series).............................................. 10
Series B (Growth-Income Series)....................................... 10
Series C (Money Market Series)........................................ 10
Series D (Worldwide Equity Series).................................... 10
Series E (High Grade Income Series)................................... 10
Series S (Social Awareness Series).................................... 10
Series J (Emerging Growth Series)..................................... 10
Series K (Global Aggressive Bond Series).............................. 11
Series M (Specialized Asset Allocation Series)........................ 11
Series N (Managed Asset Allocation Series)............................ 11
Series O (Equity Income Series)....................................... 11
The Investment Adviser................................................ 11
THE CONTRACT.............................................................. 11
General................................................................. 11
Application for a Contract.............................................. 11
Purchase Payments....................................................... 12
Allocation of Purchase Payments......................................... 12
Dollar Cost Averaging Option............................................ 12
Asset Reallocation Option............................................... 13
Transfers of Contract Value............................................. 13
Contract Value.......................................................... 14
Determination of Contract Value......................................... 14
Full and Partial Withdrawals............................................ 14
Systematic Withdrawals.................................................. 15
Free-Look Right......................................................... 15
Death Benefit........................................................... 16
Distribution Requirements............................................... 16
Death of the Annuitant.................................................. 16
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2
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Table of Contents (continued)
CHARGES AND DEDUCTIONS.................................................... 17
Mortality and Expense Risk Charge....................................... 17
Administrative Charge................................................... 17
Premium Tax Charge...................................................... 17
Other Charges........................................................... 17
Variations in Charges................................................... 17
Guarantee of Certain Charges............................................ 17
Mutual Fund Expenses.................................................... 17
ANNUITY PERIOD............................................................ 17
General................................................................. 17
Annuity Options......................................................... 18
Option 1--Life Income................................................. 18
Option 2--Life Income with Guaranteed Payment of 5, 10, 15 or 20 Years 18
Option 3--Life with Installment Refund Option......................... 18
Option 4--Joint and Last Survivor..................................... 18
Option 5--Payments for a Specified Period............................. 19
Option 6--Payments of a Specified Amount.............................. 19
Selection of an Option.................................................. 19
THE FIXED ACCOUNT......................................................... 19
Interest................................................................ 19
Death Benefit........................................................... 20
Contract Charges........................................................ 20
Transfers and Withdrawals from the Fixed Account........................ 20
Payments from the Fixed Account......................................... 21
MORE ABOUT THE CONTRACT................................................... 21
Ownership............................................................... 21
Joint Owners.......................................................... 21
Designation and Change of Beneficiary................................... 21
Participating........................................................... 21
Payments from the Separate Account...................................... 21
Proof of Age and Survival............................................... 22
Misstatements........................................................... 22
Loans................................................................... 22
Restrictions on Withdrawals from Qualified Plans........................ 22
FEDERAL TAX MATTERS....................................................... 23
Introduction............................................................ 23
Tax Status of Security Benefit and the Separate Account................. 23
General............................................................... 23
Charge for Security Benefit Taxes..................................... 23
Diversification Standards............................................. 23
Income Taxation of Annuities in General--Non-Qualified Plans............ 24
Surrenders or Withdrawals Prior to the Annuity Start Date............. 24
Surrenders or Withdrawals on or after Annuity Start Date.............. 24
Penalty Tax on Certain Surrenders and Withdrawals..................... 24
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3
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TABLE OF CONTENTS (CONTINUED)
Additional Considerations............................................... 25
Distribution-at-Death Rules........................................... 25
Gift of Annuity Contracts............................................. 25
Contracts Owned by Non-Natural Persons................................ 25
Multiple Contract Rule................................................ 25
Possible Tax Changes.................................................. 25
Transfers, Assignments or Exchanges of a Contract..................... 26
Qualified Plans......................................................... 26
Section 401........................................................... 26
Section 403(b)........................................................ 27
Section 408........................................................... 27
Section 457........................................................... 28
Rollovers............................................................. 28
Tax Penalties......................................................... 28
Withholding........................................................... 29
OTHER INFORMATION......................................................... 29
Voting of Mutual Fund Shares............................................ 29
Substitution of Investments............................................. 29
Changes to Comply with Law and Amendments............................... 30
Reports to Owners....................................................... 30
Telephone Transfer Privileges........................................... 30
Legal Proceedings....................................................... 31
Legal Matters........................................................... 31
PERFORMANCE INFORMATION................................................... 31
ADDITIONAL INFORMATION.................................................... 32
Registration Statement.................................................. 32
Financial Statements.................................................... 32
STATEMENT OF ADDITIONAL INFORMATION....................................... 32
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THE CONTRACT IS NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE.
NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION, THE MUTUAL FUND'S PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION OF THE FUND, OR ANY SUPPLEMENT THERETO.
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4
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DEFINITIONS
Various terms commonly used in this Prospectus are defined as follows:
ACCUMULATION PERIOD -- The period commencing on the Contract Date and
ending on the Annuity Start Date or, if earlier, when the Contract is
terminated, either through a full withdrawal, payment of charges, or payment of
the death benefit proceeds.
ACCUMULATION UNIT -- A unit of measure used to calculate the value of a
Contractowner's interest in a Subaccount during the Accumulation Period and
variable annuity payments under Annuity Options 5 and 6.
ANNUITANT -- The person on whose life annuity payments depend.
ANNUITY -- A series of periodic income payments made by Security Benefit to
an Annuitant, Joint Annuitant, or Beneficiary during the period specified in the
Annuity Option.
ANNUITY OPTIONS -- Options under the Contract that prescribe the provisions
under which a series of annuity payments are made.
ANNUITY PERIOD -- The period during which annuity payments are made.
ANNUITY START DATE -- The date when annuity payments are to begin.
AUTOMATIC INVESTMENT PROGRAM -- A program pursuant to which purchase
payments are automatically paid from the owner's checking account on a specified
day of each month.
CONTRACT DATE -- The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually the
date that the initial purchase payment is credited to the Contract.
CONTRACT DEBT -- The unpaid loan balance including accrued loan interest.
CONTRACTOWNER OR OWNER -- The person entitled to the ownership rights under
the Contract and in whose name the Contract is issued.
CONTRACT VALUE -- The total value of the amounts in a Contract allocated to
the Subaccounts of the Separate Account and the Fixed Account as well as any
amount set aside in the loan account to secure loans as of any Valuation Date.
CONTRACT YEAR -- Each twelve-month period measured from the Contract Date.
DESIGNATED BENEFICIARY -- The person having the right to the death benefit,
if any, payable upon the death of the Owner or the Joint Owner during the
Accumulation 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 are alive, the Owner's
Estate.
FIXED ACCOUNT -- An account that is part of Security Benefit's General
Account in which all or a portion of the Contract Value may be held for
accumulation at fixed rates of interest (which may not be less than 3.0 percent)
declared by Security Benefit periodically at its discretion.
GENERAL ACCOUNT -- All assets of Security Benefit other than those
allocated to the Separate Account or to any other separate account of Security
Benefit.
HOME OFFICE -- The Annuity Administration Department of Security Benefit,
P.O. Box 750497, Topeka, Kansas 66675-0497.
MUTUAL FUND -- SBL Fund. The Mutual Fund is a diversified, open-end
management investment company commonly referred to as a mutual fund.
PURCHASE PAYMENT -- The amounts paid to Security Benefit as consideration
for the Contract.
SEPARATE ACCOUNT -- The Variable Annuity Account VIII. A separate account
of Security Benefit that consists of accounts, referred to as Subaccounts, each
of which invests in a corresponding Series of the SBL Fund.
SUBACCOUNT -- A division of the Separate Account of Security Benefit which
invests in a corresponding series of the Mutual Fund. Currently, eleven
Subaccounts are available under the Contract.
VALUATION DATE -- Each date on which the Separate Account is valued, which
currently includes each day that the New York Stock Exchange is open for
trading. The New York Stock Exchange is closed on weekends and on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, July
Fourth, Labor Day, Thanksgiving Day, and Christmas Day.
VALUATION PERIOD -- A period used in measuring the investment experience of
each Subaccount of the Separate Account. The Valuation Period begins at the
close of one Valuation Date and ends at the close of the next succeeding
Valuation Date.
WITHDRAWAL VALUE -- The amount a Contractowner may receive upon full
withdrawal of the Contract, which is equal to Contract Value less any Contract
Debt, and any uncollected premium taxes.
SUMMARY
This summary is intended to provide a brief overview of the more
significant aspects of the Contract. Further detail is provided in this
Prospectus, the Statement of Additional Information, and the Contract. Unless
the context indicates otherwise, the discussion in this summary and the
remainder of the Prospectus relates to the portion of the Contract involving the
Separate Account. The Fixed Account is briefly described under "The Fixed
Account" on page 19 and in the Contract.
PURPOSE OF THE CONTRACT
The individual flexible purchase payment deferred variable annuity contract
("Contract") described in this Prospectus is designed to give Contractowners
flexibility in planning for retirement and other financial goals. The Contract
provides for the accumulation of values on a
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5
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variable basis, a fixed basis, or both, during the Accumulation Period and
provides several options for annuity payments on a variable basis, a fixed
basis, or both. During the Accumulation Period, an Owner can pursue various
allocation options by allocating purchase payments to the Subaccounts of the
Separate Account or to the Fixed Account. See "The Contract," page 11.
The Contract is eligible for purchase as a non-tax qualified retirement
plan for an individual ("Non-Qualified Plan"). The Contract is also eligible for
an individual in connection with a retirement plan qualified under Section 401,
403(b), 408, or 457 of the Internal Revenue Code of 1986, as amended. These
plans are sometimes referred to in this Prospectus as "Qualified Plans."
THE SEPARATE ACCOUNT AND THE MUTUAL FUND
Purchase payments designated to accumulate on a variable basis are
allocated to the Separate Account. See "Separate Account," page 9. The Separate
Account is currently divided into eleven accounts referred to as Subaccounts.
Each Subaccount invests exclusively in shares of a corresponding Series of the
Mutual Fund. The Series of the Mutual Fund, each of which has a different
investment objective or objectives, are as follows: Growth Series, Growth-Income
Series, Money Market Series, Worldwide Equity Series, High Grade Income Series,
Social Awareness Series, Emerging Growth Series, Global Aggressive Bond Series,
Specialized Asset Allocation Series, Managed Asset Allocation Series, and Equity
Income Series. See "SBL Fund," page 9. Amounts held in a Subaccount will
increase or decrease in dollar value depending on the investment performance of
the Series of the Mutual Fund in which such Subaccount invests. The
Contractowner bears the investment risk for amounts allocated to a Subaccount of
the Separate Account.
FIXED ACCOUNT
Purchase payments designated to accumulate on a fixed basis may be
allocated to the Fixed Account, which is part of Security Benefit's General
Account. Amounts allocated to the Fixed Account earn interest at rates
determined at the discretion of Security Benefit and are guaranteed to be at
least an effective annual rate of 3.0 percent. See "The Fixed Account," on page
19.
PURCHASE PAYMENTS
The minimum initial purchase payment is $25,000. Thereafter, the
Contractowner may choose the amount and frequency of purchase payments, except
that the minimum subsequent purchase payment is $1,000. See "Purchase Payments"
on page 12.
CONTRACT BENEFITS
During the Accumulation Period, Contract Value may be transferred by the
Contractowner among the Subaccounts of the Separate Account and to and from the
Fixed Account, subject to certain restrictions as described in "The Contract" on
page 11 and "The Fixed Account" on page 19.
At any time before the Annuity Start Date, a Contract may be surrendered
for its Withdrawal Value, and partial withdrawals, including systematic
withdrawals, may be taken from the Contract Value, subject to certain
restrictions described in "The Fixed Account" on page 19. See "Full and Partial
Withdrawals," page 14 and "Federal Tax Matters," page 23 for more information
about withdrawals, including the 10 percent 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
during the Accumulation Period. See "Death Benefit," on page 16 for more
information. The Contract provides for several Annuity Options on either a
variable basis, a fixed basis, or both. Payments under the fixed Annuity Options
will be guaranteed by Security Benefit. See "Annuity Period," on page 17.
FREE-LOOK RIGHT
An Owner may return a Contract within the Free-Look Period, which is
generally a ten-day period beginning when the Owner receives the Contract. In
this event, Security Benefit will refund to the Owner purchase payments
allocated to the Fixed Account plus the Contract Value in the Subaccounts plus
any charges deducted from Contract Value in the Subaccounts. Security Benefit
will refund purchase payments allocated to the Subaccounts rather than the
Contract Value in those states where it is required to do so.
CHARGES AND DEDUCTIONS
Security Benefit does not make any deductions for sales load from purchase
payments before allocating them to the Contract Value and no surrender charge is
assessed upon withdrawal or surrender of a Contract. Certain charges will be
deducted in connection with the Contract as described below.
MORTALITY AND EXPENSE RISK CHARGE
Security Benefit deducts a daily charge from the assets of each Subaccount
for mortality and expense risks equal to an annual rate of 1.25 percent of each
Subaccount's average daily net assets. See "Mortality and Expense Risk Charge"
on page 17.
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ADMINISTRATIVE CHARGE
Security Benefit deducts a daily administrative charge equal to an annual
rate of 0.15 percent of each Subaccount's average daily net assets. The
Administrative Charge is not assessed against Contract Value which is applied
under Annuity Options 1-4. See "Administrative Charge" on page 17.
PREMIUM TAX CHARGE
Security Benefit 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 on annuitization or upon full withdrawal if a premium tax
was incurred by Security Benefit and is not refundable. Partial withdrawals,
including systematic withdrawals, may be subject to a premium tax charge if a
premium tax is incurred on the withdrawal by Security Benefit and is not
refundable. Security Benefit reserves the right to deduct such taxes when due or
anytime thereafter. Premium tax rates currently range from 0 percent to 3.5
percent. See "Premium Tax Charge" on page 17.
OTHER EXPENSES
The operating expenses of the Separate Account are paid by Security
Benefit. Investment advisory fees and operating expenses of the Mutual Fund are
paid by the Mutual Fund and are reflected in the net asset value of the Mutual
Fund shares. For a description of these charges and expenses, see the Prospectus
for the Mutual Fund.
CONTACTING SECURITY BENEFIT
All written requests, notices, and forms required by the Contract, and any
questions or inquiries should be directed to Security Benefit Life Insurance
Company, P.O. Box 750497, Topeka, Kansas 66675-0497 or by phone by calling (913)
295-3112 or 1-800-888-2461, extension 3112.
EXPENSE TABLE
The purpose of this table is to assist investors in understanding the
various costs and expenses borne directly and indirectly by Owners of the
Contracts with Contract Value allocated to the Subaccounts. The table reflects
any contractual charges, expenses of the Separate Account, and charges and
expenses of the Mutual Fund. The table does not reflect premium taxes that may
be imposed by various jurisdictions. See "Premium Tax Charge," on page 17. The
information contained in the table is not generally applicable to amounts
allocated to the Fixed Account.
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," on page 17. For a more complete description of the Mutual
Fund's costs and expenses, see the SBL Fund Prospectus, which accompanies this
Prospectus.
CONTRACTUAL EXPENSES
Sales load on purchase payments............. None
Contingent deferred sales charge............ None
Transfer Fee (per transfer)................. None
ANNUAL SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF
EACH SUBACCOUNT'S AVERAGE DAILY NET ASSETS)
Annual Mortality and Expense Risk Charge.... 1.25%
Annual Administrative Charge................ 0.15%
Total Separate Account Annual Expenses...... 1.40%
ANNUAL MUTUAL FUND EXPENSES
(AS A PERCENTAGE OF EACH SERIES' AVERAGE DAILY NET ASSETS)
TOTAL
MUTUAL
ADVISORY OTHER FUND
FEE EXPENSES EXPENSES(1)
Growth (Series A)............ 0.75% 0.08% 0.83%
Growth-Income (Series B)..... 0.75% 0.08% 0.83%
Money Market (Series C)...... 0.50% 0.10% 0.60%
Worldwide Equity
(Series D)................. 1.00% 0.31% 1.31%
High Grade Income
(Series E)................. 0.75% 0.10% 0.85%
Social Awareness
(Series S)................. 0.75% 0.11% 0.86%
Emerging Growth (Series J)... 0.75% 0.09% 0.84%
Global Aggressive Bond
(Series K)................. 0.00% 1.28% 1.28%
Specialized Asset Allocation
(Series M)................. 1.00% 0.94% 1.94%
Managed Asset Allocation
(Series N)................. 1.00% 0.90% 1.90%
Equity Income (Series O)..... 1.00% 0.40% 1.40%
(1) During the fiscal year ended December 31, 1995, the Investment Adviser
waived .40% of the management fees of Series K and, during the fiscal
year ending December 31, 1996, the Investment Adviser will waive all
of the management fees of Series K; absent such expense reimbursement
and waiver, Series K's "Total Mutual Fund Expenses" would have been
2.03%.
EXAMPLES
The example presented below shows expenses that a Contractowner would pay
at the end of one or three years. The information presented applies if, at the
end of those time periods, the Contract is (1) surrendered, (2) annuitized, or
(3) not surrendered or annuitized. The example shows
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expenses based upon an allocation of $1,000 to each of the Subaccounts.
The example below should not be considered a representation of past or
future expenses. Actual expenses may be greater or lesser than those shown. The
5 percent return assumed in the examples is hypothetical and should not be
considered a representation of past or future actual returns, which may be
greater or lesser than the assumed amount.
Example -- The Owner would pay the expenses shown below on a $1,000
investment, assuming 5 percent annual return on assets:
1 YEAR 3 YEARS
Growth Subaccount....................... $23 $70
Growth-Income Subaccount................ 23 70
Money Market Subaccount................. 20 63
Worldwide Equity Subaccount............. 27 84
High Grade Income Subaccount............ 23 70
Social Awareness Subaccount............. 23 71
Emerging Growth Subaccount.............. 23 70
Global Aggressive Bond Subaccount....... 31 94
Specialized Asset Allocation Subaccount. 34 103
Managed Asset Allocation Subaccount..... 33 102
Equity Income Subaccount................ 28 87
CONDENSED FINANCIAL INFORMATION
The following condensed financial information presents accumulation unit
values for the period April 1, 1995 (date of inception) through December 31,
1995, as well as ending accumulation units outstanding under each Subaccount.
GROWTH SUBACCOUNT 1995(1)
Accumulation unit value:
Beginning of period................... 10.00
End of period......................... 13.20
Accumulation units
outstanding at the end of period...... 289,693
GROWTH-INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period................... 10.00
End of period......................... 12.70
Accumulation units
outstanding at the end of period...... 248,974
MONEY MARKET SUBACCOUNT
Accumulation unit value:
Beginning of period................... 10.00
End of period......................... 10.35
Accumulation units
outstanding at the end of period...... 288,907
WORLDWIDE EQUITY SUBACCOUNT
Accumulation unit value:
Beginning of period................... 10.00
End of period......................... 11.42
Accumulation units
outstanding at the end of period...... 126,206
HIGH GRADE INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period................... 10.00
End of period......................... 11.56
Accumulation units
outstanding at the end of period...... 240,306
SOCIAL AWARENESS SUBACCOUNT
Accumulation unit value:
Beginning of period................... 10.00
End of period......................... 12.56
Accumulation units
outstanding at the end of period...... 37,149
EMERGING GROWTH SUBACCOUNT
Accumulation unit value:
Beginning of period................... 10.00
End of period......................... 11.89
Accumulation units
outstanding at the end of period...... 133,581
GLOBAL AGGRESSIVE BOND SUBACCOUNT
Accumulation unit value:
Beginning of period................... 10.00
End of period......................... 10.67
Accumulation units
outstanding at the end of period...... 86,477
SPECIALIZED ASSET ALLOCATION SUBACCOUNT
Accumulation unit value:
Beginning of period................... 10.00
End of period......................... 10.62
Accumulation units
outstanding at the end of period...... 471,091
MANAGED ASSET ALLOCATION SUBACCOUNT
Accumulation unit value:
Beginning of period................... 10.00
End of period......................... 10.64
Accumulation units
outstanding at the end of period...... 231,852
EQUITY INCOME SUBACCOUNT
Accumulation unit value:
Beginning of period................... 10.00
End of period......................... 11.61
Accumulation units
outstanding at the end of period...... 267,317
(1) Global Aggressive Bond Subaccount, Specialized Asset Allocation Subaccount,
Managed Asset Allocation
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8
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Subaccount and Equity Income Subaccount for the period June 1, 1995
(inception) through December 31, 1995.
INFORMATION ABOUT SECURITY BENEFIT,
THE SEPARATE ACCOUNT, AND THE
MUTUAL FUND
SECURITY BENEFIT LIFE INSURANCE COMPANY
Security Benefit is a mutual life insurance company organized under the
laws of the State of Kansas. It was organized originally as a fraternal benefit
society and commenced business February 22, 1892. It became a mutual life
insurance company under its present name on January 2, 1950.
Security Benefit offers a complete line of life insurance policies and
annuity contracts, as well as financial and retirement services. It is admitted
to do business in the District of Columbia, and in all states except New York.
As of December 31, 1995, Security Benefit had over $15 billion of life insurance
in force and total assets of approximately $4.7 billion. Together with its
subsidiaries, Security Benefit has total funds under management of over $5.7
billion.
The Principal Underwriter for the Contracts is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Management Company, which is wholly-owned by Security Benefit Group, Inc., a
financial services holding company wholly-owned by Security Benefit.
PUBLISHED RATINGS
Security Benefit 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 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
The Separate Account was established by Security Benefit on September 12,
1994, under procedures established under Kansas law. The income, gains, or
losses of the Separate Account, whether or not realized, are, in accordance with
the Contracts, credited to or charged against the assets of the Separate Account
without regard to other income, gains, or losses of Security Benefit. K.S.A.
40-436 provides that assets in a separate account attributable to the reserves
and other liabilities under the contracts are not chargeable with liabilities
arising from any other business that the insurance company conducts if, and to
the extent the contracts so provide, the Contract contains such a provision.
Security Benefit owns the assets in the Separate Account and is required to
maintain sufficient assets in the Separate Account to meet all Separate Account
obligations under the Contracts. Security Benefit may transfer to its General
Account assets that exceed anticipated obligations of the Separate Account. All
obligations arising under the Contracts are general corporate obligations of
Security Benefit. Security Benefit may invest its own assets in the Separate
Account for other purposes, but not to support contracts other than variable
annuity contracts, and may accumulate in the Separate Account proceeds from
Contract charges and investment results applicable to those assets.
The Separate Account is currently divided into eleven Subaccounts. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, 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 Series of the Mutual
Fund. Security Benefit may in the future establish additional Subaccounts of the
Separate Account, which may invest in other Series of the Mutual Fund or in
other securities, mutual funds, or investment vehicles.
The Separate Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with the
SEC does not involve supervision by the SEC of the administration or investment
practices of the Separate Account or of Security Benefit.
SBL FUND
SBL Fund (the "Mutual Fund") is a diversified, open-end management
investment company of the series type. The Mutual Fund is registered with the
SEC under the 1940 Act. Such registration does not involve supervision by the
SEC of the investments or investment policy of the Mutual Fund. The Mutual Fund
currently has eleven separate portfolios ("Series"), each of which pursues
different investment objectives and policies.
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9
<PAGE>
Shares of the Mutual Fund currently are offered only for purchase by
separate accounts of Security Benefit to serve as an investment medium for
variable life insurance policies and for variable annuity contracts issued by
Security Benefit. Thus, the Mutual Fund serves as an investment medium for both
variable life insurance policies and variable annuity contracts. This is called
"mixed funding." Shares of the Mutual Fund may also be sold in the future to
separate accounts of other insurance companies, both affiliated and not
affiliated with Security Benefit. This is called "shared funding." Security
Benefit currently does not foresee any disadvantages to Contractowners arising
from either mixed or shared funding; however, due to differences in tax
treatment or other considerations, it is theoretically possible that the
interests of owners of various contracts for which the Mutual Fund serves as an
investment medium might at some time be in conflict. However, Security Benefit,
the Mutual Fund's Board of Directors, and any other insurance companies that
participate in the Mutual Fund in the future are required to monitor events in
order to identify any material conflicts that arise from the use of the Mutual
Fund for mixed and/or shared funding. The Mutual Fund's Board of Directors are
required to determine what action, if any, should be taken in the event of such
a conflict. If such a conflict were to occur, Security Benefit might be required
to withdraw the investment of one or more of its separate accounts from the
Mutual Fund. This might force the Mutual Fund to sell securities at
disadvantageous prices.
A summary of the investment objective of each Series of the Mutual Fund is
described below. There can be no assurance that any Series will achieve its
objective. More detailed information is contained in the accompanying prospectus
of the Mutual Fund, including information on the risks associated with the
investments and investment techniques of each Series.
THE MUTUAL FUND'S PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
SERIES A (GROWTH SERIES)
Amounts allocated to the Growth Subaccount are invested in Series A. The
investment objective of Series A is to seek long-term capital growth by
investing in a broadly diversified portfolio of common stocks, securities
convertible into common stocks, preferred stocks, bonds and other debt
securities.
SERIES B (GROWTH-INCOME SERIES)
Amounts allocated to the Growth-Income Subaccount are invested in Series B.
