VARIFLEX LS
485BPOS, 1997-10-15
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<PAGE>   1
                                                               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.   5                              |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940    |_|
     Amendment No.   6                                             |X|
                   -----                                        
                       (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:
                                 (785) 431-3000

<TABLE>
<S>                                                                         <C>
                                                                                   Copies to:
Amy J. Lee, Associate General Counsel                                        Jeffrey S. Puretz, Esq.
Security Benefit Group, Inc.                                                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)
</TABLE>

It is proposed that this filing will become effective:
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on October 15, 1997 pursuant to paragraph (b) of Rule 485 
|_| 60 days after filing pursuant to paragraph (a)(1) of Rule 485 
|_| on October 15, 1997, pursuant to paragraph (a)(1) of Rule 485
|_| 75 days after filing pursuant to paragraph (a)(2) of Rule 485 
|_| on October 15, 1997, pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

|_|   this post-effective amendment designates a new effective date for a
      previously filed post-effective amendment.

                              --------------------

Pursuant to Regulation 270.24f-2 of the Investment Company Act of 1940, the
Registrant has elected to register an indefinite number of securities. The
Registrant filed the Notice required by 24f-2 on February 26, 1997.

<PAGE>   2

                              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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<TABLE>
<CAPTION>

                                     PART A

Item of Form N-4                                          Prospectus Caption
- ----------------                                          ------------------
  <S>                                                     <C>
  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
</TABLE>

<PAGE>   3

<TABLE>

<S>                                                       <C>

       (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                   Purchase Payments; Allocation of Purchase
                 Payments..............................   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

</TABLE>


<PAGE>   4
<TABLE>

  <S>                                                     <C>

  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

       (d) 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
</TABLE>




<PAGE>   5

<TABLE>
<CAPTION>

                                     PART B


Item of Form N-4                                          Statement of Additional Information Caption
- ----------------                                          -------------------------------------------
<S>                                                       <C>
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..............   Experts

       (d)  Assets of Registrant.......................   N/A

       (e)  Affiliated Persons.........................   N/A

       (f)  Principal Underwriter......................   N/A

19.    Purchase of Securities Being Offered............   Distribution of the Contract; 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

</TABLE>

<PAGE>   6


                          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 fourteen 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, (11) Equity Income Series, (12) High Yield Series, (13) Value
Series, and (14) Small Cap 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 16.)

   
     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 October 15, 1997, which has been filed with the
Securities and Exchange Commission (the "SEC"). The Statement of Additional
Information, as it may be supplemented from time to time, is incorporated by
reference into this Prospectus and is available at no charge, by writing
Security Benefit at 700 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 33 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:  OCTOBER 15, 1997
    

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                                       1
<PAGE>   7

                                TABLE OF CONTENTS
   
<TABLE> 
                                                                                                                              Page
<S>                                                                                                                            <C>
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 
                                                                        
CONDENSED FINANCIAL INFORMATION............................................................................................     8 
                                                                                                                                  
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 J (Emerging Growth Series).................................................................................    10 
         Series K (Global Aggressive Bond Series)..........................................................................    10 
         Series M (Specialized Asset Allocation Series)....................................................................    11 
         Series N (Managed Asset Allocation Series)........................................................................    11 
         Series O (Equity Income Series)...................................................................................    11 
         Series P (High Yield Series)......................................................................................    11 
         Series S (Social Awareness Series)................................................................................    11 
         Series V (Value Series)...........................................................................................    11 
         Series X (Small Cap Series).......................................................................................    11 
         The Investment Adviser............................................................................................    11 
                                                                     
THE CONTRACT  .............................................................................................................    11 
     General  .............................................................................................................    11 
     Application for a Contract............................................................................................    12 
     Purchase Payments.....................................................................................................    12 
     Allocation of Purchase Payments.......................................................................................    12 
     Dollar Cost Averaging Option..........................................................................................    13 
     Asset Reallocation Option.............................................................................................    13 
     Transfers of Contract Value...........................................................................................    14 
     Contract Value........................................................................................................    14 
     Determination of Contract Value.......................................................................................    14 
     Full and Partial Withdrawals..........................................................................................    15 
     Systematic Withdrawals................................................................................................    15 
     Free-Look Right.......................................................................................................    16 
</TABLE>
    

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                                        2                                  

<PAGE>   8


                          TABLE OF CONTENTS (CONTINUED)
<TABLE>
                                                                                                                          Page  
     <S>                                                                                                                    <C>     
     Death Benefit........................................................................................................  16  
     Distribution Requirements............................................................................................  17  
     Death of the Annuitant...............................................................................................  17  

CHARGES AND DEDUCTIONS....................................................................................................  17  
     Mortality and Expense Risk Charge....................................................................................  17  
     Administrative Charge................................................................................................  17  
     Premium Tax Charge...................................................................................................  17  
     Other Charges........................................................................................................  17  
     Variations in Charges................................................................................................  18  
     Guarantee of Certain Charges.........................................................................................  18  
     Mutual Fund Expenses.................................................................................................  18  

ANNUITY PERIOD............................................................................................................  18  
     General  ............................................................................................................  18  
     Annuity Options......................................................................................................  18  
         Option 1--Life Income............................................................................................  18  
         Option 2--Life Income with Guaranteed Payment of 5, 10, 15 or 20 Years...........................................  19  
         Option 3--Life with Installment Refund Option....................................................................  19  
         Option 4--Joint and Last Survivor................................................................................  19  
         Option 5--Payments for a Specified Period........................................................................  19  
         Option 6--Payments of a Specified Amount.........................................................................  19  
         Value of Variable Annuity Payments:  Assumed Interest Rate.......................................................  19  
     Selection of an Option...............................................................................................  19  

THE FIXED ACCOUNT.........................................................................................................  19  
     Interest ............................................................................................................  20  
     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........................................................................................................  22  
     Payments from the Separate Account...................................................................................  22  
     Proof of Age and Survival............................................................................................  22  
     Misstatements........................................................................................................  22  
     Loans    ............................................................................................................  22  
     Restrictions on Withdrawals from Qualified Plans.....................................................................  24  

FEDERAL TAX MATTERS.......................................................................................................  24  
     Introduction.........................................................................................................  24  
     Tax Status of Security Benefit and the Separate Account..............................................................  24  
         General..........................................................................................................  24  
         Charge for Security Benefit Taxes................................................................................  25  
         Diversification Standards........................................................................................  25  
     Income Taxation of Annuities in General--Non-Qualified Plans.........................................................  25  
         Surrenders or Withdrawals Prior to the Annuity Start Date........................................................  25  
         Surrenders or Withdrawals on or after Annuity Start Date.........................................................  26  
         Penalty Tax on Certain Surrenders and Withdrawals................................................................  26  
</TABLE>    




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                                       3
<PAGE>   9


                          TABLE OF CONTENTS (CONTINUED)
<TABLE>
                                                                                                                              Page
<S>                                                                                                                            <C>
     Additional Considerations.............................................................................................    26
         Distribution-at-Death Rules.......................................................................................    26
         Gift of Annuity Contracts.........................................................................................    26
         Contracts Owned by Non-Natural Persons............................................................................    27
         Multiple Contract Rule............................................................................................    27
         Possible Tax Changes..............................................................................................    27
         Transfers, Assignments or Exchanges of a Contract.................................................................    27
     Qualified Plans.......................................................................................................    27
         Section 401.......................................................................................................    28
         Section 403(b)....................................................................................................    28
         Section 408.......................................................................................................    29
         Section 457.......................................................................................................    29
         Rollovers.........................................................................................................    30
         Tax Penalties.....................................................................................................    30   
         Withholding.......................................................................................................    30   

OTHER INFORMATION..........................................................................................................    30   
     Voting of Mutual Fund Shares..........................................................................................    30   
     Substitution of Investments...........................................................................................    31   
     Changes to Comply with Law and Amendments.............................................................................    31   
     Reports to Owners.....................................................................................................    32   
     Telephone Transfer Privileges.........................................................................................    32   
     Legal Proceedings.....................................................................................................    32   
     Legal Matters.........................................................................................................    32   

PERFORMANCE INFORMATION....................................................................................................    32   

ADDITIONAL INFORMATION.....................................................................................................    33   
     Registration Statement................................................................................................    33   
     Financial Statements..................................................................................................    33   

STATEMENT OF ADDITIONAL INFORMATION........................................................................................    33   
                           
IRA DISCLOSURE STATEMENT   
</TABLE>                   
                           





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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.
- --------------------------------------------------------------------------------
                                        4


<PAGE>   10


                                   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 bank 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, fourteen
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, Martin Luther King, Jr. 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 
- --------------------------------------------------------------------------------
                                       5

<PAGE>   11
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 fourteen 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, Equity
Income Series, High Yield Series, Value Series, and Small Cap 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 15 and "Federal Tax Matters," page 24 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 18.

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.

- --------------------------------------------------------------------------------
                                       6

<PAGE>   12
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 (785)
431-3112 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.

<TABLE>
<CAPTION>

CONTRACTUAL EXPENSES

<S>                                                        <C>
Sales load on purchase payments........................    None
Contingent deferred sales charge.......................    None
Transfer Fee (per transfer)............................    None
</TABLE>

   
<TABLE>
<CAPTION>
ANNUAL SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF EACH SUBACCOUNT'S AVERAGE
DAILY NET ASSETS)

<S>                                                       <C>
Annual Mortality and Expense Risk Charge...............   1.25%
Annual Administrative Charge...........................   0.15%
                                                          ----
Total Separate Account Annual Expenses.................   1.40%
</TABLE>
    

   
<TABLE>
<CAPTION>

ANNUAL MUTUAL FUND EXPENSES
(AS A PERCENTAGE OF EACH SERIES' AVERAGE DAILY NET ASSETS)

                                Management                Total
                                   Fee                    Mutual
                                 (after fee    Other       Fund            
                                 waiver)(1)  Expenses(2) Expenses
                                ------------ ----------- --------
<S>                               <C>          <C>       <C>
Growth (Series A).............    0.75%        0.08%     0.83%
Growth-Income (Series B)......    0.75%        0.09%     0.84%
Money Market (Series C).......    0.50%        0.08%     0.58%
Worldwide Equity (Series D)...    1.00%        0.30%     1.30%
High Grade Income (Series E)..    0.75%        0.08%     0.83%
Emerging Growth (Series J)....    0.75%        0.09%     0.84%
Global Aggressive Bond
   (Series K).................    0.00%        0.84%     0.84%
Specialized Asset Allocation
   (Series M).................    1.00%        0.34%     1.34%
Managed Asset Allocation
   (Series N).................    1.00%        0.45%     1.45%
Equity Income (Series O)......    1.00%        0.15%     1.15%
High Yield (Series P).........    0.00%        0.28%     0.28%
Social Awareness (Series S)...    0.75%        0.09%     0.84%
Value (Series V)..............    0.00%        0.51%     0.51%
Small Cap (Series X)..........    0.00%        0.48%     0.48%
</TABLE>
    

- ---------------------------------------------------------------
   
1.   During the fiscal year ended December 31, 1996, the Investment Adviser
     waived the management fees of Series K and Series P, and during the fiscal
     year ending December 31, 1997, the Investment Adviser will waive the
     management fees of Series K, Series P, Series V, and Series X; absent such
     waiver, the management fees of Series K, Series P and Series V would have
     been .75% and that of Series X would have been 1.00%. There can be no
     assurance that the Investment Manager will continue to waive the Series'
     management fees after December 31, 1997.

2.   Other Expenses for Series V and Series X are based on estimated amounts 
     for the current fiscal year.
    


EXAMPLES

     The example presented below shows expenses that a Contractowner would pay
at the end of one, three, five and ten years. The information presented applies
if, at the end of 
- --------------------------------------------------------------------------------
                                       7

<PAGE>   13

those time periods, the Contract is (1) surrendered, (2) annuitized, or (3) not
surrendered or annuitized. The example shows 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:

   
<TABLE>
<CAPTION>
                                          1    3      5     10
                                        YEAR YEARS  YEARS  YEARS
<S>                                       <C>   <C>   <C>   <C>
Growth Subaccount......................   $23   $70   $119  $256
Growth-Income Subaccount...............    23    70    120   257
Money Market Subaccount................    20    62    107   231
Worldwide Equity Subaccount............    27    84    143   303
High Grade Income Subaccount...........    23    70    119   256
Emerging Growth Subaccount.............    23    70    120   257
Global Aggressive Bond Subaccount......    23    70    120   257
Specialized Asset Allocation Subaccount    28    85    145   307
Managed Asset Allocation Subaccount....    29    88    150   318
Equity Income Subaccount...............    26    79    136   289
High Yield Subaccount..................    17    53     91   199
Social Awareness Subaccount............    23    70    120   257
Value Subaccount.......................    19    60    103   223
Small Cap Subaccount...................    19    59    102   220
</TABLE>
    

                         CONDENSED FINANCIAL INFORMATION

   
     The following condensed financial information presents accumulation unit
values for the year ended December 31, 1996, and the period April 1, 1995 (date
of inception) through December 31, 1995, as well as ending accumulation units
outstanding under each Subaccount, except the High Yield, Value and Small Cap
Subaccounts.
    