Series B seeks long-term growth of capital with secondary emphasis on income by
investing in various types of securities, including common stocks, convertible
securities, preferred stocks and debt securities. Series B's investments in debt
securities may include securities rated below investment grade. Series B may
also temporarily invest in government bonds or commercial paper.
SERIES C (MONEY MARKET SERIES)
Amounts allocated to the Money Market Subaccount are invested in Series C.
The investment objective of Series C is to provide as high a level of current
income as is consistent with preserving capital. It invests in high quality
money market instruments with maturities of not longer than thirteen months.
SERIES D (WORLDWIDE EQUITY SERIES)
Amounts allocated to the Worldwide Equity Subaccount are invested in Series
D. The investment objective of Series D is to seek long-term growth of capital
primarily through investment in common stocks and equivalents of companies
domiciled in foreign countries and the United States.
SERIES E (HIGH GRADE INCOME SERIES)
Amounts allocated to the High Grade Income Subaccount are invested in
Series E. The investment objective of Series E is to provide current income with
security of principal. Series E seeks to achieve this investment objective by
investing in a broad range of debt securities, including U.S. and foreign
corporate debt securities and securities issued by the U.S. and foreign
governments.
SERIES S (SOCIAL AWARENESS SERIES)
Amounts allocated to the Social Awareness Subaccount are invested in Series
S. The investment objective of Series S is to seek high total return through a
combination of income and capital appreciation by investing in various types of
securities which meet certain social criteria established for the Series. Series
S will invest in a diversified portfolio of common stocks, convertible
securities, preferred stocks and debt securities. Series S may temporarily
invest in government bonds or commercial paper.
SERIES J (EMERGING GROWTH SERIES)
Amounts allocated to the Emerging Growth Subaccount are invested in Series
J. The investment objective of Series J is to seek capital appreciation through
investment in a broadly diversified portfolio of securities which may include
common stocks, preferred stocks, debt securities and securities convertible into
common stocks.
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10
<PAGE>
SERIES K (GLOBAL AGGRESSIVE BOND SERIES)
Amounts allocated to the Global Aggressive Bond Subaccount are invested in
Series K. The investment objective of Series K is to seek high current income
and, as a secondary objective, capital appreciation by investing in a
combination of foreign and domestic high-yield, lower rated debt securities
(commonly known as "junk bonds").
SERIES M ( SPECIALIZED ASSET ALLOCATION SERIES)
Amounts allocated to the Specialized Asset Allocation Subaccount are
invested in Series M. The investment objective of Series M is to seek high total
return consisting of capital appreciation and current income. Series M seeks
this objective by following an asset allocation strategy that contemplates
shifts among a wide range of investment categories and market sectors, including
equity and debt securities of domestic and foreign issues.
SERIES N (MANAGED ASSET ALLOCATION SERIES)
Amounts allocated to the Managed Asset Allocation Subaccount are invested
in Series N. The investment objective of Series N is to seek a high level of
total return by investing primarily in a diversified portfolio of debt and
equity securities.
SERIES O (EQUITY INCOME SERIES)
Amounts allocated to the Equity Income Subaccount are invested in Series O.
The investment objective of Series O is to seek to provide substantial dividend
income and also capital appreciation by investing primarily in dividend-paying
common stocks of established companies.
THE INVESTMENT ADVISER
Security Management Company (the "Investment Adviser") located at 700 SW
Harrison Street, Topeka, Kansas 66636 serves as investment adviser to each
Series of the Mutual Fund. The Investment Adviser is registered with the SEC as
an investment adviser. The Investment Adviser formulates and implements
continuing programs for the purchase and sale of securities in compliance with
the investment objectives, policies, and restrictions of each Series, and is
responsible for the day to day decisions to buy and sell securities for the
Series except Series D, K, N and O. The Investment Adviser has engaged Lexington
Management Corporation, Park 80 West, Plaza Two, Saddle Brook, New Jersey 07662
to provide certain investment advisory services to Series D and K of the Fund.
The Investment Adviser has engaged T. Rowe Price Associates, Inc., 100 E. Pratt
St., Baltimore, Maryland 21202 to provide certain investment advisory services
to Series N and O. The Investment Adviser has engaged Meridian Investment
Management Corporation, 12835 East Arapahoe Road, Tower II, 7th Floor,
Engelwood, Colorado 80112 and Templeton/Franklin Investment Services, Inc., 777
Mariners Island Boulevard, San Mateo, California 94404, to provide certain
analytic research services for Series M.
THE CONTRACT
GENERAL
The Contract offered by this Prospectus is an individual flexible purchase
payment deferred variable annuity that is issued by Security Benefit. To the
extent that all or a portion of purchase payments are allocated to the
Subaccounts, the Contract is significantly different from a fixed annuity
contract in that it is the Owner under a Contract who assumes the risk of
investment gain or loss rather than Security Benefit. Upon the maturity of a
Contract, the Contract provides several Annuity Options on a variable basis, a
fixed basis or both, under which Security Benefit will pay periodic annuity
payments beginning on the Annuity Start Date. The amount that will be available
for annuity payments will depend on the investment performance of the
Subaccounts to which purchase payments have been allocated and the amount of
interest credited on Contract Value that has been allocated to the Fixed
Account.
The Contract is available for purchase as a non-tax qualified retirement
plan ("Non-Qualified Plan") by an individual. The Contract is also eligible for
use in connection with certain tax qualified retirement plans that meet the
requirements of Section 401, 403(b), 408, or 457 of the Internal Revenue Code
("Qualified Plan"). Certain federal tax advantages are currently available to
retirement plans that qualify as (1) self-employed individuals' retirement plans
under Section 401, such as HR-10 and Keogh plans, (2) pension or profit-sharing
plans established by an employer for the benefit of its employees under Section
401, (3) individual retirement accounts or annuities, including those
established by an employer as a simplified employee pension plan, under Section
408, (4) annuity purchase plans of public school systems and certain tax-exempt
organizations under Section 403(b) or (5) deferred compensation plans for
employees established by a unit of a state or local government or by a
tax-exempt organization under Section 457. Joint Owners are permitted only on a
Contract issued pursuant to a Non-Qualified Plan.
APPLICATION FOR A CONTRACT
Any person wishing to purchase a Contract may submit an application and an
initial purchase payment to Security Benefit, as well as any other form or
information that Security Benefit may require. Security Benefit reserves the
right to reject an application or purchase payment for any reason, subject to
Security Benefit's underwriting standards and guidelines and any applicable
state or federal law relating to nondiscrimination.
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11
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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 initial purchase payment for the purchase of a Contract is
$25,000 for both Non-Qualified and Qualified Plans. Thereafter, the
Contractowner may choose the amount and frequency of purchase payments, except
that the minimum subsequent purchase payment is $1,000 for both Non-Qualified
and Qualified Plans. The minimum subsequent purchase payment pursuant to an
Automatic Investment Program is also $1,000. Security Benefit may reduce the
minimum purchase payment requirement under certain circumstances. Any purchase
payment exceeding $1 million will not be accepted without prior approval of
Security Benefit.
An initial purchase payment will be applied not later than the end of the
second Valuation Date after the Valuation Date it is received by Security
Benefit at its Home Office if the purchase payment is preceded or accompanied by
an application that contains sufficient information necessary to establish an
account and properly credit such purchase payment. The application form will be
provided by Security Benefit. If Security Benefit does not receive a complete
application, the applicant will be notified by Security Benefit that it does not
have the necessary information to issue a Contract. If the necessary information
is not provided to Security Benefit within five Valuation Dates after the
Valuation Date on which Security Benefit first receives the initial purchase
payment or if Security Benefit determines it cannot otherwise issue the
Contract, Security Benefit will return the initial purchase payment to the
applicant unless the applicant consents to Security Benefit retaining the
purchase payment until the application is made complete.
Subsequent purchase payments will be credited as of the end of the
Valuation Period in which they are received by Security Benefit at its Home
Office. Purchase payments after the initial purchase payment may be made at any
time prior to the Annuity Start Date, so long as the Owner is living. Subsequent
purchase payments under a Qualified Plan may be limited by the terms of the plan
and provisions of the Internal Revenue Code. Subsequent purchase payments may be
paid under an Automatic Investment Program. The initial purchase payment
required must be paid before the Automatic Investment Program will be accepted
by Security Benefit.
ALLOCATION OF PURCHASE PAYMENTS
In an application for a Contract, the Contractowner selects the Subaccounts
or the Fixed Account to which purchase payments will be allocated. Purchase
payments will be allocated according to the Contractowner's instructions
contained in the application or more recent instructions received, if any,
except that no purchase payment allocation is permitted that would result in
less than 1 percent of each payment being allocated to any one Subaccount or the
Fixed Account. The allocations must be whole percentages and must total 100
percent. Available allocation alternatives include the eleven Subaccounts and
the Fixed Account.
A Contractowner may change the purchase payment allocation instructions by
submitting a proper written request to Security Benefit's Home Office. A proper
change in allocation instructions will be effective upon receipt by Security
Benefit at its Home Office and will continue in effect until subsequently
changed. Changes in purchase payment allocation and changes to an existing
Dollar Cost Averaging or Asset Reallocation Option may be made by telephone
provided the Telephone Transfer Section of the application or an Authorization
for Telephone Requests form is properly completed, signed, and filed at Security
Benefit's Home Office. Changes in the allocation of future purchase payments
have no effect on existing Contract Value. Such Contract Value, however, may be
transferred among the Subaccounts of the Separate Account or the Fixed Account
in the manner described in "Transfers of Contract Value" on page 13.
DOLLAR COST AVERAGING OPTION
Security Benefit currently offers an option under which Contractowners may
dollar cost average their allocations in the Subaccounts under the Contract by
authorizing Security Benefit to make periodic allocations of Contract Value from
any one Subaccount to one or more of the other Subaccounts. Dollar cost
averaging is a systematic method of investing in which securities are purchased
at regular intervals in fixed dollar amounts so that the cost of the securities
gets averaged over time and possibly over various market cycles. The option will
result in the allocation of Contract Value to one or more Subaccounts, and these
amounts will be credited at the Accumulation Unit value as of the end of the
Valuation Dates on which the transfers are effected. Since the value of
Accumulation Units will vary, the amounts allocated to a Subaccount will result
in the crediting of a greater number of units when the Accumulation Unit value
is low and a lesser number of units when the Accumulation Unit value is high.
Similarly, the amounts transferred from a Subaccount will result in a debiting
of a greater number of units when the Accumulation Unit value is low and a
lesser number of units when the Accumulation Unit value is high. Dollar cost
averaging does not guarantee profits, nor does it assure that a Contractowner
will not have losses.
A Dollar Cost Averaging Request form is available upon request. On the
form, the Contractowner must designate whether a specific dollar amount, fixed
period or earnings only are to be transferred, the Subaccount or Subaccounts
from and to which the transfers will be made, the desired
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12
<PAGE>
frequency of the transfers, which may be on a monthly or quarterly basis, and
the length of time during which the transfers shall continue or the total amount
to be transferred over time.
After Security Benefit has received a Dollar Cost Averaging Request in
proper form at its Home Office, Security Benefit will transfer Contract Value in
amounts designated by the Contractowner from the Subaccount from which transfers
are to be made to the Subaccount or Subaccounts chosen by the Contractowner.
Each transfer will be effected on the monthly or quarterly anniversary,
whichever corresponds to the period selected by the Contractowner, of the date
of receipt at Security Benefit's Home Office of a Dollar Cost Averaging Request
in proper form. Transfers will be made until the total amount elected has been
transferred, or until Contract Value in the Subaccount from which transfers are
made has been depleted. No transfers will be made pursuant to the Dollar Cost
Averaging Option on the last business day of any month, but instead will be made
as of the next following Valuation Date.
A Contractowner may instruct Security Benefit at any time to terminate the
option by written request to Security Benefit's Home Office. In that event, the
Contract Value in the Subaccount from which transfers were being made that has
not been transferred will remain in that Subaccount unless the Contractowner
instructs otherwise. If a Contractowner wishes to continue transferring on a
dollar cost averaging basis after the expiration of the applicable period, the
total amount elected has been transferred, or the Subaccount has been depleted,
or after the Dollar Cost Averaging Option has been canceled, a new Dollar Cost
Averaging Request must be completed and sent to Security Benefit's Home Office.
Security Benefit may discontinue, modify, or suspend the Dollar Cost Averaging
Option at any time.
Contract Value may also be dollar cost averaged to or from the Fixed
Account, subject to certain restrictions described under "The Fixed Account,"
page 19.
ASSET REALLOCATION OPTION
Security Benefit currently offers an option under which Contractowners
authorize Security Benefit to automatically transfer their Contract Value each
quarter to maintain a particular percentage allocation among the Subaccounts as
selected by the Contractowner. The Contract Value allocated to each Subaccount
will grow or decline in value at different rates during the quarter, and Asset
Reallocation automatically reallocates the Contract Value in the Subaccounts
each quarter to the allocation selected by the Contractowner. Asset Reallocation
is intended to transfer Contract Value from those Subaccounts that have
increased in value to those Subaccounts that have declined in value. Over time,
this method of investing may help a Contractowner buy low and sell high. This
investment method does not guarantee profits, nor does it assure that a
Contractowner will not have losses.
To elect this option an Asset Reallocation Request in proper form must be
received by Security Benefit at its Home Office. An Asset Reallocation Request
form is available upon request. On the form, the Contractowner must indicate the
applicable Subaccounts and the percentage of Contract Value to be allocated on a
quarterly basis to each Subaccount ("Asset Reallocation Program").
Upon receipt of the Asset Reallocation Request, Security Benefit will
effect a transfer or, in the case of a new Contract, an initial allocation of
Contract Value to the allocation among the Subaccounts selected by the
Contractowner. Thereafter, transfers to maintain that allocation will occur on
each quarterly anniversary of the date of Security Benefit's receipt of the
Asset Reallocation Request in proper form. The amounts transferred will be
credited at the Accumulation Unit value as of the end of the Valuation Dates on
which the transfers are effected.
A Contractowner may instruct Security Benefit at any time to terminate this
option by written request to Security Benefit's Home Office. The Asset
Reallocation Option will terminate automatically if a transfer is made to, or
from, any Subaccount included in the allocation selected by the Contractowner.
In that event, the Contract Value in the Subaccounts that has not been
transferred will remain in those Subaccounts regardless of the percentage
allocation unless the Contractowner instructs otherwise. If a Contractowner
wishes to continue Asset Reallocation after it has been canceled, a new Asset
Reallocation Request form must be completed and sent to Security Benefit's Home
Office. Security Benefit may discontinue, modify, or suspend, and reserves the
right to charge a fee for the Asset Reallocation Option at any time.
Contract Value allocated to the Fixed Account may be included in the Asset
Reallocation Program, subject to certain restrictions described in "Transfers
and Withdrawals from the Fixed Account," page 20.
TRANSFERS OF CONTRACT VALUE
During the Accumulation Period, Contract Value may be transferred among the
Subaccounts by the Contractowner upon proper written request to Security
Benefit's Home Office. Transfers (other than transfers pursuant to the Dollar
Cost Averaging and Asset Reallocation Options) may be made by telephone if the
Telephone Transfer section of the application or an Authorization for Telephone
Requests form has been properly completed, signed and filed at Security
Benefit's Home Office. The minimum transfer amount is $1,000, or the amount
remaining in a given Subaccount. The minimum transfer amount does not apply to
transfers under the Dollar Cost Averaging or Asset Reallocation Options.
Contract Value may also be transferred from the Subaccounts to the Fixed
Account; however, transfers from
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13
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the Fixed Account to the Subaccounts are restricted as described in "The Fixed
Account" on page 19.
The frequency of transfers generally is not limited, although Security
Benefit reserves the right at a future date to limit the number of transfers to
14 in a Contract Year. Security Benefit also reserves the right to limit the
size and frequency of such transfers, and to discontinue telephone transfers.
CONTRACT VALUE
The Contract Value is the sum of the amounts under the Contract held in
each Subaccount of the Separate Account and Fixed Account as well as any amount
set aside in the loan account to secure loans as of any Valuation Date.
On each Valuation Date, the portion of the Contract Value allocated to any
particular Subaccount will be adjusted to reflect the investment experience of
that Subaccount. See "Determination of Contract Value," below. No minimum amount
of Contract Value is guaranteed. A Contractowner bears the entire investment
risk relating to the investment performance of Contract Value allocated to the
Subaccounts.
DETERMINATION OF CONTRACT VALUE
The Contract Value will vary to a degree that depends upon several factors,
including investment performance of the Subaccounts to which Contract Value has
been allocated, payment of purchase payments, the amount of any outstanding
Contract Debt, partial withdrawals, and the charges assessed in connection with
the Contract. The amounts allocated to the Subaccounts will be invested in
shares of the corresponding Series of the Mutual Fund. The investment
performance of the Subaccounts will reflect increases or decreases in the net
asset value per share of the corresponding Series and any dividends or
distributions declared by a Series. Any dividends or distributions from any
Series of the Mutual Fund will be automatically reinvested in shares of the same
Series, unless Security Benefit, on behalf of the Separate Account, elects
otherwise.
Assets in the Subaccounts are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's
interest in a Subaccount. When a Contractowner allocates purchase payments to a
Subaccount, the Contract is credited with Accumulation Units. The number of
Accumulation Units to be credited is determined by dividing the dollar amount
allocated to the particular Subaccount by the Accumulation Unit value for the
particular Subaccount at the end of the Valuation Period in which the purchase
payment is credited. In addition, other transactions including loans, full or
partial withdrawals, transfers, and assessment of certain charges against the
Contract affect the number of Accumulation Units credited to a Contract. The
number of units credited or debited in connection with any such transaction is
determined by dividing the dollar amount of such transaction by the unit value
of the affected Subaccount. The Accumulation Unit value of each Subaccount is
determined on each Valuation Date. The number of Accumulation Units credited to
a Contract shall not be changed by any subsequent change in the value of an
Accumulation Unit, but the dollar value of an Accumulation Unit may vary from
Valuation Date to Valuation Date depending upon the investment experience of the
Subaccount and charges against the Subaccount.
The Accumulation Unit value of each Subaccount's unit initially was $10.
The unit value of a Subaccount on any Valuation Date is calculated by dividing
the value of each Subaccount's net assets by the number of Accumulation Units
credited to the Subaccount on that date. Determination of the value of the net
assets of a Subaccount takes into account the following: (1) the investment
performance of the Subaccount, which is based upon the investment performance of
the corresponding Series of the Mutual Fund, (2) any dividends or distributions
paid by the corresponding Series, (3) the charges, if any, that may be assessed
by Security Benefit for taxes attributable to the operation of the Subaccount,
(4) the mortality and expense risk charge under the Contract, and (5) the
administrative charge under the Contract.
FULL AND PARTIAL WITHDRAWALS
A Contractowner may obtain proceeds from a Contract by surrendering the
Contract for its Withdrawal Value or by making a partial withdrawal. A full or
partial withdrawal, including a systematic withdrawal, may be taken from the
Contract Value at any time while the Owner is living and before the Annuity
Start Date, subject to restrictions on partial withdrawals of Contract Value
from the Fixed Account and limitations under the applicable plan for Qualified
Plans and applicable law. A full or partial withdrawal request will be effective
as of the end of the Valuation Period that a proper written request is received
by Security Benefit at its Home Office. A proper written request must include
the written consent of any effective assignee or irrevocable Beneficiary, if
applicable.
The proceeds received upon a full withdrawal will be the Contract's
Withdrawal Value. The Withdrawal Value is equal to the Contract Value as of the
end of the Valuation Period during which a proper withdrawal request is received
by Security Benefit at its Home Office, minus any outstanding Contract Debt, and
any uncollected premium taxes. A partial withdrawal may be requested for a
specified percentage or dollar amount of Contract Value. Each partial withdrawal
must be for at least $1,000 except systematic withdrawals discussed below. A
request for a partial withdrawal will result in a payment by Security Benefit in
accordance with the amount specified in the partial withdrawal request. Upon
payment, the Contract Value will be reduced by an amount equal to the payment
and any applicable premium tax. If a partial withdrawal is requested that would
leave the Withdrawal Value in the Contract less
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than $5,000, then Security Benefit reserves the right to treat the partial
withdrawal as a request for a full withdrawal.
The amount of a partial withdrawal will be allocated from the Contract
Value in the Subaccounts and the Fixed Account, according to the Contractowner's
instructions to Security Benefit, subject to the restrictions on partial
withdrawals from the Fixed Account. See "The Fixed Account" on page 19. If a
Contractowner does not specify the allocation, the withdrawal will be allocated
from the Contract Value in the Subaccounts and the Fixed Account in the
following order: Money Market Subaccount, High Grade Income Subaccount, Global
Aggressive Bond Subaccount, Growth-Income Subaccount, Equity Income Subaccount,
Managed Asset Allocation Subaccount, Specialized Asset Allocation Subaccount,
Growth Subaccount, Worldwide Equity Subaccount, Social Awareness Subaccount, and
Emerging Growth Subaccount and then from the Fixed Account. The value of each
account will be depleted before the next account is charged.
A full or partial withdrawal, including a systematic withdrawal, may be
subject to a premium tax charge to reimburse Security Benefit for any tax on
premiums on a Contract that may be imposed by various states and municipalities.
See "Premium Tax Charge," on page 17.
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
attaining age 59 1/2, may be subject to a 10 percent penalty tax. In the case of
Contracts issued in connection with retirement plans that meet the requirements
of Section 401(a), 403(b), 408 or 457 of the Internal Revenue Code, reference
should be made to the terms of the particular Qualified Plan for any limitations
or restrictions on withdrawals. For more information, see "Restrictions on
Withdrawals from Qualified Plans" on page 22. The tax consequences of a
withdrawal under the Contract should be carefully considered. See "Federal Tax
Matters" on page 23.
SYSTEMATIC WITHDRAWALS
Security Benefit currently offers a feature under which systematic
withdrawals may be elected. Under this feature, a Contractowner may elect to
receive systematic withdrawals before the Annuity Start Date by sending a
properly completed Systematic Withdrawal Request form to Security Benefit at its
Home Office. This option may be elected at any time. A Contractowner may
designate the systematic withdrawal amount as a percentage of Contract Value
allocated to the Subaccounts and/or Fixed Account, as a fixed period, 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. A Contractowner may
also designate the desired frequency of the systematic withdrawals, which may be
monthly, quarterly, semiannually or annually. Systematic withdrawals may be
stopped or modified upon proper written request by the Contractowner received by
Security Benefit at its Home Office at least 30 days in advance of the requested
date of termination or modification. A proper request must include the written
consent of any effective assignee or irrevocable Beneficiary, if applicable.
Each systematic withdrawal must be at least $100. Upon payment, the
Contractowner's Contract Value will be reduced by an amount equal to the payment
proceeds plus any applicable premium tax. 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.
Each systematic withdrawal will be effected as of the end of the Valuation
Period during which the withdrawal is scheduled. The deduction caused by the
systematic withdrawal will be allocated from the Contractowner's Contract Value
in the Subaccounts and the Fixed Account, as directed by the Contractowner. If a
Contractowner does not specify the allocation, the systematic withdrawal will be
allocated from the Contract Value in the Subaccounts and the Fixed Account in
the following order: Money Market Subaccount, High Grade Income Subaccount,
Global Aggressive Bond Subaccount, Growth-Income Subaccount, Equity Income
Subaccount, Managed Asset Allocation Subaccount, Specialized Asset Allocation
Subaccount, Growth Subaccount, Worldwide Equity Subaccount, Social Awareness
Subaccount, and Emerging Growth Subaccount and then from the Fixed Account. The
value of each account will be depleted before the next account is charged.
Security Benefit may, at any time, discontinue, modify, suspend or charge a
fee for systematic withdrawals. Systematic withdrawals from Contract Value
allocated to the Fixed Account must provide for payments over a period of not
less than 36 months as described under "The Fixed Account" on page 19. The tax
consequences of a systematic withdrawal, including the 10 percent penalty tax
which may be imposed on withdrawals made prior to the Owner attaining age
59 1/2, should be carefully considered. See "Federal Tax Matters" on page 23.
FREE-LOOK RIGHT
An Owner may return a Contract within the Free-Look Period, which is
generally a ten-day period beginning when the Owner receives the Contract. The
returned Contract will then be deemed void and Security Benefit will refund any
purchase payments allocated to the Fixed Account plus the Contract Value in the
Subaccounts as of the end of the Valuation Period during which the returned
Contract is received by Security Benefit. Security Benefit will refund purchase
payments allocated to the Subaccounts rather than Contract Value in those states
that require it to do so.
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DEATH BENEFIT
If the Owner dies during the Accumulation Period, Security Benefit will pay
the death benefit proceeds to the Designated Beneficiary upon receipt of due
proof of the Owner's 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" below. 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.
Additionally, if the Owner is not a natural person, the amount of the death
benefit will be based on the age of the oldest annuitant on the date the
Contract was issued. If the death of the Owner occurs on or after the Annuity
Start Date, no death benefit proceeds will be payable under the Contract, except
that any guaranteed payments remaining unpaid will continue to be paid to the
Annuitant pursuant to the Annuity Option in force at the date of death.