<TABLE>
<CAPTION>

Growth Subaccount                              1995(1)      1996
                                               ----         ----
<S>                                          <C>       <C>
Accumulation unit value:
     Beginning of period..................    $10.00      $13.20
     End of period........................     13.20       15.96
Accumulation units
     outstanding at the end of period.....   289,693   1,987,463

Growth-Income Subaccount
Accumulation unit value:
     Beginning of period..................    $10.00      $12.70
     End of period........................     12.70       14.80
Accumulation units
     outstanding at the end of period.....   248,974   1,388,519


Money Market Subaccount                        1995(1)      1996
                                               ----         ----
Accumulation unit value:
     Beginning of period..................    $10.00      $10.35
     End of period........................     10.35       10.72
Accumulation units
     outstanding at the end of period.....   288,907   1,520,180

Worldwide Equity Subaccount
Accumulation unit value:
     Beginning of period..................    $10.00      $11.42
     End of period........................     11.42       13.21
Accumulation units
     outstanding at the end of period.....   126,206   1,183,160

High Grade Income Subaccount
Accumulation unit value:
     Beginning of period..................    $10.00      $11.56
     End of period........................     11.56       11.31
Accumulation units
     outstanding at the end of period.....   240,306   1,631,708

Emerging Growth Subaccount
Accumulation unit value:
     Beginning of period..................    $10.00      $11.89
     End of period........................     11.89       13.84
Accumulation units
     outstanding at the end of period.....   133,581     772,390

Global Aggressive Bond Subaccount
Accumulation unit value:
     Beginning of period..................    $10.00      $10.67
     End of period........................     10.67       11.96
Accumulation units
     outstanding at the end of period.....    86,477     328,077

Specialized Asset Allocation Subaccount
Accumulation unit value:
     Beginning of period..................    $10.00      $10.62
     End of period........................     10.62       11.96
Accumulation units
     outstanding at the end of period.....   471,091   1,361,078

Managed Asset Allocation Subaccount
Accumulation unit value:
     Beginning of period..................    $10.00      $10.64
     End of period........................     10.64       11.84
Accumulation units
     outstanding at the end of period.....   231,852     715,033

Equity Income Subaccount
Accumulation unit value:
     Beginning of period..................    $10.00      $11.61
     End of period........................     11.61       13.73
Accumulation units
     outstanding at the end of period.....   267,317   1,764,015
</TABLE>
- --------------------------------------------------------------------------------
                                       8
<PAGE>   14
<TABLE>
<CAPTION>

Social Awareness Subaccount                    1995(1)      1996
                                               ----         ----
<S>                                          <C>         <C>
Accumulation unit value:
     Beginning of period..................    $10.00      $12.56
     End of period........................     12.56       14.69
Accumulation units
     outstanding at the end of period.....    37,149     220,549

</TABLE>


1.  Global Aggressive Bond Subaccount, Specialized Asset Allocation Subaccount,
    Managed Asset Allocation 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 variable life insurance policies, fixed and
variable 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, 1996, Security Benefit had total assets of
approximately $5.5 billion. Together with its subsidiaries, Security Benefit has
total funds under management of over $6.6 billion.
    

     The Principal Underwriter for the Contracts is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company wholly owned by
Security Benefit.

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 Security Benefit 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 fourteen 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 
- --------------------------------------------------------------------------------
                                       9

<PAGE>   15
   
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 fourteen separate portfolios
("Series"), each of which pursues different investment objectives and policies.
    

     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 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.

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
- --------------------------------------------------------------------------------
                                       10

<PAGE>   16
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.

SERIES P (HIGH YIELD SERIES)

     Amounts allocated to the High Yield Subaccount are invested in Series P.
The investment objective of Series P is to seek high current income and as a
secondary objective, capital appreciation by investing in a combination of
domestic and foreign high-yield, lower rated debt securities (commonly known as
"junk bonds").

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 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 V (VALUE SERIES)

     Amounts allocated to the Value Subaccount are invested in Series V. The
investment objective of Series V is to seek long-term growth of capital by
investing primarily in a diversified portfolio of common stocks, securities
convertible into common stocks, preferred stocks, and warrants which the
Investment Manager believes are undervalued.

   
SERIES X (SMALL CAP SERIES)

     Amounts allocated to the Small Cap Subaccount are invested in Series X. The
investment objective of Series X is to seek long-term growth of capital by
investing primarily in domestic and foreign equity securities of small
capitalization companies (defined as companies with a market capitalization of
less than $1 billion at the time of purchase).
    

THE INVESTMENT ADVISER

   
     Security Management Company, LLC (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, O and X. With respect to Series M, the foregoing
responsibilities are divided between the Investment Adviser and a Sub-Adviser.
See the accompanying SBL Fund prospectus for details. The Investment Adviser has
engaged Lexington Management Corporation, Park 80 West, Plaza Two, Saddle Brook,
New Jersey 07663, to provide investment advisory services to Series D and K, and
Lexington has entered into an agreement with MFR Advisors, Inc., One Liberty
Plaza, 46th Floor, New York, New York 10006, to provide certain investment
advisory services to Series K. The Investment Adviser has engaged T. Rowe Price
Associates, Inc., 100 E. Pratt St., Baltimore, Maryland 21202 to provide
investment advisory services to Series N and O, and has engaged Meridian
Investment Management Corporation, 12835 East Arapahoe Road, Tower II, 7th
Floor, Engelwood, Colorado 80112, to provide investment advisory and analytic
research services to Series M. The Investment Adviser has engaged Strong Capital
Management Corporation, 900 Heritage Reserve, Menomonee, Wisconsin 53051 to
provide investment advisory services to Series X.
    

                                  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 
- --------------------------------------------------------------------------------
                                     11

<PAGE>   17
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.

     The maximum age of an Owner or Annuitant for which a Contract will be
issued is 90. 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 fourteen 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 
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                                       12
<PAGE>   18
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 14.

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 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
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                                       13

<PAGE>   19
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 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
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 
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                                       14

<PAGE>   20
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 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, High
Yield Subaccount, Global Aggressive Bond Subaccount, Growth-Income Subaccount,
Equity Income Subaccount, Managed Asset Allocation Subaccount, Specialized Asset
Allocation Subaccount, Growth Subaccount, Value Subaccount, Worldwide Equity
Subaccount, Social Awareness Subaccount, Emerging Growth Subaccount, and Small
Cap 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 24. The tax consequences of a
withdrawal under the Contract should be carefully considered. See "Federal Tax
Matters" on page 24.

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 
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                                       15
<PAGE>   21
   
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, High Yield Subaccount, Global
Aggressive Bond Subaccount, Growth-Income Subaccount, Equity Income Subaccount,
Managed Asset Allocation Subaccount, Specialized Asset Allocation Subaccount,
Growth Subaccount, Value Subaccount, Worldwide Equity Subaccount, Social
Awareness Subaccount, Emerging Growth Subaccount, and Small Cap 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 24.

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.

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," page 17. 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 24
for a discussion of the tax consequences in the event of death.
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                                       16

<PAGE>   22
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
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."
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                                       17

<PAGE>   23


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 to the first annual
Contract anniversary and may not be deferred beyond the Annuitant's 95th
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 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 
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                                       18

<PAGE>   24
third annuity payment due date, etc. THERE IS NO MINIMUM NUMBER OF PAYMENTS
GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE ANNUITANT,
REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.

Option 2 -- Life Income with Guaranteed Payments of 5, 10, 15 or 20 Years

     Periodic annuity payments will be made during the lifetime of the Annuitant
with the promise that if, at the death of the Annuitant, payments have been made
for less than a stated period, which may be five, ten, fifteen or twenty years,
as elected, annuity payments will be continued during the remainder of such
period to the Designated Beneficiary.

Option 3 -- Life with Installment Refund Option

     Periodic annuity payments will be made during the lifetime of the Annuitant
with the promise that, if at the death of the Annuitant, the number of payments
that has been made is less than the number determined by dividing the amount
applied under this Option by the amount of the first payment, annuity payments
will be continued to the Designated Beneficiary until that number of payments
has been made.

Option 4 -- Joint and Last Survivor

     Periodic annuity payments will be made during the lifetime of either
Annuitant. It is possible under this Option for only one annuity payment to be
made if both Annuitants died prior to the second annuity payment due date, two
if both died prior to the third annuity payment due date, etc. AS IN THE CASE OF
OPTION 1, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION.
PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT, REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.

Option 5 -- Payments for 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.

Value of Variable Annuity Payments:
Assumed Interest Rate

The annuity tables in the Contract which are used to calculate variable annuity
payments for Annuity Options 1 through 4, 7 and 8 are based on an "assumed
interest rate" of 3 1/2 percent. If the actual investment performance of the
Subaccount selected is such that the net investment return is 3 1/2 percent per
annum, payments under one of those options will remain constant. If the net
investment return exceeds 3 1/2 percent, the payments will increase and if the
return is less than 3 1/2 percent, the payments will decline. Use of a higher
assumed interest rate would mean a higher initial payment but a more slowly
rising series of subsequent payments in a rising market (or a more rapidly
falling series of subsequent payments in a declining market). A lower assumption
would have the opposite effect.

SELECTION OF AN OPTION

   
     Contractowners should carefully review the Annuity Options with their
financial or tax 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 95th birthday.
    

                                THE FIXED ACCOUNT

     Contractowners may allocate all or a portion of their purchase payments and
transfer Contract Value to the Fixed Account. Amounts allocated to the Fixed
Account become part of Security Benefit's General Account, which supports
Security Benefit's insurance and annuity obligations. The General Account is
subject to regulation and supervision by the Kansas Department of Insurance as
well as the insurance laws and regulations of other jurisdictions in which the
Contract is distributed. In reliance on certain exemptive and exclusionary
provisions, interests in the Fixed Account have not been registered as
securities under the Securities Act of 1933 (the "1933 Act") and the Fixed
Account has not been registered as an investment company under the Investment
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                                       19

<PAGE>   25
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 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 
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                                       20


<PAGE>   26
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 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 15 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 to
herein as "Non-Natural Persons." See "Federal Tax Matters," page 24.

     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 
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                                       21

<PAGE>   27
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, 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. Security Benefit has developed and
plans to install new loan processing procedures before the end of 1997, subject
to state insurance department approvals. Described below are the loan procedures
which are currently in effect. This is followed by a description of how loans
will be administered after implementation of the new procedures.

     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 of 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.
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                                       22
 

<PAGE>   28
    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 payments 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, High Yield Subaccount, Global
Aggressive Bond Subaccount, Growth-Income Subaccount, Equity Income Subaccount,
Managed Asset Allocation Subaccount, Specialized Asset Allocation Subaccount,
Growth Subaccount, Value Subaccount, Worldwide Equity Subaccount, Social
Awareness Subaccount, Emerging Growth Subaccount, and Small Cap 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.

     Outlined below is a description of how loans will be administered after
implementation of the new procedures. The minimum loan that may be taken is
$1,000. The maximum loan that can be taken is generally equal to the lesser of:
(1) $50,000 reduced by the excess of: (a) the highest outstanding loan balance
within the preceding 12-month period ending on the day before the date the loan
is made; over (b) the outstanding loan balance on the date the loan is made; or
(2) 50 percent of the Contract Value or $10,000, whichever is greater. The
Internal Revenue Code requires aggregation of all loans made to an individual
employee under a single employer plan. However, since Security Benefit has no
information concerning outstanding loans with other providers, we will only use
information available under annuity contracts issued by us. In addition,
reference should be made to the terms of the particular Qualified Plan for any
additional loan restrictions.

     When an eligible Contractowner takes a loan, Contract Value in an amount
equal to the loan amount is transferred from the Subaccounts and/or the Fixed
Account into an account called the "Loan Account." 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, unless Security Benefit determines
that the loan is to be used to acquire a principal residence of the Owner, in
which case the loan must be repaid within 30 years. Loan payments must be made
at least quarterly and may be prepaid at any time. Upon receipt of a loan
payment, Security Benefit will transfer Contract Value from the Loan Account to
the Fixed Account and/or the Subaccounts according to the 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.