The death benefit proceeds will be the death benefit reduced by any
outstanding Contract Debt and any uncollected premium taxes. 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 sum of all Purchase Payments, less any reductions caused by
previous withdrawals, (2) the Contract Value on the date due proof of death is
received by Security Benefit, or (3) the stepped-up death benefit. The
stepped-up death benefit is: (a) the largest death benefit on any Contract
anniversary that is both an exact multiple of five and occurs prior to the
oldest Owner attaining 76, plus (b) any Purchase Payments made since the
applicable fifth year anniversary, less (c) any reductions caused by previous
withdrawals since the applicable fifth year anniversary.
If an Owner dies during the Accumulation Period and the age of any Owner
was 76 or greater on the date the Contract was issued, or if due proof of death
(regardless of the age of any Owner on the date the Contract was issued) and
instructions regarding payment are not received by Security Benefit at its Home
Office within six months of the date of the Owner's death, the death benefit
will be the Contract Value on the date due proof of death is received by
Security Benefit at its Home Office.
Notwithstanding the foregoing, the death benefit for Contracts issued in
Florida, regardless of the age at issue, is the greater of (1) the Contract
Value as of the end of the Valuation Period in which due proof of death and
instructions regarding payment are received by Security Benefit at its Home
Office, or (2) the aggregate purchase payments received less any reductions
caused by previous withdrawals. However, if due proof of death and instructions
regarding payment are not received by Security Benefit at its Home Office within
six months of the date of the Owner's death, the death benefit will be the
Contract Value on the date due proof of death and instructions regarding payment
are received by Security Benefit at its Home Office.
The death benefit proceeds will be paid to the Designated Beneficiary in a
single sum or under one of the Annuity Options, as directed by the Owner or as
elected by the Designated Beneficiary. If the Designated Beneficiary is to
receive annuity payments under an Annuity Option, there may be limits under
applicable law on the amount and duration of payments that the Beneficiary may
receive, and requirements respecting timing of payments. A tax adviser should be
consulted in considering Annuity Options. See "Federal Tax Matters" on page 23
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 this Contract in force until the earliest of the
spouse's death or the Annuity Start Date or 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 such 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 the
particular Qualified Plan and the Internal Revenue Code should be reviewed with
respect to limitations or restrictions on distributions following the death of
the Owner or Annuitant. Because the rules applicable to Qualified Plans are
extremely complex, a competent tax adviser should be consulted.
DEATH OF THE ANNUITANT
If the Annuitant dies prior to the Annuity Start Date, and the Owner is a
natural person and is not the Annuitant, no death benefit proceeds will be
payable under the Contract. The Owner may name a new Annuitant within 30 days of
the Annuitant's death. If a new Annuitant is not named, Security Benefit will
designate the Owner as Annuitant. On the death of the Annuitant after the
Annuity Start Date, any guaranteed payments remaining unpaid will continue to be
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paid to the Designated Beneficiary pursuant to the Annuity Option in force at
the date of death.
CHARGES AND DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE
Security Benefit deducts a daily charge from the assets of each Subaccount
for mortality and expense risks assumed by Security Benefit under the Contracts.
The charge is equal to an annual rate of 1.25 percent of each Subaccount's
average daily net assets. This amount is intended to compensate Security Benefit
for certain mortality and expense risks Security Benefit assumes in offering and
administering the Contracts and in operating the Subaccounts.
The expense risk is the risk that Security Benefit's actual expenses in
issuing and administering the Contracts and operating the Subaccounts will be
more than the charges assessed for such expenses. The mortality risk borne by
Security Benefit is the risk that Annuitants, as a group, will live longer than
Security Benefit's actuarial tables predict. In this event, Security Benefit
guarantees that annuity payments will not be affected by a change in mortality
experience that results in the payment of greater annuity income than assumed
under the Annuity Options in the Contract. Security Benefit also assumes a
mortality risk in connection with the death benefit under the Contract.
Security Benefit may ultimately realize a profit from this charge to the
extent it is not needed to cover mortality and administrative expenses, but
Security Benefit may realize a loss to the extent the charge is not sufficient.
Security Benefit may use any profit derived from this charge for any lawful
purpose, including distribution expenses.
ADMINISTRATIVE CHARGE
Security Benefit deducts a daily administrative charge equal to an annual
rate of .15 percent of each Subaccount's average daily net assets. The purpose
of this charge is to reimburse Security Benefit for the expenses associated with
administration of the Contracts and operation of the Subaccounts. Security
Benefit does not expect to profit from this charge.
PREMIUM TAX CHARGE
Various states and municipalities impose a tax on premiums on annuity
contracts received by insurance companies. Whether or not a premium tax is
imposed will depend upon, among other things, the Owner's state of residence,
the Annuitant's state of residence, and the insurance tax laws and Security
Benefit's status in a particular state. Security Benefit assesses a premium tax
charge to reimburse itself for premium taxes that it incurs in connection with a
Contract. This charge is currently deducted upon annuitization or upon full or
partial withdrawal if a premium tax was incurred and is not refundable. Security
Benefit reserves the right to deduct premium taxes when due or any time
thereafter. Premium tax rates currently range from 0 percent to 3.5 percent, but
are subject to change by a governmental entity.
OTHER CHARGES
Security Benefit may charge the Separate Account or the Subaccounts for the
federal, state, or local taxes incurred by Security Benefit that are
attributable to the Separate Account or the Subaccounts, or to the operations of
Security Benefit with respect to the Contracts, or that are attributable to
payment of premiums or acquisition costs under the Contracts. No such charge is
currently assessed. See "Tax Status of Security Benefit and the Separate
Account" and "Charge for Security Benefit Taxes."
VARIATIONS IN CHARGES
Security Benefit may reduce or waive the amount of the administrative
charge for a Contract where the expenses associated with the sale of the
Contract or the administrative and maintenance costs associated with the
Contract are reduced for reasons such as the amount of the initial purchase
payment or the amounts of projected purchase payments.
GUARANTEE OF CERTAIN CHARGES
Security Benefit guarantees that the charge for mortality and expense risks
will not exceed an annual rate of 1.25 percent of each Subaccount's average
daily net assets and the administrative charge shall not exceed an annual rate
of .15 percent of each Subaccount's average daily net assets.
MUTUAL FUND EXPENSES
Each Subaccount of the Separate Account purchases shares at the net asset
value of the corresponding Series of the Mutual Fund. Each Series' net asset
value reflects the investment advisory fee and other expenses that are deducted
from the assets of the Series. These fees and expenses are not deducted from the
Subaccounts, but are paid from the assets of the corresponding Series. As a
result, the Owner indirectly bears a pro rata portion of such fees and expenses.
The advisory fees and other expenses, if any, which are more fully described in
the Mutual Fund's prospectus, are not specified or fixed under the terms of the
Contract.
ANNUITY PERIOD
GENERAL
The Contractowner selects the Annuity Start Date at the time of
application. The Annuity Start Date may not be prior
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to the first annual Contract anniversary and may not be deferred beyond the
Annuitant's 90th birthday, although the terms of a Qualified Plan and the laws
of certain states may require annuitization at an earlier age. If the
Contractowner does not select an Annuity Start Date, the Annuity Start Date will
be the later of the Annuitant's 70th birthday or the tenth annual Contract
Anniversary. See "Selection of an Option," on page 19. If there are Joint
Annuitants, the birthdate of the older Annuitant will be used to determine the
latest Annuity Start Date.
On the Annuity Start Date, the proceeds under the Contract will be applied
to provide an annuity under one of the options described below. Each option is
available in two forms -- either as a variable annuity for use with the
Subaccounts or as a fixed annuity for use with the Fixed Account. A combination
variable and fixed annuity is also available. Variable annuity payments will
fluctuate with the investment performance of the applicable Subaccounts while
fixed annuity payments will not. Unless the Owner directs otherwise, proceeds
derived from Contract Value allocated to the Subaccounts will be applied to
purchase a variable annuity and proceeds derived from Contract Value allocated
to the Fixed Account will be applied to purchase a fixed annuity. The proceeds
under the Contract will be equal to the Contractowner's Contract Value in the
Subaccounts and the Fixed Account as of the Annuity Start Date, reduced by any
applicable premium taxes, and any outstanding Contract Debt.
The Contracts provide for six Annuity Options. Other Annuity Options may be
available upon request at the discretion of Security Benefit. Annuity payments
under Annuity Options 1 through 4 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 on the age and sex of the Annuitant, except that unisex
rates are available where required by law. The annuity rates are based upon an
assumed interest rate of 3.5 percent, compounded annually. In the case of
Options 5 and 6 as described below, annuity rates based on age and sex are not
used to calculate annuity payments. If no Annuity Option has been selected,
annuity payments will be made to the Annuitant under an automatic option which
shall be an annuity payable during the lifetime of the Annuitant with payments
guaranteed to be made for 120 months under Option 2.
Annuity payments can be made on a monthly, quarterly, semiannual, or annual
basis, although no payments will be made for less than $100. If the frequency of
payments selected would result in payments of less than $100, Security Benefit
reserves the right to change the frequency.
An Owner may designate or change an Annuity Start Date, Annuity Option, and
Annuitant, provided proper written notice is received by Security Benefit at its
Home Office at least 30 days prior to the Annuity Start Date set forth in the
Contract. The date selected as the new Annuity Start Date must be at least 30
days after the date written notice requesting a change of Annuity Start Date is
received at Security Benefit's Home Office.
Once annuity payments have commenced, an Annuitant or Owner cannot change
the Annuity Option and cannot surrender his or her annuity and receive a
lump-sum settlement in lieu thereof. The Contract specifies annuity tables for
Annuity Options 1 through 4 described below which contain the guaranteed minimum
dollar amount of periodic annuity payments for each $1,000 applied to an Annuity
Option for a fixed annuity.
ANNUITY OPTIONS
OPTION 1 -- LIFE INCOME
Periodic annuity payments will be made during the lifetime of the
Annuitant. It is possible under this Option for any Annuitant to receive only
one annuity payment if the Annuitant's death occurred prior to the due date of
the second annuity payment, two if death occurred prior to the third annuity
payment due date, etc. THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER
THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE ANNUITANT, REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
Option 2 -- Life Income with Guaranteed Payments of 5, 10, 15 or 20 Years
Periodic annuity payments will be made during the lifetime of the Annuitant
with the promise that if, at the death of the Annuitant, payments have been made
for less than a stated period, which may be five, ten, fifteen or twenty years,
as elected, annuity payments will be continued during the remainder of such
period to the Designated Beneficiary.
OPTION 3 -- LIFE WITH INSTALLMENT REFUND OPTION
Periodic annuity payments will be made during the lifetime of the Annuitant
with the promise that, if at the death of the Annuitant, the number of payments
that has been made is less than the number determined by dividing the amount
applied under this Option by the amount of the first payment, annuity payments
will be continued to the Designated Beneficiary until that number of payments
has been made.
OPTION 4 -- JOINT AND LAST SURVIVOR
Periodic annuity payments will be made during the lifetime of either
Annuitant. It is possible under this Option for only one annuity payment to be
made if both Annuitants died prior to the second annuity payment due date, two
if both died prior to the third annuity payment due date, etc. AS IN THE CASE OF
OPTION 1, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS
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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 five to twenty years, as elected, with the guarantee that, if, at the death
of all Annuitants, payments have been made for less than the selected fixed
period, the remaining unpaid payments will be paid to the Designated
Beneficiary.
OPTION 6 -- PAYMENTS OF A SPECIFIED AMOUNT
Periodic payments of the amount elected will be made until the amount
applied and interest thereon are exhausted, with the guarantee that, if, at the
death of all Annuitants, all guaranteed payments have not yet been made, the
remaining unpaid payments will be paid to the Designated Beneficiary.
SELECTION OF AN OPTION
Contractowners should carefully review the Annuity Options with their
financial or tax advisers, and, for Contracts used in connection with a
Qualified Plan, reference should be made to the terms of the particular plan and
the requirements of the Internal Revenue Code for pertinent limitations
respecting annuity payments and other matters. For instance, Qualified Plans
generally require that annuity payments begin no later than April 1 of the
calendar year following the year in which the Annuitant reaches age 70 1/2. In
addition, under Qualified Plans, the period elected for receipt of annuity
payments under Annuity Options generally may be no longer than the joint life
expectancy of the Annuitant and Beneficiary in the year that the Annuitant
reaches age 70 1/2, and must be shorter than such joint life expectancy if the
Beneficiary is not the Annuitant's spouse and is more than ten years younger
than the Annuitant. For Non-Qualified Plans, SBL does not allow annuity payments
to be deferred beyond the Annuitant's 90th birthday.
THE FIXED ACCOUNT
Contractowners may allocate all or a portion of their purchase payments and
transfer Contract Value to the Fixed Account. Amounts allocated to the Fixed
Account become part of Security Benefit's General Account, which supports
Security Benefit's insurance and annuity obligations. The General Account is
subject to regulation and supervision by the Kansas Department of Insurance as
well as the insurance laws and regulations of other jurisdictions in which the
Contract is distributed. In reliance on certain exemptive and exclusionary
provisions, interests in the Fixed Account have not been registered as
securities under the Securities Act of 1933 (the "1933 Act") and the Fixed
Account has not been registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, neither the Fixed Account nor
any interests therein are generally subject to the provisions of the 1933 Act or
the 1940 Act. Security Benefit has been advised that the staff of the SEC has
not reviewed the disclosure in this Prospectus relating to the Fixed Account.
This disclosure, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in the Prospectus. This Prospectus is generally
intended to serve as a disclosure document only for aspects of a Contract
involving the Separate Account and contains only selected information regarding
the Fixed Account. For more information regarding the Fixed Account, see "The
Contract" on page 11.
Amounts allocated to the Fixed Account become part of the General Account
of Security Benefit, which consists of all assets owned by Security Benefit
other than those in the Separate Account and other separate accounts of Security
Benefit. Subject to applicable law, Security Benefit has sole discretion over
the investment of the assets of its General Account.
INTEREST
Amounts allocated to the Fixed Account earn interest at a fixed rate or
rates that are paid by Security Benefit. The Contract Value in the Fixed Account
earns interest at an interest rate that is guaranteed to be at least an annual
effective rate of 3.0 percent which will accrue daily ("Guaranteed Rate"). Such
interest will be paid regardless of the actual investment experience of the
Fixed Account. In addition, Security Benefit may in its discretion pay interest
at a rate ("Current Rate") that exceeds the Guaranteed Rate. Security Benefit
will determine the Current Rate, if any, from time to time.
Contract Value allocated or transferred to the Fixed Account will earn
interest at the Current Rate, if any, in effect on the date such portion of
Contract Value is allocated or transferred to the Fixed Account. The Current
Rate paid on any such portion of Contract Value allocated or transferred to the
Fixed Account will be guaranteed for rolling periods of one or more years (each
a "Guarantee Period"). Security Benefit 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 Contract Value which
will earn interest at the Current Rate, if any, in effect on the day of the new
Guarantee Period.
Contract Value allocated or transferred to the Fixed Account at one point
in time may be credited with a different Current Rate than amounts allocated or
transferred to the Fixed Account at another point in time. For example, amounts
allocated to the Fixed Account in June may be credited with a different current
rate than amounts allocated to the Fixed Account in July. In addition, if
Guarantee
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Periods of different durations are offered, Contract Value allocated or
transferred to the Fixed Account for a Guarantee Period of one duration may be
credited with a different Current Rate than amounts allocated or transferred to
the Fixed Account for a Guarantee Period of a different duration. Therefore, at
any time, various portions of a Contractowner's Contract Value in the Fixed
Account may be earning interest at different Current Rates depending upon the
point in time such portions were allocated or transferred to the Fixed Account
and the duration of the Guarantee Period. Security Benefit bears the investment
risk for the Contract Value allocated to the Fixed Account and for paying
interest at the Guaranteed Rate on amounts allocated to the Fixed Account.
For purposes of determining the interest rates to be credited on Contract
Value in the Fixed Account, withdrawals, loans, or transfers from the Fixed
Account will be deemed to be taken first from any portion of Contract Value
allocated to the Fixed Account for which the Guarantee Period expires during the
calendar month in which the withdrawal, loan, or transfer is effected, then in
the order beginning with that portion of such Contract 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 transfers and
withdrawals from the Fixed Account, see "Transfers and Withdrawals From the
Fixed Account" below.
DEATH BENEFIT
The death benefit under the Contract will be determined in the same fashion
for a Contract that has Contract Value in the Fixed Account as for a Contract
that has Contract Value allocated to the Subaccounts. See "Death Benefit," on
page 16.
CONTRACT CHARGES
Premium taxes will be the same for Contractowners who allocate purchase
payments or transfer Contract Value to the Fixed Account as for those who
allocate purchase payments to the Subaccounts. The charges for mortality and
expense risks and the administrative charge will not be assessed against the
Fixed Account, and any amounts that Security Benefit pays for income taxes
allocable to the Subaccounts will not be charged against the Fixed Account. In
addition, the investment advisory fees and operating expenses paid by the Mutual
Fund will not be paid directly or indirectly by Contractowners to the extent the
Contract Value is allocated to the Fixed Account; however, such Contractowners
will not participate in the investment experience of the Subaccounts.
TRANSFERS AND WITHDRAWALS FROM THE FIXED ACCOUNT
Amounts may be transferred from the Subaccounts to the Fixed Account and
from the Fixed Account to the Subaccounts, subject to the following limitations.
Transfers from the Fixed Account are allowed only (1) from Contract Value, the
Guarantee Period of which expires during the calendar month in which the
transfer is effected, (2) pursuant to the Dollar Cost Averaging Option, provided
that such transfers are scheduled to be made over a period of not less than one
year, and (3) pursuant to the Asset Reallocation Option, provided that, upon
receipt of the Asset Reallocation Request, Contract Value is allocated among the
Fixed Account and the Subaccounts in the percentages selected by the
Contractowner without violating the restrictions on transfers from the Fixed
Account set forth in (1) above. Accordingly, a Contractowner who desires to
implement the Asset Reallocation Option should do so at a time when Contract
Value may be transferred from the Fixed Account to the Subaccounts in the
percentages selected by the Contractowner without violating the restrictions on
transfers from the Fixed Account. Once an Asset Reallocation Option is
implemented, the restrictions on transfers will not apply to transfers made
pursuant to the Option.
The minimum amount that may be transferred from the Fixed Account to the
Subaccounts is the lesser of (i) $1,000 or (ii) the amount of Contract Value for
which the Guarantee Period expires in the calendar month that the transfer is
effected. Transfers of Contract Value pursuant to the Dollar Cost Averaging and
Asset Reallocation Options are not currently subject to any minimums. The
Company reserves the right to waive or limit the number of transfers permitted
each Contract Year to 14 transfers, to suspend transfers, to limit the amount
that may be subject to transfers and the amount remaining in an account after a
transfer.
If purchase payments are allocated (except purchase payments made pursuant
to an Automatic Investment Program), or Contract Value is transferred, to the
Fixed Account, any transfers from the Fixed Account in connection with the
Dollar Cost Averaging or Asset Reallocation Options and any systematic
withdrawals from the Fixed Account will automatically terminate as of the date
of such purchase payment or transfer. A Contractowner may reestablish Dollar
Cost Averaging, Asset Reallocation or systematic withdrawals from the Fixed
Account by submitting a written request to Security Benefit. However, if for any
reason a Dollar Cost Averaging or systematic withdrawal option is cancelled, a
Contractowner may only reestablish the option after the expiration of the next
monthly or quarterly anniversary (or semiannual or annual anniversary in the
case of systematic withdrawals) that corresponds to the period selected by the
Owner in establishing the option.
The Contractowner may also make full withdrawals to the same extent as a
Contractowner who has allocated Contract Value to the Subaccounts. A
Contractowner may
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make a partial withdrawal from the Fixed Account only (1) from Contract 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 equal to the greater of $5,000 or 10 percent
of the Contract Value in the Fixed Account at the time of the partial
withdrawal. However, no partial withdrawal request will be processed which would
result in the withdrawal of Contract Value from the Loan Account. Systematic
withdrawals from Contract Value allocated to the Fixed Account must provide for
payments over a period of not less than 36 months. Any change in the type,
frequency or amount of Systematic Withdrawals from the Fixed Account requires
that a new 36 month period be started. See "Full and Partial Withdrawals," page
14 and "Systematic Withdrawals," page 15. In addition, to the same extent as
Contractowners with Contract Value in the Subaccounts, the Owner of a Contract
used in connection with a Qualified Plan may obtain a loan if so permitted under
the terms of the Qualified Plan. See "Loans," page 22.
PAYMENTS FROM THE FIXED ACCOUNT
Full and partial withdrawals, loans, and transfers from the Fixed Account
may be delayed for up to six months after a written request in proper form is
received by Security Benefit at its Home Office. During the period of deferral,
interest at the applicable interest rate or rates will continue to be credited
to the amounts allocated to the Fixed Account. However, payment of any amounts
will not be deferred if they are to be used to pay premiums on any policies or
contracts issued by Security Benefit.
MORE ABOUT THE CONTRACT
OWNERSHIP
The Contractowner is the person named as such in the application or in any
later change shown in Security Benefit's records. While living, the
Contractowner alone has the right to receive all benefits and exercise all
rights that the Contract grants or Security Benefit allows. The Owner may be an
entity that is not a living person such as a trust or corporation referred
herein as "Non-natural Persons." See "Federal Tax Matters," page 23.
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.
DESIGNATION AND CHANGE OF BENEFICIARY
The Designated Beneficiary is the person having the right to the death
benefit, if any, payable upon the death of the Owner or Joint Owner during the
Accumulation 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 are alive, the Owner's
estate. The Primary Beneficiary is the individual named as such in the
application or any later change shown in Security Benefit's records. The Primary
Beneficiary will receive the death benefit of the Contract only if he or she is
alive on the date of death of both the Owner and any Joint Owner during the
Accumulation Period. Because the death benefit of the Contract goes to the first
person on the above list who is alive on the date of death of any Owner, careful
consideration should be given to the manner in which the Contract is registered,
as well as the designation of the Primary Beneficiary. The Contractowner may
change the Primary Beneficiary at any time while the Contract is in force by
written request on forms provided by Security Benefit and received by Security
Benefit at its Home Office. The change will not be binding on Security Benefit
until it is received and recorded at its Home Office. The change will be
effective as of the date this form is signed subject to any payments made or
other actions taken by Security Benefit before the change is received and
recorded. A Secondary Beneficiary may be designated. The Owner may designate a
permanent Beneficiary whose rights under the Contract cannot be changed without
his or her consent.
Reference should be made to the terms of a particular Qualified Plan and
any applicable law for any restrictions or limitations on the designation of a
Beneficiary.
PARTICIPATING
The Contract is participating and will share in the surplus earnings of
Security Benefit. However, the current dividend scale is zero and Security
Benefit does not anticipate that dividends will be paid.
PAYMENTS FROM THE SEPARATE ACCOUNT
Security Benefit will pay any full or partial withdrawal benefit or death
benefit proceeds from Contract Value allocated to the Subaccounts, and will
effect a transfer between Subaccounts or from a Subaccount to the Fixed Account
on the Valuation Date a proper request is received at Security Benefit's Home
Office. However, Security Benefit can postpone the calculation or payment of
such a payment or transfer of amounts from the Subaccounts to the extent
permitted under applicable law, which is currently permissible only for any
period: (a) during which the New York Stock Exchange is closed other than
customary weekend and holiday closings, (b) during which trading on the New York
Stock Exchange is restricted as determined by the SEC, (c) during which an
emergency, as determined by the SEC, exists as a result of which (i) disposal of
securities held by the Separate Account is not reasonably practicable,
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or (ii) it is not reasonably practicable to determine the value of the assets of
the Separate Account, or (d) for such other periods as the SEC may by order
permit for the protection of investors.
PROOF OF AGE AND SURVIVAL
Security Benefit may require proof of age or survival of any person on
whose life annuity payments depend.
MISSTATEMENTS
If the age or sex of an Annuitant or age of an Owner has been misstated,
the correct amount paid or payable by Security Benefit under the Contract shall
be such as the Contract Value would have provided for the correct age or sex
(unless unisex rates apply).
LOANS
An Owner of a Contract issued in connection with a retirement plan that is
qualified under Section 403(b) of the Internal Revenue Code may borrow money
from Security Benefit using his or her Contract Value as the only security for
the loan by submitting a proper written request to Security Benefit. A loan may
be taken while the Owner is living and prior to the Annuity Start Date. The
minimum loan that may be taken is $1,000. For Contracts with Contract Value of
$20,000 or less, the maximum loan that can be taken is the amount that produces
a loan balance immediately after the loan that is the lesser of $10,000 or 75
percent of the Contract Value. For Contracts with Contract Value over $20,000,
the maximum loan that can be taken is the amount that produces a loan balance
immediately after the loan that is the lesser of (1) $50,000 reduced by the
excess of (a) the highest outstanding loan balance within the preceding 12 month
period ending on the day before the date the loan is made over (b) the
outstanding loan balance on the date the loan is made or (2) 50 percent of the
Contract Value. Reference should be made to the terms of the particular
Qualified Plan for any additional loan restrictions.
When an eligible Contractowner takes a loan, Contract Value in an amount
equal to the loan amount is transferred from the Subaccounts and/or the Fixed
Account into an account called the "Loan Account" as security for the loan.
Amounts allocated to the Loan Account earn 3 percent, the minimum rate of
interest guaranteed under the Fixed Account.
Interest will be charged for the loan and will accrue on the loan balance
from the effective date of any loan. The loan interest rate will be 5.5 percent.
Because the Contract Value maintained in the Loan Account will always be equal
in amount to the outstanding loan balance, the net cost of a loan is 2.5
percent.
Loans must be repaid within five years and before the Annuity Start Date,
unless Security Benefit determines that the loan is to be used to acquire a
principal residence of the Owner, in which case the loan must be repaid within
30 years and before the Annuity Start Date. Loan repayments must be made at
least quarterly. Loans that are not repaid within the required time periods will
be subject to taxation as distributions from the Contract. Loans may be prepaid
at any time. Upon receipt of a loan payment, Security Benefit will transfer
Contract Value from the Loan Account to the Fixed Account and/or the Subaccounts
according to the Owner's current instructions with respect to purchase payments
in an amount equal to the amount by which the payment reduces the amount of the
loan outstanding, plus the amount of accrued interest credited on the Loan
Account as of the date of the payment. If a loan payment is not received when
due, a partial withdrawal equal to the repayment amount due, including any
accrued loan interest, will be made from Contract Value and paid to Security
Benefit. The partial withdrawal may be subject to taxation as a distribution.
Any such partial withdrawal will be allocated to the Owner's Contract Value in
the Subaccounts and the Fixed Account in the following order: Money Market
Subaccount, High Grade Income Subaccount, Global Aggressive Bond Subaccount,
Growth-Income Subaccount, Equity Income Subaccount, Managed Asset Allocation
Subaccount, Specialized Asset Allocation Subaccount, Growth Subaccount,
Worldwide Equity Subaccount, Social Awareness Subaccount and Emerging Growth
Subaccount and then from the Fixed Account. The value of each account will be
depleted before the next account is charged. If any such partial withdrawal
equals or exceeds the Withdrawal Value, it will be treated as a full withdrawal.
Contractowners should consult with their tax advisers before requesting a loan.
While the amount to secure the loan is held in the Loan Account, the Owner
forgoes the investment experience of the Subaccounts and the Current Rate of
interest on the Fixed Account. Outstanding Contract Debt will reduce the amount
of proceeds paid upon full withdrawal, upon payment of the death benefit, and
upon annuitization. In addition, no partial withdrawal will be processed which
would result in the withdrawal of Contract Value from the Loan Account.
A Contractowner should consult with his or her tax adviser on the effect of
a loan.
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS
Generally, a Qualified Plan may not provide for the distribution or
withdrawal of amounts accumulated under such Qualified Plan until after a fixed
number of years, the attainment of a stated age or upon the occurrence of a
specific event such as hardship, disability, retirement, death or termination of
employment. Therefore, the Owner of a Contract purchased in connection with a
Qualified Plan may not be entitled to make a full or partial withdrawal, as
described in this Prospectus, unless one of the above-described conditions has
been satisfied. For this reason
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reference should be made to the terms of the particular Qualified Plan, the
Internal Revenue Code and other applicable law for any limitation or restriction
on distributions and withdrawals, including the 10 percent penalty tax that may
be imposed in the event of a distribution from a Qualified Plan before the
participant reaches age 59 1/2. See the discussion under "Tax Penalties" on page
28.
The distribution or withdrawal of amounts under a Contract purchased in
connection with a Qualified Plan may result in the receipt of taxable income to
the Owner or Annuitant and in some instances may also result in a penalty tax.
Therefore, the tax consequences of a distribution or withdrawal under a Contract
should be carefully considered and a competent tax adviser should be consulted.
See "Federal Tax Matters" below.
FEDERAL TAX MATTERS
INTRODUCTION
The Contract described in this Prospectus is designed for use by
individuals in retirement plans which may or may not be Qualified Plans under
the provisions of the Internal Revenue Code ("Code"). The ultimate effect of
federal income taxes on the amounts held under a Contract, on annuity payments,
and on the economic benefits to the Owner, the Annuitant, and the Beneficiary or
other payee will depend upon the type of retirement plan, if any, for which the
Contract is purchased, the tax and employment status of the individuals involved
and a number of other factors. The discussion contained herein and in the
Statement of Additional Information is general in nature and is not intended to
be an exhaustive discussion of all questions that might arise in connection with
a Contract. It is based upon Security Benefit's understanding of the present
federal income tax laws as currently interpreted by the Internal Revenue Service
("IRS"), and is not intended as tax advice. No representation is made regarding
the likelihood of continuation of the present federal income tax laws or of the
current interpretations by the IRS or the courts. Future legislation may affect
annuity contracts adversely. Moreover, no attempt has been made to consider any
applicable state or other laws. Because of the inherent complexity of 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 with 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.
SECURITY BENEFIT DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF, OR TAX
CONSEQUENCES ARISING FROM, ANY CONTRACT OR ANY TRANSACTION INVOLVING THE
CONTRACTS.
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT
GENERAL
Security Benefit 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 Security Benefit, Security Benefit 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 SECURITY BENEFIT TAXES
A charge may be made for any federal taxes incurred by Security Benefit
that are attributable to the Separate Account, the Subaccounts or to the
operations of Security Benefit with respect to the Contracts or attributable to
payments, premiums, or acquisition costs under the Contracts. Security Benefit
will review the question of a charge to the Separate Account, the Subaccounts or
the Contracts for Security Benefit's federal taxes periodically. Charges may
become necessary if, among other reasons, the tax treatment of Security Benefit
or of income and expenses under the Contracts is ultimately determined to be
other than what Security Benefit currently believes it to be, if there are
changes made in the federal income tax treatment of variable annuities at the
insurance company level, or if there is a change in Security Benefit's tax
status.
Under current laws, Security Benefit may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, Security Benefit reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
DIVERSIFICATION STANDARDS
Each Series of the Mutual Fund will be required to adhere to regulations
adopted by the Treasury Department pursuant to Section 817(h) of the Code
prescribing asset diversification requirements for investment companies whose
shares are sold to insurance company separate accounts funding variable
contracts. Pursuant to these regulations, on the last day of each calendar
quarter (or on any day within 30 days thereafter), no more than 55 percent of
the total assets of a Series may be represented by any one investment, no more
than 70 percent may be represented by any two investments, no more than 80
percent may be represented by any three investments, and no more than 90 percent
may be represented by any four investments. For purposes of Section 817(h),
securities of a single issuer generally are treated as one investment but
obligations of the U.S. Treasury and each U.S. Governmental agency or
instrumentality generally are treated as securities of separate issuers. The
Separate Account, through the Series, intends to
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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 includable 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 such guidance 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, the Contractowner has additional flexibility in allocating purchase
payments and Contract Values. 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, Security Benefit 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. Security Benefit therefore reserves the right to
modify the Contract, as it deems appropriate, 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
adopted, there can be no assurance that the Series will be able to operate as
currently described in the Prospectus, or that the Mutual Fund will not have to
change any Series' 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" on page 25 and "Diversification
Standards" on page 23. Withholding of federal income taxes on all distributions
may be required unless a recipient who is eligible elects not to have any
amounts withheld and properly notifies Security Benefit of that election.
1. Surrenders or Withdrawals Prior to the Annuity Start Date
Code Section 72 provides that amounts received upon a total or partial
withdrawal (including systematic withdrawals) from a Contract prior to the
Annuity Start Date generally will be treated as gross income to the extent that
the cash value of the Contract immediately before the withdrawal (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.
2. Surrenders or Withdrawals on or after the Annuity Start Date
Upon a complete surrender, the receipt 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.
3. Penalty Tax on Certain Surrenders and Withdrawals
With respect to amounts withdrawn or distributed before the taxpayer
reaches age 59 1/2, a penalty tax is imposed equal to 10 percent of the portion
of such amount which is includable in gross income. However, the penalty tax is
not applicable to withdrawals: (i) made on or after the death of the owner (or
where the owner is not an individual, the death of the "primary annuitant," who
is defined as the individual the events in whose life are of primary importance
in affecting the timing and amount of the payout
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under the Contract); (ii) attributable to the taxpayer's becoming totally
disabled within the meaning of Code Section 72(m)(7); (iii) which are part of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the taxpayer, or the joint
lives (or joint life expectancies) of the taxpayer and his or her beneficiary;
(iv) from certain qualified plans; (v) under a so-called qualified funding asset
(as defined in Code Section 130(d)); (vi) under an immediate annuity contract;
or (vii) which are purchased by an employer on termination of certain types of
qualified plans and which are held by the employer until the employee separates
from service.
If the penalty tax does not apply to a surrender or withdrawal as a result
of the application of item (iii) above, and the series of payments are
subsequently modified (other than by reason of death or disability), the tax for
the first year in which the modification occurs will be increased by an amount
(determined by the regulations) equal to the tax that would have been imposed
but for item (iii) above, plus interest for the deferral period, if the
modification takes place (a) before the close of the period which is five years
from the date of the first payment and after the taxpayer attains age 59 1/2, or
(b) before the taxpayer reaches age 59 1/2.
ADDITIONAL CONSIDERATIONS
1. Distribution-at-Death Rules
In order to be treated as an annuity contract, a contract must provide the
following two distribution rules: (a) if any owner dies on or after the Annuity
Start Date, and before the entire interest in the Contract has been distributed,
the remainder of the owner's interest will be distributed at least as quickly as
the method in effect on the owner's death; and (b) if any owner dies before the
Annuity Start Date, the entire interest in the Contract must generally be
distributed within five years after the date of death, or, if payable to a
designated beneficiary, must be annuitized over the life of that designated
beneficiary or over a period not extending beyond the life expectancy of that
beneficiary, commencing within one year after the date of death of the owner. If
the 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.
2. Gift of Annuity Contracts
Generally, gifts of non-tax qualified Contracts prior to the Annuity Start
Date will trigger tax on the gain on the Contract, with the donee getting a
stepped-up basis for the amount included in the donor's income. The 10 percent
penalty tax and gift tax also may be applicable. This provision does not apply
to transfers between spouses or incident to a divorce.
3. Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a
corporation) the income on that Contract (generally the increase in net
surrender value less the purchase payments) is includable in taxable income each
year. The rule does not apply where the Contract is acquired by the estate of a
decedent, where the Contract is held by certain types of retirement plans, where
the Contract is a qualified funding asset for structured settlements, where the
Contract is purchased on behalf of an employee upon termination of a qualified
plan, and in the case of an immediate annuity. An annuity contract held by a
trust or other entity as agent for a natural person is considered held by a
natural person.
4. Multiple Contract Rule
For purposes of determining the amount of any distribution under Code
Section 72(e) (amounts not received as annuities) that is includable in gross
income, all 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 Start Date, such as a partial surrender, dividend, or loan,
will be taxable (and possibly subject to the 10 percent penalty tax) to the
extent of the combined income in all such contracts.
In addition, the Treasury Department has broad regulatory authority in
applying this provision to prevent avoidance of the purposes of this rule. It is
possible that, under this authority, the Treasury Department may apply this rule
to amounts that are paid as annuities (on and after the Annuity Start Date)
under annuity contracts issued by the same company to the same owner during any
calendar year. In this case, annuity payments could be fully taxable (and
possibly subject to the 10 percent penalty tax) to the extent of the combined
income in all such contracts and regardless of whether any amount would
otherwise have been excluded from income because of the "exclusion ratio" under
the contract.
5. Possible Tax Changes
In recent years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. Although as of the date of
this prospectus, it does not appear that Congress is considering any legislation
regarding the taxation of annuities, there is always the possibility that the
tax treatment of annuities
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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).
6. 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 Start 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 competent
tax adviser with respect to the potential effects of such a transaction.
QUALIFIED PLANS
The Contract may be used with Qualified Plans that meet the requirements of
Section 401, 403(b), 408 or 457 of the Code. The tax rules applicable to
participants in such Qualified Plans vary according to the type of plan and the
terms and conditions of the plan itself. No attempt is made herein to provide
more than general information about the use of the Contract with the various
types of Qualified Plans. These Qualified Plans may permit the purchase of the
Contracts to accumulate retirement savings under the plans. Adverse tax or other
legal consequences to the plan, to the participant or to both may result if this
Contract is assigned or transferred to any individual as a means to provide
benefit payments, unless the plan complies with all legal requirements
applicable to such benefits prior to transfer of the Contract. Contractowners,
Annuitants, and Beneficiaries, are cautioned that the rights of any person to
any benefits under such Qualified Plans may be subject to the terms and
conditions of the plans themselves or limited by applicable law, regardless of
the terms and conditions of the Contract issued in connection therewith. For
example, Security Benefit may accept beneficiary designations and payment
instructions under the terms of the Contract without regard to any spousal
consents that may be required under the Employee Retirement Income Security Act
of 1974 (ERISA). Consequently, a Contractowner's Beneficiary designation or
elected payment option may not be enforceable.
The amounts that may be contributed to Qualified Plans are subject to
limitations that vary depending on the type of Plan. In addition, early
distributions from most Qualified Plans may be subject to penalty taxes, or in
the case of distributions of amounts contributed under salary reduction
agreements, could cause the Plan to be disqualified. Furthermore, distributions
from most Qualified Plans are subject to certain minimum distribution rules.
Failure to comply with these rules could result in disqualification of the Plan
or subject the Owner or Annuitant to penalty taxes. As a result, the minimum
distribution rules may limit the availability of certain Annuity Options to
certain Annuitants and their beneficiaries. These requirements may not be
incorporated into our Contract administration procedures. Owners, participants
and beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts comply with
applicable law.
The following are brief descriptions of the various types of Qualified
Plans and the use of the Contract therewith:
1. Section 401
Code Section 401 permits employers to establish various types of retirement
plans (e.g., pension, profit sharing and 401(k) plans) for their employees. For
this purpose, self-employed individuals (proprietors or partners operating a
trade or business) are treated as employees and therefore eligible to
participate in such plans. Retirement plans established in accordance with
Section 401 may permit the purchase of Contracts to provide benefits thereunder.
In order for a retirement plan to be "qualified" under Code Section 401, it
must: (i) meet certain minimum standards with respect to participation, coverage
and vesting; (ii) not discriminate in favor of "highly compensated" employees;
(iii) provide contributions or benefits that do not exceed certain limitations;
(iv) prohibit the use of plan assets for purposes other than the exclusive
benefit of the employees and their beneficiaries covered by the plan; (v)
provide for distributions that comply with certain minimum distribution
requirements; (vi) provide for certain spousal survivor benefits; and (vii)
comply with numerous other qualification requirements.
A retirement plan qualified under Code Section 401 may be funded by
employer contributions, employee contributions or a combination of both. Plan
participants are not subject to tax on employer contributions until such amounts
are actually distributed from the plan. Depending upon the terms of the
particular plan, employee contributions may be made on a pre-tax or after-tax
basis. In addition, plan participants are not taxed on plan earnings derived
from either employer or employee contributions until such earnings are
distributed.
Each employee's interest in a retirement plan qualified under Code Section
401 must generally be distributed or begin to be distributed not later than
April 1 of the calendar year following the calendar year in which the employee
reaches age 70 1/2 ("required beginning date"). Periodic distributions must not
extend beyond the life of the employee or the lives of the employee and a
designated beneficiary (or over a period extending beyond the life expectancy of
the employee or the joint life expectancy of the employee and a designated
beneficiary).
If an employee dies before reaching his or her required beginning date, the
employee's entire interest in the plan must generally be distributed within five
years of the employee's death. However, the five-year rule will be deemed
satisfied, if distributions begin before the close of the calendar year
following the year of the employee's death
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26
<PAGE>
to a designated beneficiary and are made over the life of the beneficiary (or
over a period not extending beyond the life expectancy of the beneficiary). If
the designated beneficiary is the employee's surviving spouse, distributions may
be delayed until the employee would have reached age 70 1/2.
If an employee dies after reaching his or her required beginning date, the
employee's interest in the plan must generally be distributed at least as
rapidly as under the method of distribution in effect at the time of the
employee's death.
Annuity payments distributed from a retirement plan qualified under Code
Section 401 are taxable under Section 72 of the Code. Section 72 provides that
the portion of each payment attributable to contributions that were taxable to
the employee in the year made, if any, is excluded from gross income as a return
of the employee's investment. The portion so excluded is determined by dividing
the employee's investment in the plan by the expected return under the plan. The
portion of each payment in excess of the exclusion amount is taxable as ordinary
income. Once the employee's investment has been recovered, the full annuity
payment will be taxable. If the employee should die prior to recovering his
entire investment, the unrecovered investment will be allowed as a deduction on
his final return. If the employee made no contributions that were taxable when
made, the full amount of each annuity payment is taxable to him as ordinary
income.
A "lump-sum" distribution from a retirement plan qualified under Code
Section 401 is eligible for favorable tax treatment. A "lump-sum" distribution
means the distribution within one taxable year of the balance to the credit of
the employee which becomes payable: (i) on account of the employee's death, (ii)
after the employee attains age 59 1/2, (iii) on account of the employee's
termination of employment (in the case of a common law employee only) or (iv)
after the employee has become disabled (in the case of a self-employed person
only).
As a general rule, a lump-sum distribution is fully taxable as ordinary
income except for an amount equal to the employee's investment, if any, which is
recovered tax-free. However, special five-year averaging may be available,
provided the employee has reached age 59 1/2 and has not previously elected to
use income averaging. Special ten-year averaging and capital-gains treatment may
be available to an employee who reached age 50 before 1986.
Distributions from a retirement plan qualified under Code Section 401 may
be eligible for a tax-free rollover to either another qualified retirement plan
or to an individual retirement account or annuity (IRA). See "Rollovers" on page
28.
2. Section 403(b)
Code Section 403(b) permits public school employees and employees of
certain types of charitable, educational and scientific organizations specified
in Section 501(c)(3) of the Code to purchase annuity contracts, and, subject to
certain limitations, to exclude the amount of purchase payments from gross
income for tax purposes. The Contract may be purchased in connection with a
Section 403(b) annuity program.
Section 403(b) annuities must generally be provided under a plan which
meets certain minimum participation, coverage, and nondiscrimination
requirements. Section 403(b) annuities are generally subject to minimum
distribution requirements similar to those applicable to retirement plans
qualified under Section 401 of the Code. See "Section 401" on page 26.
A Section 403(b) annuity contract may be purchased with employer
contributions, employee contributions or a combination of both. An employee's
rights under a Section 403(b) contract must be nonforfeitable. Numerous
limitations apply to the amount of contributions that may be made to a Section
403(b) annuity contract. The applicable limit will depend upon, among other
things, whether the annuity contract is purchased with employer or employee
contributions.
Amounts used to purchase Section 403(b) annuities generally are excludable
from the taxable income of the employee. As a result, all distributions from
such annuities are normally taxable in full as ordinary income to the employee.
A Section 403(b) annuity contract must prohibit the distribution of
employee contributions (including earnings thereon) until the employee: (i)
attains age 59 1/2, (ii) terminates employment; (iii) dies; (iv) becomes
disabled; or (v) incurs a financial hardship (earnings may not be distributed in
the event of hardship).
Distributions from a Section 403(b) annuity contract may be eligible for a
tax-free rollover to either another Section 403(b) annuity contract or to an
individual retirement account or annuity (IRA). See "Rollovers" on page 28.
3. Section 408
Section 408 of the Code permits eligible individuals to establish
individual retirement programs through the purchase of Individual Retirement
Annuities ("IRAs"). The Contract may be purchased as an IRA.
IRAs are subject to limitations on the amount that may be contributed, the
persons who may be eligible and on the time when distributions must commence.
Depending upon the circumstances of the individual, contributions to an IRA may
be made on a deductible or non-deductible basis. IRAs may not be transferred,
sold, assigned, discounted or pledged as collateral for a loan or other
obligation. The annual premium for an IRA may not be fixed and may not exceed
$2,000 (except in the case of a rollover contribution). 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
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27
<PAGE>
provided with such supplementary information as may be required by the Internal
Revenue Service or other appropriate agency, and will have the right to revoke
the Contract under certain circumstances.
IRAs are subject to minimum distribution requirements similar to those
applicable to retirement plans qualified under Section 401 of the Code. See
"Section 401" on page 26. Distributions from IRAs are generally taxed under Code
Section 72. Under these rules, a portion of each distribution may be excludable
from income. The amount excludable from the individual's income is the amount of
the distribution which bears the same ratio as the individual's nondeductible
contributions bears to the expected return under the IRA.
Distributions from an IRA may be eligible for a tax-free rollover to
another IRA. In certain cases, a distribution from an IRA may be eligible to be
rolled over to a retirement plan qualified under Code Section 401(a) or a
Section 403(b) annuity contract. See "Rollovers" below.
The Internal Revenue Service has not reviewed the Contract for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether a death benefit provision such as the provision in the
Contract comports with IRA qualification requirements.
4. Section 457
Section 457 of the Code permits employees of state and local governments
and units and agencies of state and local governments as well as tax-exempt
organizations described in Section 501(c)(3) of the Code to defer a portion of
their compensation without paying current taxes. The employees must be
participants in an eligible deferred compensation plan. A Section 457 plan may
permit the purchase of Contracts to provide benefits thereunder.
Although a participant under a Section 457 plan may be permitted to direct
or choose methods of investment, all amounts deferred under the plan, and any
income thereon, remain solely the property of the employer and subject to the
claims of its general creditors, until paid to the participant. A Section 457
plan must not permit the distribution of a participant's benefits until the
participant attains age 70 1/2, terminates employment or incurs an
"unforeseeable emergency."
Section 457 plans are generally subject to minimum distribution
requirements similar to those applicable to retirement plans qualified under
Section 401 of the Code. See "Section 401" on page 26. Since under a Section 457
plan, contributions are generally excludable from the taxable income of the
employee, the full amount received will usually be taxable as ordinary income
when annuity payments commence or other distributions are made. Distributions
from a Section 457 plan are not eligible for tax-free rollovers.
5. Rollovers
A "rollover" is the tax-free transfer of a distribution from one Qualified
Plan to another. Distributions which are rolled over are not included in the
employee's gross income until some future time.
If any portion of the balance to the credit of an employee in a Section 401
plan or Section 403(b) plan is paid to the employee in an "eligible rollover
distribution" and the employee transfers any portion of the amount received to
an "eligible retirement plan," then the amount so transferred is not includable
in income. An "eligible rollover distribution" generally means any distribution
that is not one of a series of periodic payments made for the life of the
distributee or for a specified period of at least ten years. In addition, a
required minimum distribution will not qualify as an eligible rollover
distribution. A rollover must be completed within 60 days after receipt of the
distribution.
In the case of a Section 401 plan, an "eligible retirement plan" will be
another retirement plan qualified under Code Section 401 or an individual
retirement account or annuity under Code Section 408. With respect to a Section
403(b) plan, an "eligible retirement plan" will be another Section 403(b) plan
or an individual retirement account or annuity described in Code Section 408.
A Section 401 plan and a Section 403(b) plan must generally provide a
participant receiving an eligible rollover distribution, the option to have the
distribution transferred directly to another eligible retirement plan.
The owner of an IRA may make a tax-free rollover of any portion of the IRA.
The rollover must be completed within 60 days of the distribution and generally
may only be made to another IRA. However, an individual may receive a
distribution from his IRA and within 60 days roll it over into a retirement plan
qualified under Code Section 401(a) if all of the funds in the IRA are
attributable to a rollover from a Section 401(a) plan. Similarly, a distribution
from an IRA may be rolled over to a Section 403(b) plan only if all of the funds
in the IRA are attributable to a rollover from a Section 403(b) annuity.
6. Tax Penalties
PREMATURE DISTRIBUTION TAX. Distributions from a Qualified Plan before the
participant reaches age 59 1/2 are generally subject to an additional tax equal
to 10 percent of the taxable portion of the distribution. The 10 percent penalty
tax does not apply to distributions: (i) made on or after the death of the
employee; (ii) attributable to the employee's disability; (iii) which are part
of a series of substantially equal periodic payments made (at least annually)
for the life (or life expectancy) of the employee or the joint lives (or joint
life expectancies) of the employee and a designated beneficiary and which begin
after the employee terminates employment; (iv) made to an employee after
termination of employment after reaching age 55; or (v) made to pay for certain
medical expenses.
The exceptions to the 10 percent penalty tax described in items (iv) and
(v) above are not applicable to IRAs. In addition, the 10 percent penalty tax is
generally not applicable to distributions from a Section 457 plan.
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<PAGE>
MINIMUM DISTRIBUTION TAX. If the amount distributed from a Qualified Plan
is less than the minimum required distribution for the year, the participant is
subject to a 50 percent tax on the amount that was not properly distributed.
EXCESS DISTRIBUTION ACCUMULATION TAX. If the aggregate distributions from
all Qualified Plans (other than Section 457 plans) with respect to an individual
in a calendar year exceed the greater of (i) $150,000, or (ii) $112,500, as
indexed for inflation ($155,000 for 1996), a penalty tax of 15 percent is
generally imposed (in addition to any ordinary income tax) on the excess portion
of the distribution. In addition, a 15 percent tax is imposed on the "excess
retirement accumulations" of an individual whose aggregate retirement benefits
exceed the value of a hypothetical life annuity determined as of the date of his
or her death.