     If any required loan payment is not made, within 30 days of the due date
for loans with a monthly repayment schedule or within 90 days of the due date
for loans with a quarterly repayment schedule, the TOTAL OUTSTANDING LOAN
BALANCE will be deemed to be in default, and the entire loan balance, with any
accrued interest, will be reported as income to the Internal Revenue Service
("IRS"). Once a loan has gone into default, regularly scheduled payments will
not be accepted, and no new loans will be allowed while a loan is in default.
Interest will continue to accrue on a loan in default and if such interest is
not paid by December 31st of each year, it will be added to the outstanding
balance of the loan and will be reported to the IRS. Contract Value equal to the
amount of the accrued interest will be transferred to the Loan Account. If a
loan continues to be in default, the total outstanding balance will be deducted
from Contract Value upon the Contractowner's attaining age 59 1/2. The Contract
will be automatically terminated if the outstanding loan balance on a loan in
default equals or exceeds the Withdrawal Value. The proceeds from the Contract
will be used to repay the debt. Because of the adverse tax consequences
associated with defaulting on a loan, a Contractowner should carefully consider
his or her ability to repay the loan and should consult with a tax advisor
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.
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                                       23


<PAGE>   29
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS

     Generally, a Qualified Plan may not provide for the distribution or
withdrawal of amounts accumulated under such Qualified Plan until after a fixed
number of years, the attainment of a stated age or upon the occurrence of a
specific event such as hardship, disability, retirement, death or termination of
employment. Therefore, the Owner of a Contract purchased in connection with a
Qualified Plan may not be entitled to make a full or partial withdrawal, as
described in this Prospectus, unless one of the above-described conditions has
been satisfied. For this reason reference should be made to the terms of the
particular Qualified Plan, the Internal Revenue Code and other applicable law
for any limitation or restriction on distributions and withdrawals, including
the 10 percent penalty tax that may be imposed in the event of a distribution
from a Qualified Plan before the participant reaches age 59 1/2. See the
discussion under "Tax Penalties" on page 30.

     Section 403(b) imposes restrictions on certain distributions from
tax-sheltered annuity contracts meeting the requirements of Section 403(b) that
apply to tax years beginning on or after January 1, 1989. Section 403(b)
requires that distributions from Section 403(b) tax-sheltered annuities that are
attributable to employee contributions made after December 31, 1988 under a
salary reduction agreement begin only after the employee reaches age 59 1/2,
separates from service, dies, becomes disabled, or incurs a hardship.
Furthermore, distributions of gains attributable to such contributions accrued
after December 31, 1988 may not be made on account of hardship. Hardship, for
this purpose, is generally defined as an immediate and heavy financial need,
such as paying for medical expenses, the purchase of a residence, or paying
certain tuition expenses, that may only be met by the distribution.

     An Owner of a Contract purchased as a tax-sheltered Section 403(b) annuity
contract will not, therefore, be entitled to make a full or partial withdrawal,
as described in this Prospectus, in order to receive proceeds from the Contract
attributable to contributions under a salary reduction agreement or any gains
credited to such Contract after December 31, 1988 unless one of the
above-described conditions has been satisfied. In the case of transfers of
amounts accumulated in a different Section 403(b) contract to this Contract
under a Section 403(b) program, the withdrawal constraints described above would
not apply to the amount transferred to the Contract attributable to the Owner's
December 31, 1988 account balance under the old contract, provided the amounts
transferred between contracts qualified as a tax-free exchange under the
Internal Revenue Code. An Owner of a Contract may be able to transfer the
Contract's Full Withdrawal Value to certain other investment alternatives
meeting the requirements of Section 403(b) that are available under an
employer's Section 403(b) arrangement.

     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 
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                                       24

<PAGE>   30
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 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 27 and "Diversification
Standards" above. 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 
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                                       25

<PAGE>   31
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 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.
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                                       26

<PAGE>   32
     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 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 Security Benefit's 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:
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                                       27

<PAGE>   33


     1.  Section 401

     Code Section 401 permits employers to establish various types of retirement
plans (e.g., pension, profit sharing and 401(k) plans) for their employees. For
this purpose, self-employed individuals (proprietors or partners operating a
trade or business) are treated as employees and therefore eligible to
participate in such plans. Retirement plans established in accordance with
Section 401 may permit the purchase of Contracts to provide benefits thereunder.

     In order for a retirement plan to be "qualified" under Code Section 401, it
must: (i) meet certain minimum standards with respect to participation, coverage
and vesting; (ii) not discriminate in favor of "highly compensated" employees;
(iii) provide contributions or benefits that do not exceed certain limitations;
(iv) prohibit the use of plan assets for purposes other than the exclusive
benefit of the employees and their beneficiaries covered by the plan; (v)
provide for distributions that comply with certain minimum distribution
requirements; (vi) provide for certain spousal survivor benefits; and (vii)
comply with numerous other qualification requirements.

     A retirement plan qualified under Code Section 401 may be funded by
employer contributions, employee contributions or a combination of both. Plan
participants are not subject to tax on employer contributions until such amounts
are actually distributed from the plan. Depending upon the terms of the
particular plan, employee contributions may be made on a pre-tax or after-tax
basis. In addition, plan participants are not taxed on plan earnings derived
from either employer or employee contributions until such earnings are
distributed.

     Each employee's interest in a retirement plan qualified under Code Section
401 must generally be distributed or begin to be distributed not later than
April 1 of the calendar year following the later of the calendar year in which
the employee reaches age 70 1/2 or retires ("required beginning date"). Periodic
distributions must not extend beyond the life of the employee or the lives of
the employee and a designated beneficiary (or over a period extending beyond the
life expectancy of the employee or the joint life expectancy of the employee and
a designated beneficiary).

     If an employee dies before reaching his or her required beginning date, the
employee's entire interest in the plan must generally be distributed within five
years of the employee's death. However, the five-year rule will be deemed
satisfied, if distributions begin before the close of the calendar year
following the year of the employee's death to a designated beneficiary and are
made over the life of the beneficiary (or over a period not extending beyond the
life expectancy of the beneficiary). If the designated beneficiary is the
employee's surviving spouse, distributions may be delayed until the employee
would have reached age 70 1/2.

     If an employee dies after reaching his or her required beginning date, the
employee's interest in the plan must generally be distributed at least as
rapidly as under the method of distribution in effect at the time of the
employee's death.

     Annuity payments distributed from a retirement plan qualified under Code
Section 401 are taxable under Section 72 of the Code. Section 72 provides that
the portion of each payment attributable to contributions that were taxable to
the employee in the year made, if any, is excluded from gross income as a return
of the employee's investment. The portion so excluded is determined by dividing
the employee's investment in the plan by (1) the number of anticipated payments
determined under a table set forth in Section 72 of the Code or (2) in the case
of a contract calling for installment payments, the number of monthly annuity
payments under such contract. The portion of each payment in excess of the
exclusion amount is taxable as ordinary income. Once the employee's investment
has been recovered, the full annuity payment will be taxable. If the employee
should die prior to recovering his or her entire investment, the unrecovered
investment will be allowed as a deduction on the employee's final return. If the
employee made no contributions that were taxable when made, the full amount of
each annuity payment is taxable 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
30.









     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 
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                                       28
<PAGE>   34



403(b) annuities are generally subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code. See "Section 401" on page 28.

     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 30.

     3.  Section 408

   
     Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to establish individual retirement programs through the purchase of
Individual Retirement Annuities ("IRAs"). The Contract may be purchased as an
IRA.
    

     IRAs are subject to limitations on the amount that may be contributed, the
persons who may be eligible and on the time when distributions must commence.
Depending upon the circumstances of the individual, contributions to an IRA may
be made on a deductible or non-deductible basis. IRAs may not be transferred,
sold, assigned, discounted or pledged as collateral for a loan or other
obligation. The annual premium for an IRA may not be fixed and may not exceed
$2,000 (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 provided with such supplementary information as may be
required by the Internal Revenue Service or other appropriate agency, and will
have the right to revoke the Contract under certain circumstances. See the IRA
Disclosure Statement that accompanies this Prospectus.

     In general, IRAs are subject to minimum distribution requirements similar
to those applicable to retirement plans qualified under Section 401 of the Code;
however, the required beginning date for IRAs is generally the date that the
Contractowner reaches age 70 1/2--the Contractowner's retirement date, if any,
will not affect his or her required beginning date. See "Section 401" on page
28. Distributions from IRAs are generally taxed under Code Section 72. Under
these rules, a portion of each distribution may be excludable from income. The
amount excludable from the individual's income is the amount of the distribution
which bears the same ratio as the individual's nondeductible contributions bears
to the expected return under the IRA.

   
     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," page 30.
    

     The Internal Revenue Service has not reviewed the Contract for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether a death benefit provision such as the provision in the
Contract comports with IRA qualification requirements.

     4.  Section 457

     Section 457 of the Code permits employees of state and local governments
and units and agencies of state and local governments as well as tax-exempt
organizations described in Section 501(c)(3) of the Code to defer a portion of
their compensation without paying current taxes if those employees are
participants in an eligible deferred compensation plan. A Section 457 plan may
permit the purchase of Contracts to provide benefits thereunder.

     Although a participant under a Section 457 plan may be permitted to direct
or choose methods of investment in the case of a tax-exempt employer sponsor,
all amounts deferred under the plan, and any income thereon, remain solely the
property of the employer and subject to the claims of its general creditors,
until paid to the participant. The assets of a Section 457 plan maintained by a
state or local government employer must be held in trust (or custodial account
or an annuity contract) for the exclusive benefit of plan participants, who will
be responsible for taxes upon distribution. 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 28. Since under a Section 457
plan, contributions are generally excludable from the taxable income of the
employee, the full amount received will usually be taxable as ordinary income
when annuity payments commence or other distributions are made. Distributions
from a Section 457 plan are not eligible for tax-free rollovers.
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                                       29

<PAGE>   35

     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 or her 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; (v) made to pay for certain
medical expenses; (vi) that are exempt withdrawals of an excess contribution;
(vii) that are rolled over or transferred in accordance with Code requirements;
or (viii) that are transferred pursuant to a decree of divorce or separate
maintenance or written instrument incident to such a decree.

     The exception to the 10 percent penalty tax described in item (iv) above is
not applicable to IRAs. However, distributions from an IRA to unemployed
individuals can be made without application of the 10 percent penalty tax to pay
health insurance premiums in certain cases. In addition, the 10 percent penalty
tax is generally not applicable to distributions from a Section 457 plan.

     Minimum Distribution Tax. If the amount distributed from a Qualified Plan
is less than the minimum required distribution for the year, the participant is
subject to a 50 percent tax on the amount that was not properly distributed.

   
     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 and
Section 457 plans) are generally subject to mandatory 20 percent income tax
withholding. However, no withholding is imposed if the distribution is
transferred directly to another eligible Qualified Plan. Nonperiodic
distributions from an IRA are subject to income tax withholding at a flat 10
percent rate. The recipient of such a distribution may elect not to have
withholding apply.

     The above description of the federal income tax consequences of the
different types of Qualified Plans which may be funded by the Contract offered
by this Prospectus is only a brief summary and is not intended as tax advice.
The rules governing the provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have adverse tax
consequences. A prospective Contractowner considering adoption of a Qualified
Plan and purchase of a Contract in connection therewith should first consult a
qualified and competent tax adviser, with regard to the suitability of the
Contract as an investment vehicle for the Qualified Plan.

                                OTHER INFORMATION

VOTING OF MUTUAL FUND SHARES

     Security Benefit is the legal owner of the shares of the Mutual Fund held
by the Subaccounts of the Separate Account. 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 
- --------------------------------------------------------------------------------
                                       30

<PAGE>   36
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 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.
- --------------------------------------------------------------------------------
                                       31

<PAGE>   37
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 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 
- --------------------------------------------------------------------------------
                                       32

<PAGE>   38
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.