7. Withholding
Periodic distributions (e.g., annuities and installment payments) from a
Qualified Plan that will last for a period of ten or more years are generally
subject to voluntary income tax withholding. The amount withheld on such
periodic distributions is determined at the rate applicable to wages. The
recipient of a periodic distribution may generally elect not to have withholding
apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than ten years) from a Qualified Plan (other than IRAs) are
generally subject to mandatory 20 percent income tax withholding. However, no
withholding is imposed if the distribution is transferred directly to another
eligible Qualified Plan. Nonperiodic distributions from an IRA are subject to
income tax withholding at a flat 10 percent rate. The recipient of such a
distribution may elect not to have withholding apply.
The above description of the federal income tax consequences of the
different types of Qualified Plans which may be funded by the Contract offered
by this Prospectus is only a brief summary and is not intended as tax advice.
The rules governing the provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have adverse tax
consequences. A prospective Contractowner considering adoption of a Qualified
Plan and purchase of a Contract in connection therewith should first consult a
qualified and competent tax adviser, with regard to the suitability of the
Contract as an investment vehicle for the Qualified Plan.
OTHER INFORMATION
VOTING OF MUTUAL FUND SHARES
Security Benefit is the legal owner of the shares of the Mutual Fund held
by the Subaccounts of the Separate Account. Security Benefit will exercise
voting rights attributable to the shares of each Series of the Mutual Fund held
in the Subaccounts at any regular and special meetings of the shareholders of
the Mutual Fund on matters requiring shareholder voting under the 1940 Act. In
accordance with its view of presently applicable law, Security Benefit will
exercise these voting rights based on instructions received from persons having
the voting interest in corresponding Subaccounts of the Separate Account.
However, if the 1940 Act or any regulations thereunder should be amended, or if
the present interpretation thereof should change, and as a result Security
Benefit determines that it is permitted to vote the shares of the Mutual Fund in
its own right, it may elect to do so.
The person having the voting interest under a Contract is the Owner. Unless
otherwise required by applicable law, the number of shares of a particular
Series as to which voting instructions may be given to Security Benefit is
determined by dividing a Contractowner's Contract Value in a Subaccount on a
particular date by the net asset value per share of that Series as of the same
date. Fractional votes will be counted. The number of votes as to which voting
instructions may be given will be determined as of the date coincident with the
date established by the Mutual Fund for determining shareholders eligible to
vote at the meeting of the Mutual Fund. If required by the SEC, Security Benefit
reserves the right to determine in a different fashion the voting rights
attributable to the shares of the Mutual Fund. Voting instructions may be cast
in person or by proxy.
Voting rights attributable to the Contractowner's Contract Value in a
Subaccount for which no timely voting instructions are received will be voted by
Security Benefit in the same proportion as the voting instructions that are
received in a timely manner for all Contracts participating in that Subaccount.
Security Benefit will also exercise the voting rights from assets in each
Subaccount that are not otherwise attributable to Contractowners, if any, in the
same proportion as the voting instructions that are received in a timely manner
for all Contracts participating in that Subaccount and generally will exercise
voting rights attributable to shares of the Series of the Mutual Fund held in
its General Account, if any, in the same proportion as votes cast with respect
to shares of the Series of the Mutual Fund held by the Separate Account and
other separate accounts of Security Benefit, in the aggregate.
SUBSTITUTION OF INVESTMENTS
Security Benefit reserves the right, subject to compliance with the law as
then in effect, to make additions to, deletions from, substitutions for, or
combinations of the securities that are held by the Separate Account or any
Subaccount or that the Separate Account or any Subaccount may purchase. If
shares of any or all of the Series of the Mutual Fund should no longer be
available for investment, or if, in the judgment of Security Benefit management,
further investment in shares of any or all of the Series of the Mutual Fund
should become inappropriate in view of the purposes of the Contract, Security
Benefit may substitute shares of another Series of the Mutual Fund or of a
different fund for shares already purchased, or to be purchased in the
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29
<PAGE>
future under the Contract. Security Benefit may also purchase, through the
Subaccount, other securities for other classes or contracts, or permit a
conversion between classes of contracts on the basis of requests made by Owners.
In connection with a substitution of any shares attributable to an Owner's
interest in a Subaccount or the Separate Account, Security Benefit will, to the
extent required under applicable law, provide notice, seek Owner approval, seek
prior approval of the SEC, and comply with the filing or other procedures
established by applicable state insurance regulators.
Security Benefit also reserves the right to establish additional
Subaccounts of the Separate Account that would invest in a new Series of the
Mutual Fund or in shares of another investment company, a series thereof, or
other suitable investment vehicle. New Subaccounts may be established in the
sole discretion of Security Benefit, and any new Subaccount will be made
available to existing Owners on a basis to be determined by Security Benefit.
Security Benefit may also eliminate or combine one or more Subaccounts if, in
its sole discretion, marketing, tax, or investment conditions so warrant.
Subject to compliance with applicable law, Security Benefit may transfer
assets to the General Account. Security Benefit also reserves the right, subject
to any required regulatory approvals, to transfer assets of any Subaccount of
the Separate Account to another separate account or Subaccount.
In the event of any such substitution or change, Security Benefit may, by
appropriate endorsement, make such changes in these and other contracts as may
be necessary or appropriate to reflect such substitution or change. If deemed by
Security Benefit to be in the best interests of persons having voting rights
under the Contracts, the Separate Account may be operated as a management
investment company under the 1940 Act or any other form permitted by law; it may
be deregistered under that Act in the event such registration is no longer
required; or it may be combined with other separate accounts of Security Benefit
or an affiliate thereof. Subject to compliance with applicable law, Security
Benefit also may combine one or more Subaccounts and may establish a committee,
board, or other group to manage one or more aspects of the operation of the
Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
Security Benefit reserves the right, without the consent of Owners, to
suspend sales of the Contract as presently offered and to make any change to the
provisions of the Contracts to comply with, or give Owners the benefit of, any
federal or state statute, rule, or regulation, including but not limited to
requirements for annuity contracts and retirement plans under the Internal
Revenue Code and regulations thereunder or any state statute or regulation.
Security Benefit also reserves the right to limit the amount and frequency of
subsequent purchase payments.
REPORTS TO OWNERS
A statement will be sent annually to each Contractowner setting forth a
summary of the transactions that occurred during the year, and indicating the
Contract Value as of the end of each year. In addition, the statement will
indicate the allocation of Contract Value among the Fixed Account and the
Subaccounts and any other information required by law. Confirmations will also
be sent out upon purchase payments, transfers, loans, loan repayments, and full
and partial withdrawals. Certain transactions may be confirmed on a quarterly
basis. These transactions include purchases under an Automatic Investment
Program, transfers under the Dollar Cost Averaging and Asset Reallocation
Options, systematic withdrawals and annuity payments.
Each Contractowner will also receive an annual and semiannual report
containing financial statements for the Mutual Fund, which will include a list
of the portfolio securities of the Mutual Fund, as required by the 1940 Act,
and/or such other reports as may be required by federal securities laws.
TELEPHONE TRANSFER PRIVILEGES
A Contractowner may request a transfer of Contract Value and may make
changes to an existing Dollar Cost Averaging or Asset Reallocation option by
telephone if the Telephone Transfer section of the application or an
Authorization for Telephone Requests form ("Telephone Authorization") has been
completed, signed, and filed at Security Benefit's Home Office. Security Benefit
has established procedures to confirm that instructions communicated by
telephone are genuine and will not be liable for any losses due to fraudulent or
unauthorized instructions provided it complies with its procedures. Security
Benefit's procedures require that any person requesting a transfer by telephone
provide the account number and the Owner's tax identification number and such
instructions must be received on a recorded line. Security Benefit reserves the
right to deny any telephone transfer request. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), Contractowners might not be able to request transfers by
telephone and would have to submit written requests.
By authorizing telephone transfers, a Contractowner authorizes Security
Benefit to accept and act upon telephonic instructions for transfers involving
the Contractowner's Contract, and agrees that neither Security Benefit, nor any
of its affiliates, nor the Mutual Fund, will be liable for any loss, damages,
cost, or expense (including attorneys' fees) arising out of any requests
effected in accordance with the Telephone Authorization and believed by Security
Benefit to be genuine, provided that Security Benefit has complied with its
procedures. As a result of this policy on telephone requests, the Contractowner
may bear
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30
<PAGE>
the risk of loss arising from the telephone transfer privileges. Security
Benefit may discontinue, modify, or suspend the telephone transfer privilege at
any time.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Separate Account is a
party, or which would materially affect the Separate Account.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Contracts
described in this Prospectus, Security Benefit's authority to issue the
Contracts under Kansas law, and the validity of the forms of the Contracts under
Kansas law have been passed upon by Amy J. Lee, Esq., Associate General Counsel,
Security Benefit.
PERFORMANCE INFORMATION
Performance information for the Subaccounts of the Separate Account,
including the yield and effective yield of the Subaccount investing in the Money
Market Series ("Money Market Subaccount"), the yield of the remaining
Subaccounts, and the total return of all Subaccounts may appear in
advertisements, reports, and promotional literature to current or prospective
Owners.
Current yield for the Money Market Subaccount will be based on income
received by a hypothetical investment over a given 7-day period (less expenses
accrued during the period), and then "annualized" (i.e., assuming that the 7-day
yield would be received for 52 weeks, stated in terms of an annual percentage
return on the investment). "Effective yield" for the Money Market Subaccount is
calculated in a manner similar to that used to calculate yield, but reflects the
compounding effect of earnings.
For the remaining Subaccounts, quotations of yield will be based on all
investment income per Accumulation Unit earned during a given 30-day period,
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of an Accumulation Unit
on the last day of the period. Quotations of average annual total return for any
Subaccount will be expressed in terms of the average annual compounded rate of
return on a hypothetical investment in a Contract over a period of one, five,
and ten years (or, if less, up to the life of the Subaccount), and will reflect
the deduction of the administrative charge and the mortality and expense risk
charge and may simultaneously be shown for other periods.
Although the Contracts were not available for purchase until April 4, 1995,
the underlying investment vehicle of the Separate Account, the SBL Fund, has
been in existence since May 26, 1977. Performance information for the
Subaccounts may also include quotations of total return for periods beginning
prior to the availability of the Contracts that incorporate the performance of
the SBL Fund.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donaghue Money Market
Institutional Averages, the Lehman Brothers Government Corporate Index, the
Morgan Stanley Capital International's EAFE Index or other indices measuring
performance of a pertinent group of securities so that investors may compare a
Subaccount's results with those of a group of securities widely regarded by
investors as representative of the securities markets in general or
representative of a particular type of security: (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
Performance information for any Subaccount reflects only the performance of
a hypothetical Contract under which Contract Value is allocated to a Subaccount
during a particular time period on which the calculations are based. Performance
information should be considered in light of the investment objectives and
policies, characteristics, and quality of the Series in which the Subaccount
invests, and the market conditions during the given time period, and should not
be considered as a representation of what may be achieved in the future. For a
description of the methods used to determine yield and total return for the
Subaccounts, see the Statement of Additional Information.
Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on overall
performance or other criteria, (ii) the effect of tax-deferred compounding on a
Subaccount's investment returns, or returns in general, which may be illustrated
by graphs, charts, or otherwise, and which may include a comparison, at various
points in time, of the return from an investment in a Contract (or returns in
general) on a tax-deferred basis (assuming one or more tax rates) with the
return on a taxable basis, and (iii) Security Benefit's rating or a rating of
Security Benefit's claim-paying ability as determined by firms that analyze and
rate insurance companies and by nationally recognized statistical rating
organizations.
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31
<PAGE>
ADDITIONAL INFORMATION
REGISTRATION STATEMENT
A Registration Statement under the 1933 Act has been filed with the SEC
relating to the offering described in this Prospectus. This Prospectus does not
include all the information included in the Registration Statement, certain
portions of which, including the Statement of Additional Information, have been
omitted pursuant to the rules and regulations of the SEC. The omitted
information may be obtained at the SEC's principal office in Washington, DC,
upon payment of the SEC's prescribed fees.
FINANCIAL STATEMENTS
Financial statements of Security Benefit at December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995, and the
financial statements of the Separate Account for the period from April 1, 1995
to December 31, 1995 are contained in the Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to Security Benefit. The Table of Contents of
the Statement of Additional Information is set forth below:
TABLE OF CONTENTS
Page
GENERAL INFORMATION AND HISTORY.......... 1
DISTRIBUTION OF THE CONTRACT............. 1
LIMITS ON PURCHASE PAYMENTS PAID UNDER
TAX-QUALIFIED RETIREMENT PLANS......... 1
INDEPENDENT AUDITORS..................... 3
PERFORMANCE INFORMATION.................. 3
FINANCIAL STATEMENTS..................... 4
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<PAGE>
[SBL LOGO}
700 SW Harrison St.
Topeka, KS 66636-0001
(913) 295-3127
(800) 888-2461
<PAGE>
VARIFLEX LS VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: MAY 1, 1996
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE
ANNUITY CONTRACT
ISSUED BY
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
1-800-888-2461
MAILING ADDRESS:
SECURITY BENEFIT LIFE INSURANCE COMPANY
P.O. BOX 750497
TOPEKA, KANSAS 66675-0497
1-800-888-2461
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current Prospectus for the Variflex LS Variable
Annuity dated May 1, 1996. A copy of the Prospectus may be obtained from
Security Benefit by calling 1-800-888-2461 or by writing P.O. Box 750497,
Topeka, Kansas 66675-0497.
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION AND HISTORY........................................... 1
DISTRIBUTION OF THE CONTRACT.............................................. 1
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS..... 1
INDEPENDENT AUDITORS...................................................... 3
PERFORMANCE INFORMATION................................................... 3
FINANCIAL STATEMENTS...................................................... 4
i
<PAGE>
GENERAL INFORMATION AND HISTORY
For a description of the Individual Flexible Purchase Payment Deferred
Variable Annuity Contract (the "Contract"), Security Benefit Life Insurance
Company ("Security Benefit"), and the Variable Annuity Account VIII (the
"Separate Account"), see the Prospectus. This Statement of Additional
Information contains information that supplements the information in the
Prospectus. Defined terms used in this Statement of Additional Information have
the same meaning as terms defined in the section entitled "Definitions" in the
Prospectus.
SAFEKEEPING OF ASSETS
Security Benefit is responsible for the safekeeping of the assets of the
Subaccounts. These assets, which consist of shares of the Series of the Mutual
Fund in non-certificated form, are held separate and apart from the assets of
the Security Benefit's General Account and its other separate accounts.
DISTRIBUTION OF THE CONTRACT
Security Distributors, Inc. ("SDI") is Principal Underwriter of the
Contract. SDI is registered as a broker/dealer with the 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 Contracts is continuous.
Subject to arrangements with Security Benefit, the Contract is sold by
independent broker/dealers who are members of the NASD and who become licensed
to sell variable annuities for SBL, and by certain financial institutions. SDI
acts as principal underwriter on behalf of Security Benefit for the distribution
of the Contract. SDI is not compensated under its Distribution Agreement with
Security Benefit.
The compensation payable by SDI under these arrangements may vary, but is
not expected to exceed in the aggregate 1% of purchase payments and 1% of
contract value on an annualized basis.
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED
RETIREMENT PLANS
SECTION 401
The applicable annual limits on purchase payments for a Contract used in
connection with a retirement plan that is qualified under Section 401 of the
Internal Revenue Code depend upon the type of plan. Total purchase payments on
behalf of a participant to all defined contribution plans maintained by an
employer are limited under Section 415(c) of the Internal Revenue Code to the
lesser of (a) $30,000, or (b) 25% of the participant's annual compensation.
Salary reduction contributions to a cash-or-deferred arrangement under a profit
sharing plan are subject to additional annual limits. Contributions to a defined
benefit pension plan are actuarially determined based upon the amount of
benefits the participants will receive under the plan formula. The maximum
annual benefit any individual may receive under an employer's defined benefit
plan is limited under Section 415(b) of the Internal Revenue Code. The limits
determined under Section 415(b) and (c) of the Internal Revenue Code are further
reduced for an individual who participates in a defined contribution plan and a
defined benefit plan maintained by the same employer. Rollover contributions are
not subject to the annual limitations described above.
SECTION 403(B)
Contributions to 403(b) annuities are excludable from an employee's gross
income if they do not exceed the smallest of the limits calculated under
Sections 402(g), 403(b)(2), and 415 of the Code. The applicable limit will
depend upon whether the annuities are purchased with employer or employee
contributions. Rollover contributions are not subject to these annual limits.
1
<PAGE>
Section 402(g) generally limits an employee's salary reduction
contributions to a 403(b) annuity to $9,500 a year. The $9,500 limit will be
reduced by salary reduction contributions to other types of retirement plans. An
employee with at least 15 years of service for a "qualified employer" (i.e., an
educational organization, hospital, home health service agency, health and
welfare service agency, church or convention or association of churches)
generally may exceed the $9,500 limit by $3,000 per year, subject to an
aggregate limit of $15,000 for all years.
Section 403(b)(2) provides an overall limit on employer and employee salary
reduction contributions that may be made to a 403(b) annuity. Section 403(b)(2)
generally provides that the maximum amount of contributions an employee may
exclude from his or her gross income in any taxable year is equal to the excess,
if any, of:
(i) the amount determined by multiplying 20% of the employee's
includable compensation by the number of his or her years of service
with the employer, over
(ii) the total amount contributed to retirement plans sponsored by the
employer, that were excludable from his gross income in prior years.
Section 415(c) also provides an overall limit on the amount of employer and
employee salary reduction contributions to a Section 403(b) annuity that will be
excludable from an employee's gross income in a given year. The Section 415(c)
limit is the lesser of (i) $30,000, or (ii) 25% of the employee's annual
compensation.
SECTION 408
Premiums (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 IRA's 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
compensation. An additional $250 may be contributed if the Owner has a spouse
with little or no compensation for the year, provided distinct accounts are
maintained for the Owner and his or her spouse, and no more than $2,000 is
contributed to either account in any one year. The extent to which an Owner may
deduct contributions to an IRA depends on the gross income of the Owner and his
or her spouse for the year and whether either participate in an
employer-sponsored retirement plan.
Premiums under a Contract used in connection with a simplified employee
pension plan described in Section 408 of the Internal Revenue Code are subject
to limits under Section 402(h) of the Internal Revenue Code. Section 402(h)
currently limits employer contributions and salary reduction contributions (if
permitted) under a simplified employee pension plan to the lesser of (a) 15% of
the compensation of the participant in the Plan, or (b) $30,000. Salary
reduction contributions, if any, are subject to additional annual limits.
SECTION 457
Contributions on behalf of an employee to a Section 457 plan generally are
limited to the lesser of (i) $7,500 or (ii) 33 1/3% of the employee's includable
compensation. If the employee participates in more than one Section 457 plan,
the $7,500 limit applies to contributions to all such programs. The $7,500 limit
is reduced by the amount of any salary reduction contribution the employee makes
to a 403(b) annuity, an IRA or a retirement plan qualified under Section 401.
The Section 457 limit may be increased during the last three years ending before
the employee reaches his or her normal retirement age. In each of these last
three years, the plan may permit a "catch-up" amount in addition to the regular
amount to be deferred. The maximum combined amount which may be deferred in each
of these three years is $15,000 reduced by any amount excluded from the
employee's income for the taxable year as a contribution to another plan.
2
<PAGE>
INDEPENDENT ACCOUNTANTS
Ernst & Young LLP, independent public accountants, perform certain
accounting and auditing services for Security Benefit and the Separate Account.
The financial statements for Security Benefit at December 31, 1995, and 1994 and
for each of the three years in the period ended December 31, 1995, and for the
Separate Account for the period from April 1, 1995 to December 31, 1995,
included in this Statement of Additional Information have been audited by Ernst
& Young LLP, as set forth in their report thereon appearing on page 5 herein.
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 Subaccounts will be based on all investment
income per Accumulation Unit earned during a particular 30-day period, less
expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of the Accumulation Unit
on the last day of the period, according to the following formula:
YIELD = 2[(a-b + 1)(6) - 1]
---
cd
where a = net investment income earned during the period by the Series
attributable to shares owned by the Subaccount,
b = expenses accrued for the period (net of 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 seven-day period ended December 31, 1995, the yield for the Money
Market Series was .05% and the effective yield was 2.86%.
Quotations of average annual total return for any Subaccount will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Contract over a period of one, five and ten years
(or, if less, up to the life of the Subaccount), calculated pursuant to the
following formula: P(1 + T)n = ERV (where P = a hypothetical initial payment of
$1,000, T = the average annual total return, n = the number of years, and ERV =
the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). All total return figures reflect the deduction of the
mortality and expense risk charge and the administrative charge. Quotations of
total return may simultaneously be shown for other periods.
For the period April 1, 1995 to December 31, 1995, the average annual total
return was 33.36%, 29.04%, 3.90%, 14.91%, 15.76%, 27.78% and 21.01% for the
Growth, Growth-Income, Money Market, Worldwide Equity, High Grade Income, Social
Awareness and Emerging Growth Series, respectively. For the period June 1, 1995
to December 31, 1995, the average annual total return was 11.62%, 10.73%, 11.09%
and 28.79% for the Global Aggressive Bond, Specialized Asset Allocation, Managed
Asset Allocation and Equity Income Series, respectively. The performance of the
Global Aggressive Bond Series reflects the reimbursement of certain expenses by
the Investment Adviser. In the absence of such reimbursement, the performance
figure would be reduced.
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
3
<PAGE>
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,
insurance products funds, or other investment products tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by The Variable Annuity Research and Data
Service ("VARDS"), an independent service which monitors and ranks the
performance of variable annuity issues by investment objectives on an
industry-wide basis or tracked by other services, companies, publications or
persons who rank such investment companies on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Contract. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for any Subaccount reflects only the performance of
a hypothetical Contract under which an Owner's Contract Value is allocated to a
Subaccount during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Series of the Mutual
Fund in which the Subaccount invests, and the market conditions during the given
time period, and should not be considered as a representation of what may be
achieved in the future.
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 or by other rating services,
companies, publications, or other persons who rank separate accounts or other
investment products on overall performance or other criteria, and (ii) the
effect of a tax-deferred compounding on a Subaccount's investment returns, or
returns in general, which may be illustrated by graphs, charts, or otherwise,
and which may include a comparison, at various points in time, of the return
from an investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
FINANCIAL STATEMENTS
The financial statements of Security Benefit at December 31, 1995, and 1994
and for each of the three years in the period ended December 31, 1995, along
with the financial statements of the Separate Account for the period April 1,
1995 to December 31, 1995, are set forth herein, starting on page 5.
The financial statements of Security Benefit, which are included in this
Statement of Additional Information, should be considered only as bearing on the
ability of the Company to meet its obligations under the Contracts. They should
not be considered as bearing on the investment performance of the assets held in
the Separate Account.
4
<PAGE>
Variflex LS Variable Annuity
Financial Statements
Period from April 1, 1995
(inception) to December 31, 1995
CONTENTS
Report of Independent Auditors............................................ 6
Audited Financial Statements
Balance Sheet............................................................. 7
Statement of Operations and Changes in Net Assets......................... 9
Notes to Financial Statements............................................. 10
5
<PAGE>
Report of Independent Auditors
The Contract Owners of Variflex LS Variable
Annuity and The Board of Directors of
Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of Variflex LS Variable Annuity
(the Company) as of December 31, 1995, and the related statement of operations
and changes in net assets for the period from April 1, 1995 (inception) to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments owned as of December 31, 1995, by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Variflex LS Variable Annuity at
December 31, 1995, and the results of its operations and changes in its net
assets for the period from April 1, 1995 (inception) to December 31, 1995, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 2, 1996
6
<PAGE>
Variflex LS Variable Annuity
Balance Sheet
December 31, 1995
(DOLLARS IN THOUSANDS)
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 181,865 shares at net asset value of
$21.03 per share (cost, $3,697) $ 3,825
Series B (Growth-Income Series) - 93,134 shares at net asset
value of $33.95 per share (cost, $3,056) 3,162
Series C (Money Market Series) - 242,408 shares at net asset
value of $12.34 per share (cost, $3,013) 2,991
Series D (Worldwide Equity Series) - 259,251 shares at net
asset value of $5.56 per share (cost, $1,404) 1,441
Series E (High Grade Income Series) - 215,945 shares at net
asset value of $12.86 per share (cost, $2,704) 2,777
Series S (Social Awareness Series) - 28,299 shares at net asset
value of $16.49 per share (cost, $450) 467
Series J (Emerging Growth Series) - 98,934 shares at net asset
value of $16.06 per share (cost, $1,582) 1,589
Series K (Global Aggressive Bond Series) - 90,321 shares at
net asset value of $10.22 per share (cost, $916) 923
Series M (Specialized Asset Allocation Series) - 467,214 shares
at net asset value of $10.71 per share (cost, $4,897) 5,004
Series N (Managed Asset Allocation Series) - 229,963 shares
at net asset value of $10.73 per share (cost, $2,402) 2,468
Series O (Equity Income Series) - 265,164 shares at net asset
value of $11.70 per share (cost, $2,883) 3,102
-------
Total assets $27,749
=======
7
<PAGE>
NET ASSETS
Net assets are represented by (NOTE 3):
NUMBER
OF UNITS UNIT VALUE AMOUNT
--------------------------------------
Growth Series:
Accumulation units 289,693 $13.20 $ 3,825
Growth-Income Series:
Accumulation units 248,974 12.70 3,162
Money Market Series:
Accumulation units 288,907 10.35 2,991
Worldwide Equity Series:
Accumulation units 126,206 11.42 1,441
High Grade Income Series:
Accumulation units 240,306 11.56 2,777
Social Awareness Series:
Accumulation units 37,149 12.56 467
Emerging Growth Series:
Accumulation units 133,581 11.89 1,589
Global Aggressive Bond Series:
Accumulation units 86,477 10.67 923
Specialized Asset Allocation Series:
Accumulation units 471,091 10.62 5,004
Managed Asset Allocation Series:
Accumulation units 231,852 10.64 2,468
Equity Income Series
Accumulation units 267,317 11.61 3,102
=========
Total net assets $27,749
=========
SEE ACCOMPANYING NOTES.
8
<PAGE>
Variflex LS Variable Annuity
Statement of Operations and Changes in Net Assets
Period from April 1, 1995 (inception) to December 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH GLOBAL SPECIALIZED MANAGED
GROWTH- MONEY WORLDWIDE GRADE SOCIAL EMERGING AGGRESSIVE ASSET ASSET EQUITY
GROWTH INCOME MARKET EQUITY INCOME AWARENESS GROWTH BOND ALLOCATION ALLOCATION INCOME
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions $ 8 $ 18 $ 55 $ - $ 35 $ 1 $ - $ 42 $ - $ - $ -
Expenses (NOTE 2):
Mortality and expense risk fee (10) (10) (10) (4) (7) (2) (5) (4) (20) (7) (11)
Administrative fee (1) (1) (1) (1) (1) - (1) (1) (2) (1) (1)
---------------------------------------------------------------------------------------------------
Net investment income (loss) (3) 7 44 (5) 27 (1) (6) 37 (22) (8) (12)
Capital gains distributions 34 - - 6 - - - 4 - - -
Realized gain (loss) on investments 49 55 (33) 15 (4) 16 35 1 92 14 48
Unrealized appreciation
(depreciation) on investments 128 106 (22) 37 73 17 7 7 107 66 219
---------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 211 161 (55) 58 69 33 42 12 199 80 267
---------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 208 168 (11) 53 96 32 36 49 177 72 255
Net assets at beginning of - - - - - - - - - - -
period
Variable annuity deposits 3,949 3,079 5,045 1,419 2,894 436 1,769 887 5,116 2,556 2,966
(NOTES 2 AND 3)
Terminations and withdrawals
(NOTES 2 AND 3) (332) (85) (2,043) (31) (213) (1) (216) (13) (289) (160) (119)
===================================================================================================
Net assets at end of period $3,825 $3,162 $2,991 $1,441 $2,777 $467 $1,589 $923 $5,004 $2,468 $3,102
===================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
Variflex LS Variable Annuity
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Variflex LS Variable Annuity (the Account) is a separate account of Security
Benefit Life Insurance Company (SBL). The Account is registered as a unit
investment trust under the Investment Company Act of 1940, as amended. All
deposits received by the Account have been invested in the SBL Fund, a mutual
fund not otherwise available to the public. As directed by the owners, amounts
deposited may be invested in shares of Series A (Growth Series - emphasis on
capital appreciation), Series B (Growth-Income Series - emphasis on capital
appreciation with secondary emphasis on income), Series C (Money Market Series -
emphasis on capital preservation while generating interest income), Series D
(Worldwide Equity Series - emphasis on long-term capital growth through
investment in foreign and domestic common stocks and equivalents), Series E
(High Grade Income Series - emphasis on current income with security of
principal), Series S (Social Awareness Series - emphasis on high total return),
Series J (Emerging Growth Series - emphasis on capital appreciation), and the
following new series introduced on June 1, 1995:
Series K (Global Aggressive Bond Series), with emphasis on high current
income and secondary emphasis on capital appreciation by investing in a
combination of foreign and domestic high yield securities.
Series M (Specialized Asset Allocation Series), with emphasis on high total
return consisting of capital appreciation and current income through
investment in a wide range of investment categories and market sectors, both
domestic and foreign.
Series N (Managed Asset Allocation Series), with emphasis on high level of
total return by investing primarily in a diversified portfolio of debt and
equity securities.
Series O (Equity Income Series), with emphasis on substantial dividend
income and capital appreciation by investing primarily in dividend-paying
common stocks of established companies.
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company (SMC), a
wholly-owned subsidiary of Security Benefit Group, Inc. (SBG), a wholly-owned
subsidiary of SBL. SMC has engaged Lexington Management Corporation to provide
sub-advisory
10
<PAGE>
Variflex LS Variable Annuity
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
services for the Worldwide Equity Series and Global Aggressive Bond Series and
has engaged T. Rowe Price Associates, Inc. to provide sub-advisory services for
the Managed Asset Allocation Series and the Equity Income Series. SMC has also
entered into agreements with Templeton Quantitative Advisors, Inc. and Meridian
Investment Management Corporation to provide certain quantitative research
services with respect to the Specialized Asset Allocation Series.
INVESTMENT VALUATION
Investments in mutual fund shares are carried in the balance sheet at market
value (net asset value of the underlying mutual fund). The first-in, first-out
cost method is used to determine gains and losses. Security transactions are
accounted for on the trade date.
The cost of investments purchased and proceeds from investments sold during the
period from April 1, 1995 (inception) to December 31, 1995 were as follows:
COST OF PROCEEDS
PURCHASES FROM SALES
--------------------------
(IN THOUSANDS)
Series A $4,914 $1,266
Series B 3,964 963
Series C 5,704 2,658
Series D 1,854 465
Series E 3,733 1,025
Series S 549 115
Series J 2,237 690
Series K 936 21
Series M 8,733 3,928
Series N 2,963 575
Series O 3,264 429
11
<PAGE>
Variflex LS Variable Annuity
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SBG's investment in the subaccounts represented the following number of units
and contract value of Variflex LS Variable Annuity contracts owned at December
31, 1995 (DOLLARS IN THOUSANDS):
NUMBER OF CONTRACT
UNITS VALUE
------------------------
Growth Series 11,726 $ 155
Growth-Income Series 11,893 151
Money Market Series 12,425 128
Worldwide Equity Series 12,136 139
High Grade Income Series 12,054 139
Social Awareness Series 11,939 150
Emerging Growth Series 12,112 144
Global Aggressive Bond Series 50,000 534
Specialized Asset Allocation Series 50,000 531
Managed Asset Allocation Series 40,000 426
Equity Income Series 100,000 1,161
ANNUITY RESERVES
As of December 31, 1995, annuity reserves have not been established because
there are no contracts which have matured and are in the payout stage. Such
reserves would be computed on the basis of published mortality tables, using
assumed interest rates that will provide reserves as prescribed by law. In cases
where the payout option selected is life contingent, SBL periodically
recalculates the required annuity reserves, and any resulting adjustment is
either charged or credited to SBL and not to the Account.
12
<PAGE>
Variflex LS Variable Annuity
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINVESTMENT OF DIVIDENDS
Dividend and capital gains distributions paid by the mutual fund to the Account
are reinvested in additional shares of each respective Series. Dividend income
and capital gains distributions are recorded as income on the ex-dividend date.
FEDERAL INCOME TAXES
Under current law, no federal income taxes are payable with respect to the
Account.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. VARIABLE ANNUITY CONTRACT CHARGES
SBL deducts an administrative fee equivalent to an annual rate of 0.15% of the
average daily net asset value of each account. Mortality and expense risks
assumed by SBL are compensated for by a fee equivalent to an annual rate of
1.25% of the asset value of each contract, of which 0.7% is for assuming
mortality risks and the remainder is for assuming expense risks.
When applicable, an amount for state premium taxes is deducted as provided by
pertinent state law, either from the purchase payments or from the amount
applied to effect an annuity at the time annuity payments commence.
13
<PAGE>
Variflex LS Variable Annuity
Notes to Financial Statements (continued)
3. SUMMARY OF UNIT TRANSACTIONS
Unit transactions during the period from April 1, 1995 (inception) to December
31, 1995 were as follows (IN THOUSANDS):
Growth Series:
Variable annuity deposits 316
Terminations, withdrawals and annuity payments 26
Growth-Income Series:
Variable annuity deposits 256
Terminations, withdrawals and annuity payments 7
Money Market Series:
Variable annuity deposits 491
Terminations, withdrawals and annuity payments 202
Worldwide Equity Series:
Variable annuity deposits 129
Terminations, withdrawals and annuity payments 3
High Grade Income Series:
Variable annuity deposits 259
Terminations, withdrawals and annuity payments 19
Social Awareness Series:
Variable annuity deposits 37
Emerging Growth Series:
Variable annuity deposits 151
Terminations, withdrawals and annuity payments 18
Global Aggressive Bond Series:
Variable annuity deposits 88
Terminations, withdrawals and annuity payments 1
Specialized Asset Allocation Series:
Variable annuity deposits 782
Terminations, withdrawals and annuity payments 310
Managed Asset Allocation Series:
Variable annuity deposits 247
Terminations, withdrawals and annuity payments 16
Equity Income Series:
Variable annuity deposits 278
Terminations, withdrawals and annuity payments 11
14
<PAGE>
Security Benefit Life Insurance Company
Financial Statements
Years ended December 31, 1995, 1994 and 1993
CONTENTS
Report of Independent Auditors............................................... 16
Audited Financial Statements
Balance Sheets............................................................... 17
Statements of Operations..................................................... 19
Statements of Surplus........................................................ 20
Statements of Cash Flows..................................................... 21
Notes to Financial Statements................................................ 23
15
<PAGE>
Report of Independent Auditors
The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying balance sheets of Security Benefit Life
Insurance Company (the Company) as of December 31, 1995 and 1994, and the
related statements of operations, surplus and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Benefit Life Insurance
Company at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles and with reporting
practices prescribed or permitted by the Kansas Insurance Department.
Ernst & Young LLP
Kansas City, Missouri
February 2, 1996
16
<PAGE>
Security Benefit Life Insurance Company
Balance Sheets
DECEMBER 31
1995 1994
------------------------
(IN THOUSANDS)
ASSETS
Investments (NOTES 2 AND 5):
Fixed maturities, at amortized cost (fair value:
1995 - $2,340,910; 1994 - $1,987,040) $2,294,802 $2,160,550
Equity securities:
Preferred stock, at cost (fair value: 1995 - $4,490;
1994 - $6,423) 4,044 5,979
Common stock, at fair value (cost: 1995 - $8,309;
1994 - $2,509) 8,346 3,071
------------------------
12,390 9,050
Affiliated entities 29,590 21,028
Mortgage loans 70,777 90,509
Real estate, less accumulated depreciation
(1995 - $10,864; 1994 - $10,821):
Home office properties 10,027 9,953
Investment properties 11,591 14,576
------------------------
21,618 24,529
Policy loans 100,452 92,130
Short-term investments 992 50,406
Other invested assets 40,309 27,402
------------------------
Total investments 2,570,930 2,475,604
Cash and certificates of deposit 12,059 10,820
Premiums deferred and uncollected 856 9,101
Investment income due and accrued 30,577 25,857
Other assets 16,894 14,088
Separate account assets (NOTE 3) 2,065,306 1,517,627
------------------------
$4,696,622 $4,053,097
========================
17
<PAGE>
DECEMBER 31
1995 1994
------------------------
(IN THOUSANDS)
LIABILITIES AND SURPLUS
Policy reserves (NOTE 6):
Life $ 337,289 $ 355,338
Annuity 2,006,799 1,963,066
Accident and health 1,067 1,204
Policy proceeds left at interest 17,849 19,600
------------------------
2,363,004 2,339,208
Policy and contract claims 9,602 8,058
Other policyholders' funds:
Dividend accumulations 19,525 19,697
Dividends payable in subsequent year 2,604 2,787
Premium deposit funds and other 1,331 2,446
------------------------
23,460 24,930
Other liabilities, including income taxes of
$9,851 in 1995 and $3,111 in 1994 19,275 17,762
Net transfers due from separate accounts (NOTE 3) (38,615) (40,034)
Asset valuation reserve 33,478 27,834
Interest maintenance reserve 13,443 6,986
Separate account liabilities (NOTE 3) 2,065,306 1,517,627
------------------------
Total liabilities 4,488,953 3,902,371
Commitments and contingencies (NOTES 6 AND 9)
Surplus:
Contingency surplus 900 900
Unassigned surplus 206,769 149,826
------------------------
Total surplus 207,669 150,726
------------------------
$4,696,622 $4,053,097
========================
SEE ACCOMPANYING NOTES.
18
<PAGE>
Security Benefit Life Insurance Company
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Annuity considerations and deposits $484,907 $530,530 $467,396
Individual life premiums (NOTE 6) (15,177) 49,837 59,373
Group life and health premiums 18,936 18,435 15,632
Reinsurance premiums 694 944 988
Amortization of interest maintenance reserve 1,394 1,077 804
Net investment income (NOTE 2) 185,605 173,391 172,879
Other income 32,722 27,972 26,431
-----------------------------------
Total revenues 709,081 802,186 743,503
Benefits and expenses:
Death benefits 32,164 29,368 34,990
Annuity benefits 36,902 36,587 41,743
Accident and health and disability benefits 2,053 2,177 2,912
Surrender benefits 352,206 275,283 229,554
Increase in reserves and funds for all policies 164,517 333,749 319,457
Other benefits 13,811 12,126 13,407
Commissions 34,979 39,059 41,116
Other insurance operating expenses 32,699 31,994 29,226
-----------------------------------
Total benefits and expenses 669,331 760,343 712,405
-----------------------------------
Gain from operations before dividends to
policyholders, federal income taxes and net
realized losses 39,750 41,843 31,098
Dividends to policyholders 2,391 2,689 2,725
-----------------------------------
Gain from operations before federal income
taxes and net realized losses 37,359 39,154 28,373
Federal income taxes (NOTE 7) 7,520 10,678 4,569
-----------------------------------
Gain from operations before net realized
losses 29,839 28,476 23,804
Net realized losses (NOTE 2) (1,083) (1,122) (3,280)
-----------------------------------
Net income $ 28,756 $ 27,354 $ 20,524
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
Security Benefit Life Insurance Company
Statements of Surplus
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $150,726 $128,785 $106,000
Add (deduct):
Net income 28,756 27,354 20,524
Increase in asset valuation (5,644) (2,958) (4,854)
Unrealized gain on investments 2,571 546 6,027
Reinsurance transaction, net of tax (NOTE 6) 33,270 --- ---
Other (2,010) (3,001) 1,088
-----------------------------------
56,943 21,941 22,785
-----------------------------------
Balance at end of year $207,669 $150,726 $128,785
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
20
<PAGE>
Security Benefit Life Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 28,756 $ 27,354 $ 20,524
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in investment income due and
accrued (4,720) (577) (4,147)
Increase in policy reserves 23,796 163,700 138,931
Accretion of discount on investments (3,400) (3,580) (5,135)
Amortization of premium on investments 9,725 15,623 16,440
Reinsurance transaction, net of tax 33,270 --- ---
Other 8,399 1,529 (16,820)
-----------------------------------
Net cash provided by operating activities 95,826 204,049 149,793
INVESTING ACTIVITIES
Investments sold or matured:
Fixed maturities 566,887 460,070 1,251,398
Equity securities 10,242 3,830 2,103
Mortgage loans 22,953 20,432 16,969
Real estate 3,173 2,782 1,293
Short-term investments 229,871 834,082 2,416,685
Other invested assets 22,053 3,602 2,458
-----------------------------------
855,179 1,324,798 3,690,906
Acquisition of investments:
Fixed maturities 706,581 606,368 1,403,541
Equity securities 19,500 4,627 741
Mortgage loans 2,939 33,516 12,021
Real estate 1,511 554 448
Short-term investments 180,259 854,833 2,426,336
Other invested assets 30,654 17,036 875
-----------------------------------
941,444 1,516,934 3,843,962
Net increase in policy loans (8,322) (5,579) (2,212)
-----------------------------------
Net cash used in investing activities (94,587) (197,715) (155,268)
-----------------------------------
Increase (decrease) in cash and certificates
of deposit 1,239 6,334 (5,475)
Cash and certificates of deposit at beginning
of year 10,820 4,486 9,961
-----------------------------------
Cash and certificates of deposit at end of
year $ 12,059 $ 10,820 $ 4,486
===================================
</TABLE>
21
<PAGE>
Security Benefit Life Insurance Company
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for federal income taxes $ 9,055 $ 8,851 $ 6,284
===================================
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Conversion of mortgage loans to
real estate owned $ --- $ 2,350 $ 673
===================================
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Security Benefit Life Insurance Company (the Company) is a Kansas-domiciled
mutual life insurance company licensed to sell insurance products in 49 states.
The Company offers a diversified portfolio of individual and group annuities,
ordinary life, and mutual fund products through multiple distribution channels.
In recent years, the Company's new business activities have increasingly been
concentrated in the individual flexible premium variable annuity markets.
BASIS OF PRESENTATION
The financial statements have been prepared on the basis of accounting practices
prescribed or permitted by the National Association of Insurance Commissioners
(NAIC) and the Kansas Insurance Department. "Prescribed" statutory accounting
practices include state laws, regulations and general administrative rules, as
well as a variety of publications of the NAIC. "Permitted" statutory accounting
practices encompass all accounting practices that are not prescribed; such
practices may differ from state to state, may differ from company to company
within a state, and may change in the future. The NAIC is currently in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of prescribed statutory accounting
practices. Accordingly, that project, which is expected to be completed in 1997,
will likely change, to some extent, prescribed statutory accounting practices,
and may result in changes to the accounting practices that the Company uses to
prepare its statutory financial statements. Statutory accounting practices
presently are regarded as generally accepted accounting principles for mutual
life insurance companies.
In April 1993, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." Under this
Interpretation, financial statements of mutual life insurance companies prepared
on the basis of statutory accounting principles no longer will be considered to
be prepared in conformity with generally accepted accounting principles. In
January 1995, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 120, "Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating Contracts," and
the American Institute of Certified Public Accountants issued its Statement of
Position No. 95-1, "Accounting for Certain Insurance
23
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Activities of Mutual Life Insurance Enterprises," which define generally
accepted accounting principles for mutual life insurance enterprises.
Interpretation No. 40, SFAS No. 120 and Statement of Position No. 95-1 are
concurrently effective for fiscal years beginning after December 15, 1995.
The Company has not yet determined whether it will continue to file statutory
financial statements with the Securities and Exchange Commission as currently
permitted by Regulation S-X, Rule 7-02(b) or file financial statements prepared
in accordance with all applicable authoritative accounting pronouncements that
define generally accepted accounting principles for all enterprises. The Company
has assessed the impact of FASB Interpretation No. 40, SFAS No. 120 and
Statement of Position No. 95-1, and estimates the adoption will result in an
increase to surplus of approximately $100 million.
INVESTMENTS
Investments are valued as prescribed by the NAIC.
Fixed maturities are reported at cost, adjusted for amortization of discount or
premium using the effective interest method. For mortgage-backed fixed
maturities, anticipated prepayments are considered using market consensus
prepayment speeds when determining the amortization of discount or premium.
Adjustments to discount or premium resulting when actual prepayments differ
substantially from estimates are determined using the retrospective method.
Preferred stocks in good standing are carried at cost. Bonds and preferred
stocks not in good standing are carried at market value. Common stocks are
valued at market except investments in stocks of unconsolidated subsidiaries,
which are carried at cost adjusted to reflect subsequent operating results. Home
office property (including the portion reported as investment real estate) is
reported at 1989 appraised value less accumulated depreciation as permitted by
the Kansas Insurance Department. Investment real estate or property acquired in
satisfaction of debt is reported at the lower of depreciated cost, less
encumbrances, or estimated market value. Other investments are reported on the
equity basis. Policy loans are stated at the aggregate unpaid balance. Mortgage
loans on real estate are carried at the aggregate unpaid balance adjusted for
any unamortized discount or premium.
24
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Asset Valuation Reserve (AVR) is computed in accordance with the formula
prescribed by the NAIC and represents a provision for possible fluctuations in
the value of bonds, equity securities, mortgage loans, and other invested
assets. Changes to the AVR are charged or credited directly to unassigned
surplus.
Realized gains and losses are determined on a specific identification basis and
are reported in income net of related federal income tax. Under a formula
prescribed by the NAIC, the Company reports an Interest Maintenance Reserve
(IMR) that represents the net accumulated unamortized realized capital gains and
losses on sales of fixed income investments, principally bonds and mortgage
loans, attributable to changes in the general level of interest rates. Such
gains or losses are amortized into income on a straight-line basis over the
remaining period to maturity based on groupings of individual securities sold in
five-year bands.
The investment in Security Benefit Group, Inc. (SBG), a wholly-owned subsidiary,
is reported on an equity basis, as permitted by the Kansas Insurance Department.
Changes in SBG's equity are reflected as unrealized gains (losses) on
investments and are accounted for through surplus and investment reserves as
described above. Dividends received from SBG are recorded as investment income
when received.
RESERVES FOR LIFE AND ANNUITY POLICIES
The reserves for life and annuity policies are developed by actuarial methods,
and the life reserves are established and maintained on the basis of published
mortality tables. Life and annuity reserves are computed using assumed interest
rates and valuation methods that will provide, in the aggregate, reserves that
are greater than the minimum valuation required by law and greater than the
guaranteed policy cash values.
For life policies, the 1941, 1958 and 1980 CSO mortality tables have been used
principally, and interest assumptions range from 2% to 5 1/2%. For annuity
contracts, the PAT, 1971 IAM, 1983a, and 1980 CSO mortality tables have been
used principally, and interest assumptions range from 2 1/2% to 11 1/2%.
25
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF PREMIUM REVENUES AND ACQUISITION COSTS
For life and annuity contracts, premiums are recognized as revenues over the
premium paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and certificates of deposits, short-term investments: The carrying
amounts reported in the balance sheet for these instruments approximate
their fair values.
Investment securities: The fair values for fixed maturity securities are
based on quoted market prices, where available. For fixed maturity
securities not actively traded, fair values are estimated using values
obtained from independent pricing services or estimated by discounting
expected future cash flows using a current market rate applicable to the
yield, credit quality and maturity of the investments. The fair values for
equity securities are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans and
policy loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for similar loans to borrowers with
similar credit ratings. Loans with similar characteristics are aggregated
for purposes of the calculations.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using the assumption
reinsurance method, whereby the amount of statutory profit the assuming
company would realize from the business is calculated. Those amounts are
then discounted at a rate of return commensurate with the rate presently
offered by the Company on similar contracts.
USE OF ESTIMATES
The preparation of the financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
26
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1994 and 1993 financial statements have been reclassified
to conform to the 1995 presentation.
2. INVESTMENTS
Information as to the amortized cost, gross unrealized gains and losses and fair
values of the Company's portfolio of fixed maturities at December 31, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 1,192 $ 206 $ --- $ 1,398
Obligations of states and political
subdivisions 90,353 1,725 140 91,938
Corporate securities 1,044,051 36,090 13,189 1,066,952
Mortgage-backed securities 1,159,206 23,299 1,883 1,180,622
----------------------------------------------------
Totals $2,294,802 $61,320 $ 15,212 $2,340,910
====================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 10,490 $ 55 $ 622 $ 9,923
Obligations of states and political
subdivisions 21,147 --- 2,615 18,532
Corporate securities 773,714 1,809 64,494 711,029
Mortgage-backed securities 1,355,199 200 107,843 1,247,556
----------------------------------------------------
Totals $2,160,550 $ 2,064 $175,574 $1,987,040
====================================================
</TABLE>
27
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of debt securities at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
AMORTIZED FAIR
COST VALUE
--------------------------
(IN THOUSANDS)
Due in one year or less $ 12,575 $ 12,716
Due after one year through five years 239,718 244,165
Due after five years through 10 years 292,943 301,247
Due after 10 years 590,360 602,160
--------------------------
1,135,596 1,160,288
Mortgage-backed securities 1,159,206 1,180,622
==========================
$2,294,802 $2,340,910
==========================
The cost and the fair values of the Company's equity securities at December 31,
1995 and 1994 are as follows:
DECEMBER 31, 1995
----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN THOUSANDS)
Preferred stock $ 4,044 $ 446 $--- $ 4,490
Common stock 8,309 123 86 8,346
----------------------------------------------
$12,353 $ 569 $ 86 $12,836
==============================================
28
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
DECEMBER 31, 1994
----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------
(IN THOUSANDS)
Preferred stock $ 5,979 $ 568 $124 $ 6,423
Common stock 2,509 599 37 3,071
----------------------------------------------
$ 8,488 $1,167 $161 $ 9,494
==============================================
Proceeds from sales of fixed maturities and related realized gains and losses,
including valuation adjustments, are as follows:
1995 1994 1993
----------------------------------
(IN THOUSANDS)
Proceeds from sales $293,864 $119,773 $891,044
Gross realized gains 4,294 4,966 35,955
Gross realized losses 2,971 4,813 21,375
The composition of the Company's portfolio of fixed maturity securities by
quality rating at December 31, 1995 is as follows:
QUALITY RATING AMOUNT %
------------------- -------------- ------
(IN THOUSANDS)
AAA $1,248,468 54.4%
AA 119,533 5.2
A 314,283 13.7
BBB 431,147 18.8
Noninvestment grade 181,371 7.9
-------------- ------
$2,294,802 100.0%
============== ======
The Company has a diversified portfolio of commercial and residential mortgage
loans outstanding in 26 states. The loans are somewhat geographically
concentrated in the midwestern and southwestern United States with the largest
outstanding balances at December 31, 1995 being in the states of Kansas (36%)
and Texas (13%).