                             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 Life Insurance Company at December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996, and the financial statements of the Separate Account for the year
ended December 31, 1996, and 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>
<CAPTION>
                                TABLE OF CONTENTS

                                                           Page
<S>                                                        <C>
GENERAL INFORMATION AND HISTORY...........................   1
DISTRIBUTION OF THE CONTRACT..............................   1
LIMITS ON PURCHASE PAYMENTS PAID UNDER

    TAX-QUALIFIED RETIREMENT PLANS........................   1
EXPERTS...................................................   3
PERFORMANCE INFORMATION...................................   3
FINANCIAL STATEMENTS......................................   5
</TABLE>
    

- --------------------------------------------------------------------------------
                                       33
<PAGE>   39
                          VARIFLEX LS VARIABLE ANNUITY

                       STATEMENT OF ADDITIONAL INFORMATION
   
                             DATE: OCTOBER 15, 1997
    

             INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE
                                ANNUITY CONTRACT


                                    ISSUED BY
                     SECURITY BENEFIT LIFE INSURANCE COMPANY
                             700 SW HARRISON STREET
                            TOPEKA, KANSAS 66636-0001
                                 1-800-888-2461

                                MAILING ADDRESS:
                     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 October 15, 1997, as it may be supplemented from time to time. 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>   40


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                              Page
                                                                                                              -----
<S>                                                                                                           <C>
GENERAL INFORMATION AND HISTORY.............................................................................    1

DISTRIBUTION OF THE CONTRACT................................................................................    1

LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS.......................................    1

EXPERTS.....................................................................................................    3

PERFORMANCE INFORMATION.....................................................................................    3

FINANCIAL STATEMENTS........................................................................................    5
</TABLE>


                                       i


<PAGE>   41



                         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 3% 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>   42


         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 or her 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. Spousal IRAs allow an Owner and his or her spouse to contribute up
to $2,000 to their respective IRAs so long as a joint tax return is filed and
joint income is $4,000 or more. The maximum amount the higher compensated spouse
may contribute for the year is the lesser of $2,000 or 100% of that spouse's
compensation. The maximum the lower compensated spouse may contribute is the
lesser of (i) $2,000 or (ii) 100% of that spouse's compensation plus the amount
by which the higher compensated spouse's compensation exceeds the amount the
higher compensated spouse contributes to his or her IRA. The extent to which an
Owner may deduct contributions to an IRA depends on the gross income of the
Owner and his or her spouse for the year and whether either 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. The current $7,500 limit will be indexed for inflation
(in $500 increments) for tax years beginning after December 31, 1996. 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>   43

                                     EXPERTS
   
         The consolidated financial statements for Security Benefit Life
Insurance Company at December 31, 1996, and 1995 and for each of the three
years in the period ended December 31, 1996, and for the Separate Account for
the year ended December 31, 1996, and the period from April 1, 1995 to December
31, 1995, appearing in this Statement of Additional Information have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing on page 6 herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
        
    

                             PERFORMANCE INFORMATION

         Performance information for the Subaccounts of the Separate Account,
including the yield and total return of all Subaccounts, may appear in
advertisements, reports, and promotional literature provided to current or
prospective Owners.

         Quotations of yield for the Money Market Subaccount will be based on
the change in the value, exclusive of capital changes, of a hypothetical
investment in a Contract over a particular seven day period, less a hypothetical
charge reflecting deductions from the Contract during the period (the "base
period") and stated as a percentage of the investment at the start of the base
period (the "base period return"). The base period return is then annualized by
multiplying the 365/7, with the resulting yield figure carried to at least the
nearest one hundredth of one percent. Any quotations of effective yield for the
Money Market Subaccount assume that all dividends received during an annual
period have been reinvested. Calculation of "effective yield" begins with the
same "base period return" used in the yield calculation, which is then
annualized to reflect weekly compounding pursuant to the following formula:

                  Effective Yield = [(Base Period Return + 1)365/7] - 1

         For the seven-day period ended December 31, 1996, the yield for the
Money Market Subaccount was 5.90% and the effective yield was 6.08%.

         Quotations of yield for the Subaccounts, other than the Money Market
Subaccount, will be based on all investment income per Accumulation Unit earned
during a particular 30-day period, less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income by
the value of the Accumulation Unit on the last day of the period, according to
the following formula:

         YIELD    = 2[(a-b + 1)6 - 1]
                     -----
                       cd

         where    a =    net investment income earned during the period by the
                         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.

         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.


                                       3

<PAGE>   44

         Where the Series in which a Subaccount invests was established prior to
inception of the Subaccount, quotations of average annual and total return will
include quotations for periods beginning prior to the Subaccount's date of
inception. Such quotations will be based upon the performance of the
Subaccount's corresponding Series adjusted to reflect deduction of the mortality
and expense risk charge and the administrative charge.

   
         For the 1-, 5- and 10-year periods ended December 31, 1996,
respectively, the average annual total return was 20.91%, 14.22% and 13.37% for
the Growth Subaccount; 16.54%, 10.12% and 12.18% for the Growth-Income
Subaccount; 15.85%, 9.85% and 1.57% for the Worldwide Equity Subaccount; and
- -2.16%, 4.33% and 5.84% for the High Grade Income Subaccount. For the 1- and
5-year periods ended December 31, 1996, and the period between May 1, 1991
(Series date of inception) and December 31, 1996, respectively, the average
annual total return was 17.12%, 12.13% and 11.49% for the Social Awareness
Subaccount. For the 1-year period ended December 31, 1996, and the period
between October 1, 1992 (Series date of inception), and December 31, 1996,
respectively, the average annual total return was 16.40% and 14.65% for the
Emerging Growth Subaccount. For the 1-year period ended December 31, 1996, and
the period between June 1, 1995 (Series date of inception), and December 31,
1996, respectively, the average annual total return was 12.09% and 11.91% for
the Global Aggressive Bond Subaccount; 12.62% and 11.91% for the Specialized
Asset Allocation Subaccount; 11.28% and 11.21% for the Managed Asset Allocation
Subaccount and 18.35% and 22.12% for the Equity Income Subaccount. For the
period between August 5, 1996 (Series date of inception) and December 31, 1996,
the average annual total return on an annualized basis is 15.68% for the High
Yield Subaccount. Performance information is not yet available for the Value and
Small Cap Subaccounts as they did not begin operations until May 1997 and
October 1997, respectively. The performance of the Global Aggressive Bond
Subaccount and the High Yield Subaccount reflects the reimbursement of certain
expenses by the Investment Adviser. In the absence of such reimbursement, the
performance figures would be reduced.
    

         Quotations of total return for any Subaccount of the Separate Account
will be based on a hypothetical investment in an Account over a certain period
and will be computed by subtracting the initial value of the investment from the
ending value and dividing the remainder by the initial value of the investment.
Such quotations of total return will reflect the deduction of all applicable
charges to the contract and the separate account (on an annual basis).