29
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Major categories of net investment income are summarized as follows:
1995 1994 1993
-------------------------------------
(IN THOUSANDS)
Interest on fixed maturities $165,742 $151,688 $150,930
Interest on mortgage loans 7,656 7,552 7,835
Real estate income 3,524 3,563 3,451
Interest on policy loans 5,934 5,446 5,174
Dividends from subsidiary (NOTE 5) 4,200 5,200 8,300
Other 4,749 5,857 2,705
-------------------------------------
Total investment income 191,805 179,306 178,395
Investment expenses 6,200 5,915 5,516
-------------------------------------
Net investment income $185,605 $173,391 $172,879
=====================================
The Company did not hold any investments that individually exceeded 10% of
surplus at December 31, 1995 except for securities guaranteed by the U.S.
government or an agency of the U.S. government.
Net realized losses consist of the following:
1995 1994 1993
-------------------------------------
(IN THOUSANDS)
Fixed maturities $ 1,323 $ 153 $14,580
Equity securities 607 (62) (5,179)
Other 566 (2,401) (1,934)
-------------------------------------
Total realized gains (losses) 2,496 (2,310) 7,467
Income tax expense (benefit) (4,272) (3,593) 1,937
-------------------------------------
6,768 1,283 5,530
Transferred to interest maintenance
reserve, net of tax 7,851 (2,405) (8,810)
-------------------------------------
$(1,083) $(1,122) $(3,280)
=====================================
30
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The Company's principal objective in holding derivatives for purposes other than
trading is asset-liability management. The operations of the Company are subject
to risk of interest rate fluctuations to the extent that there is a difference
between the amount of the Company's interest-earning assets and interest-bearing
liabilities that mature in specified periods. The principal objective of the
Company's asset-liability management activities is to provide maximum levels of
net interest income while maintaining acceptable levels of interest rate and
liquidity risk and facilitating the funding needs of the Company. To achieve
that objective, the Company uses financial futures instruments and interest rate
exchange agreements. Financial futures contracts are commitments to either
purchase or sell a financial instrument at a specific future date for a
specified price and may be settled in cash or through delivery of the financial
instrument. Interest rate exchange agreements generally involve the exchange of
fixed and floating rate interest payments, without an exchange of the underlying
principal.
If a financial futures contract that is used to manage interest rate risk is
terminated early or results in a single payment based on the change in value of
an underlying asset, any resulting gain or loss is deferred and amortized as an
adjustment to yield of the designated asset over its remaining life. Deferred
losses totaling $3.9 million and deferred gains totaling $1.8 million at
December 31, 1995 and 1994, respectively, resulting from terminated and expired
futures contracts are included in fixed maturities and will be amortized as an
adjustment to interest income. The notional amount of outstanding agreements to
sell securities was $79 million and $51 million at December 31, 1995 and 1994,
respectively.
For interest rate exchange agreements, the differential of interest to be paid
or received is accrued as interest rates change and recognized as an adjustment
to interest income. The related amount payable to or receivable from
counterparties is included in investment income due and accrued. These amounts
were insignificant to the Company. There were no closed or terminated agreements
during 1995 or 1994. The fair values of the interest rate exchange agreements
are not recognized in the financial statements. The notional amount of
outstanding agreements was $50 million at December 31, 1995. Also, as of
December 31, 1995, these agreements have maturities ranging from March 1997 to
June 2005. Under these agreements, the Company receives variable rates based on
the one- and three-month LIBOR and pays fixed rates ranging from 6.430% to
7.215%.
31
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
3. SEPARATE ACCOUNT TRANSACTIONS
The separate accounts are established in conformity with Kansas Insurance Laws
and are not chargeable with liabilities that arise from any other business of
the Company. Premiums designated for investment in the separate accounts are
included in income with corresponding liability increases included in benefits.
Separate account surplus created through the use of Commissioners' Annuity
Reserve Valuation Method is reported as an unsettled transfer from the separate
account to the general account. Assets and liabilities of the separate accounts,
representing net deposits and accumulated net investment earnings held primarily
for the benefit of contract holders, are shown as separate captions in the
balance sheet. Assets held in the separate accounts are carried at quoted market
values, or where quoted market values are not available, at fair market value as
determined by the fund investment managers. Security Management Company, a
wholly-owned subsidiary of SBG, serves as the investment manager for the SBL
fund separate account assets. T. Rowe Price separate account assets are managed
by T. Rowe Price Associates, Inc. (or an affiliated company) and the Parkstone
separate account assets are managed by First of America Investment Corporation.
The Company receives administrative and risk fees relating to amounts invested
in the separate accounts.
The statement of operations includes the following separate account
transactions, which have no effect on net income:
1995 1994 1993
----------------------------------
(IN THOUSANDS)
Annuity considerations and deposits $275,257 $256,061 $235,624
==================================
Benefits:
Benefits and other charges $127,205 $ 83,933 $ 52,283
Net transfers to separate accounts 148,052 172,128 183,341
----------------------------------
$275,257 $256,061 $235,624
==================================
32
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLANS
Substantially all Company employees are covered by a qualified, noncontributory
defined benefit pension plan sponsored by the Company and certain of its
affiliates. Benefits are based on years of service and an employee's average
compensation during the last five years of service. The Company's policy has
been to contribute funds to the plan in amounts required to maintain sufficient
plan assets to provide for accrued benefits. In applying this general policy,
the Company considers, among other factors, the recommendations of its
independent consulting actuaries, the requirements of federal pension law and
the limitations on deductibility imposed by federal income tax law.
The Company records pension cost in accordance with the provisions of SFAS No.
87, "Employers' Accounting for Pensions." Pension cost for the year is allocated
to each sponsoring company based on the ratio of salary costs for each company
to total salary cost. Pension cost allocated to the Company for 1995, 1994 and
1993 was $151,000, $218,000, and $139,000, respectively.
Separate information disaggregated by sponsoring employer company is not
available on the components of the net pension cost or on the funded status of
the plan. Pension cost for the total plan for 1995, 1994 and 1993 is summarized
as follows:
1995 1994 1993
------------------------------
(IN THOUSANDS)
Service cost $ 528 $ 679 $ 571
Interest cost 508 535 483
Actual return on plan assets (1,568) 310 (966)
Net amortization and deferral 900 (949) 277
==============================
Net pension cost $ 368 $ 575 $ 365
==============================
33
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of the total plan as of December 31, 1995 and 1994 was as
follows:
DECEMBER 31
1995 1994
---------------------
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefit obligation $(5,243) $(4,589)
Non-vested benefit obligation (165) (157)
---------------------
Accumulated benefit obligation (5,408) (4,746)
Excess of projected benefit obligation over
accumulated benefit obligation (2,865) (2,405)
---------------------
Projected benefit obligation (8,273) (7,151)
Plan assets at fair market value 8,342 6,514
---------------------
Plan assets greater than (less than) projected
benefit obligation 69 (637)
Unrecognized net loss 1,560 1,971
Unrecognized prior service cost 758 815
Unrecognized net asset established at the date
of initial application (2,025) (2,209)
=====================
Net prepaid (accrued) pension expense $ 362 $ (60)
=====================
Assumptions were as follows:
1995 1994 1993
----------------------
Weighted average discount rate 7.5% 8.5% 7.5%
Weighted average compensation rate for
participants age 45 and older 4.5 4.5 4.5
Weighted average expected long-term return
on plan assets 9.0 9.0 9.0
Compensation rates that vary by age for participants under age 45 were used in
determining the actuarial present value of the projected benefit obligation in
1995. Plan assets are invested in a diversified portfolio of affiliated mutual
funds that invest in equity and debt securities.
34
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
In addition to the Company's defined benefit pension plan, the Company and
certain of its affiliates provide certain medical and life insurance benefits to
full-time employees who have retired after the age of 55 with five years of
service. The plan is contributory, with retiree contributions adjusted annually,
and contains other cost-sharing features, such as deductibles and coinsurance.
Contributions vary based on the employee's years of service earned after age 40.
The Company and its affiliates' portion of the costs is frozen after 1996 with
all future cost increases passed on to the retirees. Retirees in the plan prior
to July 1, 1993 are covered 100% by the Company.
The Company records net periodic cost for non-pension postretirement benefits in
accordance with the provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The net periodic cost is allocated
among the Company and its affiliates based on the number of eligible employees.
The net periodic cost allocated to the Company was $198,000, $171,000 and
$166,000 for 1995, 1994 and 1993, respectively.
Separate information disaggregated by sponsoring employer company is not
available on the components of the net retiree medical care and life insurance
costs or on the funded status of the plan. Retiree medical care and life
insurance costs for the total plan for 1995, 1994 and 1993 are summarized as
follows:
1995 1994 1993
----------------------
(IN THOUSANDS)
Service cost $151 $116 $118
Interest cost 305 275 233
----------------------
$456 $391 $351
======================
35
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of the total plan as of December 31, 1995 and 1994 was as
follows:
DECEMBER 31
1995 1994
---------------------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees $(2,514) $(2,418)
Active participants:
Retirement eligible (632) (620)
Others (1,035) (706)
---------------------
(4,181) (3,744)
Unrecognized net (gain) loss 67 (30)
---------------------
Accrued postretirement benefit cost $(4,114) $(3,774)
=====================
The annual assumed rate of increase in the per capita cost of covered benefits
is 11% for 1995 and is assumed to decrease gradually to 5% for 2001 and remain
at that level thereafter. The health care cost trend rate has a significant
effect on the amount reported. For example, increasing the assumed health care
cost trend rates by one percentage point each year would increase the
accumulated postretirement benefit obligation as of December 31, 1995 by
$233,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1995 by $60,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5%, 8.5% and 7.5% at December 31, 1995, 1994 and 1993,
respectively.
The Company has a profit-sharing and savings plan for which substantially all
employees are eligible after one year of employment with the Company.
Contributions for profit sharing are based on a formula established by the Board
of Directors with pro rata allocation among employees based on salaries. The
savings plan is a tax-deferred 401(k) retirement plan. Employees may contribute
up to 10% of their eligible compensation. The Company matches 50% of the first
6% of the employee contributions. Employee contributions are fully vested, and
Company contributions are vested over a five-year period. Company contributions
to the profit-sharing and savings plan charged to operations were $721,000,
$371,000 and $463,000 for 1995 1994 and 1993, respectively.
36
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
5. RELATED-PARTY TRANSACTIONS
SBG provides certain management and administrative services to the Company.
During 1995, 1994 and 1993, the Company incurred $18,654,000, $16,852,000 and
$14,729,000, respectively, for such services. The Company leases certain office
space to SBG for which annual rent income of $1,133,000 was recorded in 1995,
1994 and 1993. Additionally, in 1995, 1994 and 1993, the Company paid
commissions of $2,546,000, $2,700,000, $2,985,000, respectively, to Security
Distributors, Inc., a wholly-owned subsidiary of SBG.
Effective January 2, 1995, the Company acquired, pursuant to an assumption
reinsurance agreement from Pioneer National Life Insurance Company (PNL), then a
wholly-owned subsidiary of SBG, substantially all of PNL's life insurance
business. Concurrent with the assumption reinsurance agreement, the Company
entered into a 100% coinsurance agreement with PNL reinsuring the remaining
business. The Company did not recognize any gain or loss on the above
transactions. The Company received $2.9 million of assets as consideration for
the liabilities assumed by the Company in the assumption reinsurance and
coinsurance agreement. Assumed premiums and claims related to this business were
not significant to the Company during 1995. PNL was subsequently merged with
First Security Benefit Life Insurance and Annuity Company of New York (FSBL), a
newly formed wholly-owned subsidiary of SBG.
During 1995, the Company purchased an SBG note for the principal amount of $17
million. The note is due May 24, 2000 and provides for semiannual interest
payments at 7.35% per annum commencing on November 24, 1995. The note has been
registered with the NAIC and is included in fixed maturities in the accompanying
balance sheet. SBG used $12 million of the proceeds to purchase Company-issued
annuity contracts for the purpose of funding new investment options within the
Company's separate account. The account balance of these contracts totaled
$13,005,000 at December 31, 1995. The remaining $5 million of proceeds were used
to purchase shares in new mutual funds managed by Security Management Company, a
wholly-owned subsidiary of SBG. The net asset value of these shares totaled
$5,364,000 at December 31, 1995.
At December 31, 1995 and 1994, the Company's investment in SBG was $29,590,000
and $21,028,000, respectively. The Company recorded cash dividends of
$4,200,000, $5,200,000 and $8,300,000 from SBG during 1995, 1994 and 1993,
respectively.
37
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
5. RELATED-PARTY TRANSACTIONS (CONTINUED)
Condensed financial information related to SBG is as follows:
Balance Sheets:
1995 1994
---------------------
(IN THOUSANDS)
Cash and investments $45,221 $19,456
Property and equipment 8,138 8,736
Other assets 7,594 7,910
---------------------
$60,953 $36,102
=====================
Accounts payable and other liabilities $14,363 $15,074
Note payable to parent 17,000 ---
Stockholder's equity 29,590 21,028
---------------------
$60,953 $36,102
=====================
Statements of Operations:
1995 1994 1993
---------------------------------
(IN THOUSANDS)
Revenues:
Management fees $18,654 $16,852 $14,729
Mutual fund fees 24,266 22,058 21,352
Other 3,226 2,373 7,287
---------------------------------
46,146 41,283 43,368
General, administrative and other expenses 36,488 32,390 30,080
Income taxes 3,927 3,430 5,233
Cumulative effect of SFAS No. 106 --- --- 1,735
---------------------------------
Net income $ 5,731 $ 5,463 $ 6,320
=================================
38
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
6. REINSURANCE
The Company is involved in both the cession and assumption of reinsurance with
other companies. The Company's maximum retention on any one life is $500,000.
Risks are reinsured with other companies to permit recovery of a portion of
direct losses.
Principal reinsurance transactions are summarized as follows:
1995 1994 1993
--------------------------------------
(IN THOUSANDS)
Reinsurance assumed:
Premiums received $ 866 $ 1,276 $ 1,359
======================================
Commissions paid $ 144 $ 239 $ 96
======================================
Claims paid $ 1,597 $ 1,469 $ 7,290
======================================
Reinsurance ceded:
Premiums paid $ 73,916 $ 12,018 $ 4,194
======================================
Commissions received $ 230 $ 1,443 $ 148
======================================
Claim recoveries $ 3,089 $ 2,485 $ 2,231
======================================
Reinsurance in force (at December 31):
Assumed policies $ 25,438 $ 30,814 $ 39,730
======================================
Ceded policies $3,932,146 $1,150,828 $1,081,591
======================================
The liabilities for policy reserves and policy and contract claims include the
following amounts for reinsurance assumed: $354,000 and $2,790,000 at December
31, 1995 and $120,000 and $3,187,000 at December 31, 1994.
The ceding of insurance through reinsurance agreements does not discharge the
primary liability of the original underwriters to the insured. However,
statutory accounting practices treat risks that have been reinsured, to the
extent of reinsurance, as though they were not risks for which the original
insurer is liable. Therefore, in financial statement presentations, policy
reserves and policy and contract claim liabilities are presented net of that
portion of risk reinsured. Accordingly, policy reserves and policy and contract
claim liabilities have been shown net of reinsurance credits of $77,908,000 and
$968,000 at December 31, 1995 and $11,048,000 and $459,000 at December 31, 1994.
39
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
6. REINSURANCE (CONTINUED)
In 1995, the Company transferred, through a 100% coinsurance agreement, $66.9
million in policy reserves and claim liabilities. The agreement related to a
block of whole life and decreasing term life insurance business. The Company
recorded a pretax gain of $42.6 million which represented the initial ceding
commission. This gain, net of tax, was recorded as an increase to unassigned
surplus.
In prior years, the Company was involved in litigation arising out of its
participation from 1986 to 1990 in a reinsurance pool. The litigation related to
the pool manager and a reinsurance intermediary placing major medical business
in the pool without authorization. During 1993, the Company settled the major
medical portion of the pool's activity with no significantly adverse effect on
the Company. The nonmajor medical business placed in the pool has experienced
significant losses. At December 31, 1995, the Company believes adequate
provision has been made for such losses.
7. INCOME TAXES
The Company files a life/nonlife consolidated federal income tax return with
SBG. Income taxes are allocated to the Company on the basis of its filing a
separate tax return. The Company is taxed at usual corporate rates as defined by
the applicable income tax laws for mutual life insurance companies. These laws
provide for differences in the recognition of certain income and expenses, and
provide for deductions that may result in a provision for income taxes that does
not have the customary relationship of taxes to income. The provision for income
taxes differs from the amount computed at the statutory federal rate due
primarily to the dividends received deduction and tax credits.
During the year ended December 31, 1993, the Company began establishing deferred
income taxes on its tax-basis deferred policy acquisition costs. Prior to this
time, no deferred income taxes had been established on any difference between
the financial statement and income tax bases of assets and liabilities, and, at
December 31, 1995, this remains the only item to which deferred income tax
accounting has been applied. The Company's policy is to nonadmit any resulting
deferred tax asset; accordingly, this practice has no impact on surplus. The
cumulative effect of adopting this change as of January 1, 1993 amounted to
$3,464,000 and was reflected as a nonadmitted asset at that time. The effect of
the new method increased income tax expense by $115,000 for 1995 and decreased
income tax expense by $927,000 and $1,444,000 for 1994 and 1993, respectively.
40
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
8. CONDENSED FAIR VALUE INFORMATION
SFAS No. 107, "Disclosures about Fair Values of Financial Instruments," requires
disclosures of fair value information about financial instruments, whether
recognized or not recognized in a company's balance sheet, for which it is
practicable to estimate that value. The methods and assumptions used by the
Company to estimate the following fair value disclosures for financial
instruments are set forth in NOTE 1.
SFAS No. 107 excludes certain insurance liabilities and other nonfinancial
instruments from its disclosure requirements. However, the liabilities under all
insurance contracts are taken into consideration in the Company's overall
management of interest rate risk, which minimizes exposure to changing interest
rates through the matching of investment maturities with amounts due under
insurance contracts. The fair value amounts presented herein do not include an
amount for the value associated with customer or agent relationships, the
expected interest margin (interest earnings over interest credited) to be earned
in the future on investment-type products, or other intangible items.
Accordingly, the aggregate fair value amounts presented herein do not
necessarily represent the underlying value of the Company; likewise, care should
be exercised in deriving conclusions about the Company's business or financial
condition based on the fair value information presented herein.
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------------------- -----------------------
(IN THOUSANDS)
Fixed maturities (NOTE 2) $2,294,802 $2,340,910 $2,160,550 $1,987,040
Equity securities (NOTE 2) 12,390 12,836 9,050 9,494
Mortgage loans 70,777 76,610 90,509 88,894
Policy loans 100,452 104,077 92,130 91,492
Short-term investments 992 992 50,406 50,406
Cash and certificates of deposit 12,059 12,059 10,820 10,820
Investment income due and accrued 30,577 30,577 25,857 25,857
Futures contracts --- (737) --- 240
Interest rate exchange agreements --- (2,291) --- ---
Supplementary contracts
without life contingencies 34,363 35,387 41,239 39,771
Individual and group annuities 1,922,901 1,774,642 1,828,753 1,690,693
----------------------- -----------------------
$4,479,313 $4,385,062 $4,309,314 $3,994,707
======================= =======================
41
<PAGE>
Security Benefit Life Insurance Company
Notes to Financial Statements (continued)
9. COMMITMENTS AND CONTINGENCIES
The Company has a $75.5 million line of credit facility from the Federal Home
Loan Bank of Topeka. Any borrowings in connection with this facility bear
interest at .1% over the Federal Funds rate. At December 31, 1995, there were no
borrowings outstanding under this facility.
The economy and other factors have caused an increase in the number of insurance
companies that have required regulatory supervision. This circumstance is
expected to result in an increase in assessments by state guaranty funds, or
voluntary payments by solvent insurance companies, to cover losses to
policyholders of insolvent or rehabilitated companies. Mandatory assessments can
be partially recovered through a reduction in future premium taxes in some
states. The Company records these assessments on a cash basis and has paid
$2,014,000, $2,270,000 and $2,077,000 for the years ended December 31, 1995,
1994 and 1993, respectively. The ultimate amounts or the ultimate effect of any
such increased assessments or voluntary payments on the Company's financial
position and results of operations are not currently determinable. The
accompanying financial statements do not include any provision for any such
potential assessments.
10. ANNUITY AND DEPOSIT LIABILITIES
The withdrawal characteristics of the liability for future policy benefits for
annuities and supplementary contracts and deposits as of December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
GENERAL SEPARATE
ACCOUNT ACCOUNT TOTAL PERCENT
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal:
With market value adjustment $ 557 $ --- $ 557 ---%
At book value less current surrender
charge of 5% or more 572,902 652,843 1,225,745 30
----------------------------------------------------
Total with adjustment 573,459 652,843 1,226,302 30
Subject to discretionary withdrawal
at book value with minimal or no
charge or adjustment 1,394,680 1,360,750 2,755,430 67
Not subject to discretionary withdrawal 112,382 12,070 124,452 3
----------------------------------------------------
$2,080,521 $2,025,663 $4,106,184 100%
====================================================
</TABLE>
42
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B of
this Registration Statement.
(b) Exhibits
(1) 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) Not Applicable
(4) Sample Contract(a)
(5) Sample Application(a)
(6) (a) Composite of Articles of Incorporation of SBL(a)
(b) Bylaws of SBL(a)
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel(a)
(10) Consent of Independent Auditors
(11) Not Applicable
(12) Not Applicable
(13) Schedules of Computation of Performance
(14) Financial Data Schedules
(15) Powers of Attorneys of Howard R. Fricke, Thomas R.
Clevenger, Sister Loretto Marie Colwell, John C. Dicus,
Melanie S. Fannin, William W. Hanna, John E. Hayes, Jr.,
Laird G. Noller, Frank C. Sabatini and Robert C. Wheeler
(a) Incorporated herein by reference to the Exhibits filed with the Registrant's
Post-Effective Amendment No. 1 under the Securities Act of 1933 and
Amendment No. 2 under the Investment Company Act of 1940 to Registration
Statement No. 33-85592 (April 28, 1995).
<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, President,
Chief Executive Officer and Director
Thomas R. Clevenger Director
P.O. Box 8514
Wichita, Kansas 67208
Sister Loretto Marie Colwell Director
1700 SW 7th Street
Topeka, Kansas 66044
John C. Dicus Director
700 Kansas Avenue
Topeka, Kansas 66603
Melanie S. Fannin Director
220 SE 6th Street
Topeka, KS 66603
William W. Hanna Director
P.O. Box 2256
Wichita, Kansas 67201
John E. Hayes, Jr. Director
818 Kansas Avenue
Topeka, Kansas 66612
Laird G. Noller Director
2245 Topeka Avenue
Topeka, Kansas 66611
Frank C. Sabatini Director
120 SW 6th Street
Topeka, Kansas 66603
Robert C. Wheeler Director
P.O. Box 148
Topeka, Kansas 66601
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR
Donald J. Schepker* Senior Vice President, Chief Financial
Officer and Treasurer
James L. Woods* Senior Vice President
Jeffrey B. Pantages* Senior Vice President and Chief
Investment Officer
Roger K. Viola* Senior Vice President, General
Counsel, and Secretary
T. Gerald Lee* Senior Vice President - Administration
Malcolm E. Robinson* Senior Vice President and Assistant to
the President
Donald E. Caum Senior Vice President and Chief
Marketing Officer
Richard K Ryan* Senior Vice President
Amy J. Lee* Associate General Counsel and Vice
President
James R. Schmank* Vice President - Corporate Development
Kathleen R. Blum Vice President - Administration
*Located at 700 Harrison Street, Topeka, Kansas 66636.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT
The Depositor, Security Benefit Life Insurance Company ("SBL"), is owned by
its policy owners. No one person holds more than approximately 0.0005% of the
voting power of SBL. The Registrant is a segregated asset account of SBL.
<PAGE>
The following chart indicates the persons controlled by or under common
control with Variflex LS or SBL:
JURISDICTION PERCENT OF VOTING
NAME OF INCORPORATION SECURITIES OWNED BY SBL
Security Benefit Life Insurance Kansas ----
Company (Mutual Life
Insurance Company)
Security Benefit Group, Inc. Kansas 100%
(Holding Company)
Security Management Company Kansas 100%
(Investment Adviser)
Security Distributors, Inc. Kansas 100%
(Broker/Dealer, Principal
Underwriter of Mutual Funds)
Security Benefit Academy, Inc. Kansas 100%
(Daycare Company)
Creative Impressions, Inc. Kansas 100%
(Advertising Agency)
Security Benefit Clinic and Kansas 100%
Hospital (Nonprofit provider of
hospital benevolences for
fraternal certificate holders)
First Advantage Insurance Kansas 100%
Agency, Inc. (Insurance
Agency)
First Security Benefit Life New York 100%
Insurance and Annuity Company
of New York
<PAGE>
SBL is also the depositor of the following separate accounts: SBL Variable
Annuity Accounts I, III, IV, and Variflex, SBL Variable Life Insurance Account
Varilife, Security Varilife Separate Account, Parkstone Variable Annuity Account
and T. Rowe Price Variable Annuity Account.
Through the above-referenced separate accounts, SBL might be deemed to
control the open-end management investment companies listed below. The
approximate percentage of ownership by the separate accounts for each company is
as follows:
Security Equity Fund 18% Security Income Fund 5.9%
Corporate Bond Series
Security Growth and Income Fund 41% SBL Fund 100%
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1996, there were 984 owners of Variflex LS Contracts.
ITEM 28. INDEMNIFICATION
The bylaws of Security Benefit Life Insurance Company provide that the
Company shall, to the extent authorized by the laws of the State of Kansas,
indemnify officers and directors for certain liabilities threatened or incurred
in connection with such person's capacity as director or officer.
The Articles of Incorporation include the following provision:
A Director shall not be personally liable to the Corporation or to its
policyholders for monetary damages for breach of fiduciary duty as a
director, provided that this sentence shall not eliminate nor limit the
liability of a director
A. for any breach of his or her duty of loyalty to the Corporation or
its policyholders;
B. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
C. under the provisions of K.S.A. 17-6424 and amendments thereto; or
<PAGE>
D. for any transaction from which the director derived an improper
personal benefit.
This Article Eighth shall not eliminate or limit the liability of a
director for any act or omission occurring prior to the date this Article
Eighth becomes effective.
Insofar as indemnification for a liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Depositor has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the Securities being registered, the
Depositor will, unless in the opinion of its counsel the matter has been settled
by a controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Security Distributors, Inc. ("SDI"), a subsidiary of SBL, acts as
distributor of the Variflex LS contracts. SDI receives no compensation for its
distribution function in excess of the commissions it pays to selling
broker/dealers. SDI performs similar functions for SBL Variable Annuity Accounts
I, III and IV, Variflex, SBL Variable Life Insurance Account Varilife, Security
Varilife Separate Account, and Parkstone Variable Annuity Account. SDI also acts
as principal underwriter for the following management investment companies for
which Security Management Company, a subsidiary of SBL, acts as investment
adviser: Security Equity Fund, Security Income Fund, Security Growth and Income
Fund, Security Tax-Exempt Fund, Security Ultra Fund, The Parkstone Advantage
Fund, and Parkstone Variable Annuity.
<PAGE>
(b)
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
Richard K Ryan President and Director
John D. Cleland Vice President and Director
James W. Lammers Senior Vice President and Director
James R. Schmank Vice President and Director
Louis R. Jicha Vice President and Director
Mark E. Young Vice President
Amy J. Lee Secretary
Brenda M. Luthi Treasurer
Daniel McNichol Vice President
Steven S. Doerrer Regional Vice President
Robert L. Kirchner Regional Vice President
Daniel R. Murphy Regional Vice President
Ronald V. Vermillion Regional Vice President
Jennifer A. Zaat Regional Vice President
Kent N. Spillman Regional Vice President
Carla D. Griffin Regional Vice President
Anthony Hammock Regional Vice President
*700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by Section 31(a) of the 1940
Act and the rules under it are maintained by SBL at its administrative
offices--700 Harrison 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 Variable Annuity contracts may
be accepted.
(b) Registrant undertakes that it will include as part of the Variflex LS
contract application a space that an applicant can check to request a Statement
of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to SBL at the address or phone number
listed in the prospectus.
(d) 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) SBL, sponsor of the unit investment trust, Variflex LS, hereby represents
that it is relying upon the Securities and Exchange Commission's No-Action
Letter Ref. No. IP-6-88, American Council of Life Insurance, and that it has
complied with the provisions of paragraphs (1)-(4) of such no-action letter
which are incorporated herein by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of 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 for effectiveness of this Registration Statement and has
caused this Registration Statement to be signed on its behalf, in the city of
Topeka, and State of Kansas on this 25th day of April, 1996.
SIGNATURES AND TITLES
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of the Board, (The Depositor)
President and Chief Executive
Officer
By: Roger K. Viola
--------------------------------------
Thomas R. Clevenger Roger K. Viola, Senior Vice President,
Director General Counsel and Secretary as
Attorney-In-Fact for the Officers and
Directors Whose Names Appear Opposite
Sister Loretto Marie Colwell
Director
VARIFLEX LS
(The Registrant)
John C. Dicus
Director By: SECURITY BENEFIT LIFE INSURANCE
COMPANY
(The Depositor)
Melanie S. Fannin
Director
By: Howard R. Fricke
--------------------------------------
William W. Hanna Howard R. Fricke, Chairman of the
Director Board, President and Chief Executive
Officer
John E. Hayes, Jr.
Director By: Donald J. Schepker
--------------------------------------
Donald J. Schepker, Senior Vice
Laird G. Noller President, Chief Financial Officer and
Director Treasurer
Frank C. Sabatini (ATTEST): Roger K. Viola
Director --------------------------------
Roger K. Viola, Senior Vice
President, General Counsel and
Robert C. Wheeler Secretary
Director
Date: April 25, 1996
<PAGE>
EXHIBIT INDEX
(1) None
(2) None
(3) None
(4) None
(5) None
(6) (a) None
(b) None
(7) None
(8) None
(9) None
(10) Consent of Independent Auditors
(11) None
(12) None
(13) Schedules of Computation of Performance
(14) Financial Data Schedules
(15) Powers of Attorney
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated February 2, 1996, with respect to the
financial statements of Security Benefit Life Insurance Company and the
financial statements of Variflex LS Variable Annuity included in the
Registration Statement on Form N-4 and the related Statement of Additional
Information accompanying the Prospectus of Variflex LS Variable Annuity.
Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
April 24, 1996
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1995
.75 Year (From date of inception April 1, 1995)
1000 (1+T).75 = 1,240.99
(1+T).75 = (1.24099)
1+T = 1.3336
T = .3336
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
INCOME-GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1995
.75 Year (From date of inception April 1, 1995)
1000 (1+T).75 = 1,210.72
(1+T).75 = (1.21072)
1+T = 1.2904
T = .2904
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
MONEY MARKET YIELD
Money Market Series (Series C) as of December 30, 1995
NO ADMINISTRATION FEE
CALCULATION OF CHANGE IN UNIT VALUE:
(Unrounded Unrounded)
( Price Price )
(12-29-95 - 12-22-95 ) = 10.352559022433 - 10.346966716541 = .000540477808
----------------------- ---------------------------------
( Unrounded Price ) 10.346966716541
( 12-22-95 )
ANNUALIZED YIELD:
365/7 (.000540477808) = 2.82%
EFFECTIVE YIELD:
(1 + .000540477808)365/7 - 1 = 2.86%
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
WORLDWIDE EQUITY SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1995
.75 Year (From date of inception April 1, 1995)
1000 (1+T).75 = 1,109.86
(1+T).75 = (1.10986)
1+T = 1.1491
T = .1491
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
HIGH GRADE INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1995
.75 Year (From date of inception April 1, 1995)
1000 (1+T).75 = 1,116.01
(1+T).75 = (1.11601)
1+T = 1.1576
T = .1576
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
SOCIAL AWARENESS SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1995
.75 Year (From date of inception April 1, 1995)
1000 (1+T).75 = 1,201.84
(1+T).75 = (1.20184)
1+T = 1.2778
T = .2778
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
EMERGING GROWTH SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1995
.75 Year (From date of inception April 1, 1995)
1000 (1+T).75 = 1,153.76
(1+T).75 = (1.15376)
1+T = 1.2101
T = .2101
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
GLOBAL AGGRESSIVE BOND SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1995
.59 Year (From date of inception June 1, 1995)
1000 (1+T).59 = 1,067.01
(1+T).59 = (1.06701)
1+T = 1.1162
T = .1162
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
SPECIALIZED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1995
.59 Year (From date of inception June 1, 1995)
1000 (1+T).59 = 1,061.98
(1+T).59 = (1.06198)
1+T = 1.1073
T = .1073
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
MANAGED ASSET ALLOCATION SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1995
.59 Year (From date of inception June 1, 1995)
1000 (1+T).59 = 1,064.02
(1+T).59 = (1.06402)
1+T = 1.1109
T = .1109
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
EQUITY INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1995
.59 Year (From date of inception June 1, 1995)
1000 (1+T).59 = 1161.00
(1+T).59 = (1.16100)
1+T = 1.2879
T = .2879
<PAGE>
VARIFLEX LS Item 24.b Exhibit (13)
NONSTANDARDIZED TOTAL RETURN
(Ending Price ) - 1 = Nonstandardized Total Return
---------------
(Beginning Price)
SERIES A - Nonstandardized Total Return
1 Year (13.20)-1 = 34.83%
-----
( 9.79)
<TABLE> <S> <C>
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<CIK> 0000932020
<NAME> VARIFLEX LS
<SERIES>
<NUMBER> 1
<NAME> SERIES A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
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<INVESTMENTS-AT-COST> 3,697
<INVESTMENTS-AT-VALUE> 3,825
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<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,825
<PAYABLE-FOR-SECURITIES> 3,825
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 3,825
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 289,693
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,825
<DIVIDEND-INCOME> 42
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 11
<NET-INVESTMENT-INCOME> 31
<REALIZED-GAINS-CURRENT> 49
<APPREC-INCREASE-CURRENT> 128
<NET-CHANGE-FROM-OPS> 208
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 316
<NUMBER-OF-SHARES-REDEEMED> 26
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 290
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11
<AVERAGE-NET-ASSETS> 1,246
<PER-SHARE-NAV-BEGIN> 10.66
<PER-SHARE-NII> .32
<PER-SHARE-GAIN-APPREC> 2.22
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.20
<EXPENSE-RATIO> .88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<SERIES>
<NUMBER> 2
<NAME> SERIES B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,056
<INVESTMENTS-AT-VALUE> 3,162
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,162
<PAYABLE-FOR-SECURITIES> 3,162
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 3,162
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 248,974
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,162
<DIVIDEND-INCOME> 18
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 11
<NET-INVESTMENT-INCOME> 7
<REALIZED-GAINS-CURRENT> 55
<APPREC-INCREASE-CURRENT> 106
<NET-CHANGE-FROM-OPS> 168
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 256
<NUMBER-OF-SHARES-REDEEMED> 7
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 249
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11
<AVERAGE-NET-ASSETS> 1,229
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 2.12
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.70
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932020
<NAME> VARIFLEX LS
<SERIES>
<NUMBER> 3
<NAME> SERIES C
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,013
<INVESTMENTS-AT-VALUE> 2,991
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,991
<PAYABLE-FOR-SECURITIES> 2,991
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 2,991
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 288,907
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,991
<DIVIDEND-INCOME> 55
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 11
<NET-INVESTMENT-INCOME> 44
<REALIZED-GAINS-CURRENT> (33)
<APPREC-INCREASE-CURRENT> (22)
<NET-CHANGE-FROM-OPS> (11)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 491
<NUMBER-OF-SHARES-REDEEMED> 202
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 289
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11
<AVERAGE-NET-ASSETS> 1,169
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> (.10)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932020
<NAME> VARIFLEX LS
<SERIES>
<NUMBER> 4
<NAME> SERIES D
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,404
<INVESTMENTS-AT-VALUE> 1,441
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,441
<PAYABLE-FOR-SECURITIES> 1,441
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 1,441
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 126,206
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,441
<DIVIDEND-INCOME> 6
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 5
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> 15
<APPREC-INCREASE-CURRENT> 37
<NET-CHANGE-FROM-OPS> 53
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 129
<NUMBER-OF-SHARES-REDEEMED> 3
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 126
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5
<AVERAGE-NET-ASSETS> 579
<PER-SHARE-NAV-BEGIN> 10.30
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 1.10
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.42
<EXPENSE-RATIO> .86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932020
<NAME> VARIFLEX LS
<SERIES>
<NUMBER> 5
<NAME> SERIES E
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2,704
<INVESTMENTS-AT-VALUE> 2,777
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,777
<PAYABLE-FOR-SECURITIES> 2,777
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 2,777
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 240,306
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,777
<DIVIDEND-INCOME> 35
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 8
<NET-INVESTMENT-INCOME> 27
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 73
<NET-CHANGE-FROM-OPS> 96
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 259
<NUMBER-OF-SHARES-REDEEMED> 19
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 240
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8
<AVERAGE-NET-ASSETS> 856
<PER-SHARE-NAV-BEGIN> 10.37
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> .83
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.56
<EXPENSE-RATIO> .93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932020
<NAME> VARIFLEX LS
<SERIES>
<NUMBER> 6
<NAME> SERIES S
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 450
<INVESTMENTS-AT-VALUE> 467
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467
<PAYABLE-FOR-SECURITIES> 467
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 467
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 37,149
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 467
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 2
<NET-INVESTMENT-INCOME> (1)
<REALIZED-GAINS-CURRENT> 16
<APPREC-INCREASE-CURRENT> 17
<NET-CHANGE-FROM-OPS> 32
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 37
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2
<AVERAGE-NET-ASSETS> 219
<PER-SHARE-NAV-BEGIN> 10.47
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> 2.15
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.56
<EXPENSE-RATIO> .91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932020
<NAME> VARIFLEX LS
<SERIES>
<NUMBER> 7
<NAME> SERIES J
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,582
<INVESTMENTS-AT-VALUE> 1,589
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,589
<PAYABLE-FOR-SECURITIES> 1,589
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 1,589
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 133,581
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,589
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 6
<NET-INVESTMENT-INCOME> (6)
<REALIZED-GAINS-CURRENT> 35
<APPREC-INCREASE-CURRENT> 7
<NET-CHANGE-FROM-OPS> 36
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 151
<NUMBER-OF-SHARES-REDEEMED> 18
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 133
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6
<AVERAGE-NET-ASSETS> 622
<PER-SHARE-NAV-BEGIN> 10.32
<PER-SHARE-NII> (.11)
<PER-SHARE-GAIN-APPREC> 1.68
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.89
<EXPENSE-RATIO> .96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932020
<NAME> VARIFLEX LS
<SERIES>
<NUMBER> 8
<NAME> SERIES K
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 916
<INVESTMENTS-AT-VALUE> 923
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 923
<PAYABLE-FOR-SECURITIES> 923
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 923
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 86,477
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 923
<DIVIDEND-INCOME> 46
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 5
<NET-INVESTMENT-INCOME> 41
<REALIZED-GAINS-CURRENT> 1
<APPREC-INCREASE-CURRENT> 7
<NET-CHANGE-FROM-OPS> 49
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 88
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 87
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5
<AVERAGE-NET-ASSETS> 708
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> .08
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.67
<EXPENSE-RATIO> .71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932020
<NAME> VARIFLEX LS
<SERIES>
<NUMBER> 9
<NAME> SERIES M
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 4,897
<INVESTMENTS-AT-VALUE> 5,004
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,004
<PAYABLE-FOR-SECURITIES> 5,004
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 5,004
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 471,091
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,004
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 22
<NET-INVESTMENT-INCOME> (22)
<REALIZED-GAINS-CURRENT> 92
<APPREC-INCREASE-CURRENT> 107
<NET-CHANGE-FROM-OPS> 177
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 782
<NUMBER-OF-SHARES-REDEEMED> 310
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 472
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 22
<AVERAGE-NET-ASSETS> 3,183
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> .69
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> .69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932020
<NAME> VARIFLEX LS
<SERIES>
<NUMBER> 10
<NAME> SERIES N
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2,402
<INVESTMENTS-AT-VALUE> 2,468
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,468
<PAYABLE-FOR-SECURITIES> 2,468
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 2,468
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 231,852
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,468
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 8
<NET-INVESTMENT-INCOME> (8)
<REALIZED-GAINS-CURRENT> 14
<APPREC-INCREASE-CURRENT> 66
<NET-CHANGE-FROM-OPS> 72
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 247
<NUMBER-OF-SHARES-REDEEMED> 16
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 231
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8
<AVERAGE-NET-ASSETS> 1,179
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> .71
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.64
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932020
<NAME> VARIFLEX LS
<SERIES>
<NUMBER> 11
<NAME> SERIES O
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2,883
<INVESTMENTS-AT-VALUE> 3,102
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,102
<PAYABLE-FOR-SECURITIES> 3,102
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 3,102
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 267,317
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,102
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 12
<NET-INVESTMENT-INCOME> (12)
<REALIZED-GAINS-CURRENT> 48
<APPREC-INCREASE-CURRENT> 219
<NET-CHANGE-FROM-OPS> 255
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 278
<NUMBER-OF-SHARES-REDEEMED> 11
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 267
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12
<AVERAGE-NET-ASSETS> 1,726
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> 1.69
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.61
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Thomas R. Clevenger, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX LS VARIABLE ANNUITY ACCOUNT with like effect
as though said Registration Statements and other documents had been signed and
filed personally by me in the capacity aforesaid. Each of the aforesaid
attorneys acting alone shall have all the powers of all of said attorneys. I
hereby ratify and confirm all that the said attorneys, or any of them, may do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of April, 1996.
Thomas R. Clevenger
-----------------------------------
Thomas R. Clevenger
SUBSCRIBED AND SWORN to before me this 5th day of April, 1996.
Jana R. Selley
-----------------------------------
Notary Public
My Commission Expires:
June 14, 1996
- - -----------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Sister Loretto Marie Colwell, being a Director of SECURITY BENEFIT LIFE
INSURANCE COMPANY, by these presents do make, constitute and appoint Howard R.
Fricke, James R. Schmank and Roger K. Viola, and each of them, my true and
lawful attorneys, each with full power and authority for me and in my name and
behalf to sign Registration Statements, any amendments thereto and any
applications for exemptive relief filed pursuant to the Investment Company Act
of 1940 or the Securities Act of 1933, as amended, and any instrument or
document filed as part thereof, or in connection therewith or in any way related
thereto, in connection with Variable Annuity Contracts offered, issued or sold
by SECURITY BENEFIT LIFE INSURANCE COMPANY and any VARIFLEX LS VARIABLE ANNUITY
ACCOUNT with like effect as though said Registration Statements and other
documents had been signed and filed personally by me in the capacity aforesaid.
Each of the aforesaid attorneys acting alone shall have all the powers of all of
said attorneys. I hereby ratify and confirm all that the said attorneys, or any
of them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of March, 1996.
Sister Loretto Marie Colwell
-----------------------------------
Sister Loretto Marie Colwell
SUBSCRIBED AND SWORN to before me this 28th day of March, 1996.
Julia A. Smrha
-----------------------------------
Notary Public
My Commission Expires:
July 7, 1996
- - -----------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John C. Dicus, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX LS VARIABLE ANNUITY ACCOUNT with like effect
as though said Registration Statements and other documents had been signed and
filed personally by me in the capacity aforesaid. Each of the aforesaid
attorneys acting alone shall have all the powers of all of said attorneys. I
hereby ratify and confirm all that the said attorneys, or any of them, may do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of April, 1996.
John C. Dicus
-----------------------------------
John C. Dicus
SUBSCRIBED AND SWORN to before me this 1st day of April, 1996.
Jana R. Selley
-----------------------------------
Notary Public
My Commission Expires:
June 14, 1996
- - -----------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Melanie S. Fannin, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX LS VARIABLE ANNUITY ACCOUNT with like effect
as though said Registration Statements and other documents had been signed and
filed personally by me in the capacity aforesaid. Each of the aforesaid
attorneys acting alone shall have all the powers of all of said attorneys. I
hereby ratify and confirm all that the said attorneys, or any of them, may do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of March, 1996.
Melanie S. Fannin
-----------------------------------
Melanie S. Fannin
SUBSCRIBED AND SWORN to before me this 28th day of March, 1996.
Nancy A. Gerval
-----------------------------------
Notary Public
My Commission Expires:
Oct. 02, 1997
- - -----------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Howard R. Fricke, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint James R. Schmank and
Roger K. Viola, and each of them, my true and lawful attorneys, each with full
power and authority for me and in my name and behalf to sign Registration
Statements, any amendments thereto and any applications for exemptive relief
filed pursuant to the Investment Company Act of 1940 or the Securities Act of
1933, as amended, and any instrument or document filed as part thereof, or in
connection therewith or in any way related thereto, in connection with Variable
Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE INSURANCE
COMPANY and any VARIFLEX LS VARIABLE ANNUITY ACCOUNT with like effect as though
said Registration Statements and other documents had been signed and filed
personally by me in the capacity aforesaid. Each of the aforesaid attorneys
acting alone shall have all the powers of all of said attorneys. I hereby ratify
and confirm all that the said attorneys, or any of them, may do or cause to be
done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March, 1996.
Howard R. Fricke
-----------------------------------
Howard R. Fricke
SUBSCRIBED AND SWORN to before me this 26th day of March, 1996.
Deborah D. Pryer
-----------------------------------
Notary Public
My Commission Expires:
April 11, 1999
- - -----------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, W. W. Hanna, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX LS VARIABLE ANNUITY ACCOUNT with like effect
as though said Registration Statements and other documents had been signed and
filed personally by me in the capacity aforesaid. Each of the aforesaid
attorneys acting alone shall have all the powers of all of said attorneys. I
hereby ratify and confirm all that the said attorneys, or any of them, may do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of April, 1996.
W. W. Hanna
-----------------------------------
W. W. Hanna
SUBSCRIBED AND SWORN to before me this 1st day of April, 1996.
Carolyn R. Souders
-----------------------------------
Notary Public
My Commission Expires:
July 21, 1999
- - -----------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, John E. Hayes, Jr., being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX LS VARIABLE ANNUITY ACCOUNT with like effect
as though said Registration Statements and other documents had been signed and
filed personally by me in the capacity aforesaid. Each of the aforesaid
attorneys acting alone shall have all the powers of all of said attorneys. I
hereby ratify and confirm all that the said attorneys, or any of them, may do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of March, 1996.
John E. Hayes, Jr.
-----------------------------------
John E. Hayes, Jr.
SUBSCRIBED AND SWORN to before me this 29th day of March, 1996.
Jana R. Selley
-----------------------------------
Notary Public
My Commission Expires:
June 14, 1996
- - -----------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Laird G. Noller, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX LS VARIABLE ANNUITY ACCOUNT with like effect
as though said Registration Statements and other documents had been signed and
filed personally by me in the capacity aforesaid. Each of the aforesaid
attorneys acting alone shall have all the powers of all of said attorneys. I
hereby ratify and confirm all that the said attorneys, or any of them, may do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March, 1996.
Laird G. Noller
-----------------------------------
Laird G. Noller
SUBSCRIBED AND SWORN to before me this 27th day of March, 1996.
Anne S. Reinking
-----------------------------------
Notary Public
My Commission Expires:
March 13, 2000
- - -----------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Frank C. Sabatini, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX LS VARIABLE ANNUITY ACCOUNT with like effect
as though said Registration Statements and other documents had been signed and
filed personally by me in the capacity aforesaid. Each of the aforesaid
attorneys acting alone shall have all the powers of all of said attorneys. I
hereby ratify and confirm all that the said attorneys, or any of them, may do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of April, 1996.
Frank C. Sabatini
-----------------------------------
Frank C. Sabatini
SUBSCRIBED AND SWORN to before me this 5th day of April, 1996.
Joan B. Anderson
-----------------------------------
Notary Public
My Commission Expires:
July 20, 1996
- - -----------------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
KNOW ALL MEN BY THESE PRESENTS:
THAT I, Robert C. Wheeler, being a Director of SECURITY BENEFIT LIFE INSURANCE
COMPANY, by these presents do make, constitute and appoint Howard R. Fricke,
James R. Schmank and Roger K. Viola, and each of them, my true and lawful
attorneys, each with full power and authority for me and in my name and behalf
to sign Registration Statements, any amendments thereto and any applications for
exemptive relief filed pursuant to the Investment Company Act of 1940 or the
Securities Act of 1933, as amended, and any instrument or document filed as part
thereof, or in connection therewith or in any way related thereto, in connection
with Variable Annuity Contracts offered, issued or sold by SECURITY BENEFIT LIFE
INSURANCE COMPANY and any VARIFLEX LS VARIABLE ANNUITY ACCOUNT with like effect
as though said Registration Statements and other documents had been signed and
filed personally by me in the capacity aforesaid. Each of the aforesaid
attorneys acting alone shall have all the powers of all of said attorneys. I
hereby ratify and confirm all that the said attorneys, or any of them, may do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 27th day of March, 1996.
Robert C. Wheeler
-----------------------------------
Robert C. Wheeler
SUBSCRIBED AND SWORN to before me this 27th day of March, 1996.
Jana R. Selley
-----------------------------------
Notary Public
My Commission Expires:
June 14, 1996
- - -----------------------------------