         For the fiscal years ended 1996 through 1986, the total return for each
Subaccount was the following:

   
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
                              1996    1995   1994    1993    1992    1991    1990    1989    1988    1987    1986
- --------------------------------------------------------------------------------------------------------------------
<S>                          <C>     <C>     <C>    <C>      <C>     <C>     <C>      <C>      <C>     <C>     <C>  
 Growth Subaccount           20.91%  34.91%  (3.02%)12.12%   9.61%   34.18%  (11.80%) 33.05%   8.58%   4.80%   4.85%
- --------------------------------------------------------------------------------------------------------------------
 Growth-Income Subaccount    16.54%  28.26%  (4.33%) 8.08%   4.78%   35.89%   (5.79%) 26.61%  17.66%   2.21%  17.23%
- --------------------------------------------------------------------------------------------------------------------
 Money Market Subaccount      3.59%   3.90%   2.28%  1.15%   1.80%    4.18%    6.35%   7.53%   5.68%   4.98%   4.89%
- --------------------------------------------------------------------------------------------------------------------
 Worldwide Equity Subaccount 15.85%   9.34%   1.31% 29.80%  (3.98%)   2.96%(1)  ---     ---     ---     ---     ---
- --------------------------------------------------------------------------------------------------------------------
 High Grade                  (2.16%) 16.92%  (8.23%)11.06%   5.95%   15.34%    5.19%  10.32%   5.70%   1.00%   8.15%
 Income Subaccount
- --------------------------------------------------------------------------------------------------------------------
 Emerging Growth Subaccount  16.40%  17.82%  (6.42%)12.07%  24.34%(2)  ---     ---     ---     ---     ---     ---
- --------------------------------------------------------------------------------------------------------------------
 Global Aggressive
 Bond Subaccount             12.09%   6.74%(3) ---    ---     ---      ---     ---     ---     ---     ---     ---
- --------------------------------------------------------------------------------------------------------------------
 Specialized Asset
 Allocation Subaccount       12.62%   6.23%(3) ---    ---     ---      ---     ---     ---     ---     ---     ---
- --------------------------------------------------------------------------------------------------------------------
 Managed Asset
 Allocation Subaccount       11.28%   6.43%(3) ---    ---     ---      ---     ---     ---     ---     ---     ---
- --------------------------------------------------------------------------------------------------------------------
 Equity Income Subaccount    18.35%  16.05%(3) ---    ---     ---      ---     ---     ---     ---     ---     ---
- --------------------------------------------------------------------------------------------------------------------
 High Yield Subaccount        6.00%(4) ---     ---    ---     ---      ---     ---     ---     ---     ---     ---
- --------------------------------------------------------------------------------------------------------------------
 Social Awareness Subaccount 17.12%  26.02%  (5.15%)10.33%  14.76%    4.56%(5) ---     ---     ---     ---     ---
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
    

 1. On May 1, 1991 the Worldwide Equity Subaccount changed its investment
    objective from high current income to long-term capital growth through
    investment in common stocks and equivalents of companies domiciled in
    foreign countries and the United States. The performance information set
    forth above reflects performance after the change in investment objective.
 2. From October 1, 1992 to December 31, 1992.
 3. From June 1, 1995 to December 31, 1995.
 4. From August 5, 1996 to December 31, 1996.
   
 5. From May 1, 1991 to December 31, 1991.
    
- --------------------------------------------------------------------------------

         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

                                       4

<PAGE>   45

Market Institutional Averages, the Lehman Brothers Government Corporate Index,
the Morgan Stanley Capital International's EAFE Index or other indices that
measure performance of a pertinent group of securities so that investors may
compare a Subaccount's results with those of a group of securities widely
regarded by investors as representative of the securities markets in general or
representative of a particular type of security; (ii) other variable annuity
separate accounts, 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

   
         Security Benefit Life Insurance Company's consolidated balance sheets
as of December 31, 1996 and 1995 and the related consolidated statements of
income, changes in equity, and cash flows for each of the three years in the
period ended December 31, 1996, and the financial statements of the Separate
Account for the year ended December 31, 1996, and the period April 1, 1995 to
December 31, 1995, are set forth herein, starting on page 6.
    

   
         The consolidated financial statements of Security Benefit Life
Insurance Company, which are included in this Statement of Additional
Information, should be considered only as bearing on the ability of 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.
    

   
         The following disclosure should be read in conjunction with the
financial statements of Security Benefit Life Insurance Company. On September 4,
1997, Security Benefit Life Insurance Company entered into a 100% coinsurance
agreement with a third party relating to all of Security Benefit Life Insurance
Company's traditional and interest sensitive life insurance business. This life
insurance business comprised approximately 5% of total assets and total
liabilities of Security Benefit Life Insurance Company as of December 31, 1996.
    


                                       5
<PAGE>   46
                          Variable Annuity Account VIII

                              Financial Statements



                        Year ended December 31, 1996 and
                          the period from April 1, 1995
                        (inception) to December 31, 1995




                                    CONTENTS

<TABLE>
<CAPTION>
<S>                                                                                                                <C>
Report of Independent Auditors...............................................................................      7

Audited Financial Statements
     Balance Sheet...........................................................................................      8
     Statements of Operations and Changes in Net Assets......................................................     10
     Notes to Financial Statements...........................................................................     12
</TABLE>


                                       6

<PAGE>   47



                         Report of Independent Auditors

The Contract Owners of Variable Annuity Account VIII and
The Board of Directors of Security Benefit Life Insurance Company

We have audited the accompanying balance sheet of Variable Annuity Account VIII
(the Company) as of December 31, 1996, and the related statements of operations
and changes in net assets for the year ended December 31, 1996 and 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments owned as of December 31, 1996, by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Variable Annuity Account VIII
at December 31, 1996, and the results of its operations and changes in its net
assets for the year ended December 31, 1996 and 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 7, 1997



                                       7


<PAGE>   48

                          Variable Annuity Account VIII

                                  Balance Sheet

                                December 31, 1996
                             (Dollars In Thousands)

<TABLE>
<CAPTION>
ASSETS
<S>                                                                                       <C>
Investments:
   SBL Fund:
     Series A (Growth Series) - 1,304,751 shares at net asset value of
       $24.31 per share (cost, $30,692) ....................................              $ 31,719

     Series B (Growth-Income Series) - 580,561 shares at net asset value of
       $35.40 per share (cost, $20,771) ....................................                20,552

     Series C (Money Market Series) - 1,297,710 shares at net asset value
       of $12.56 per share (cost, $16,204) .................................                16,299

     Series D (Worldwide Equity Series) - 2,545,572 shares at net asset
       value of $6.14 per share (cost, $15,488) ............................                15,630

     Series E (High Grade Income Series) - 1,538,241 shares at net asset
       value of $12.00 per share (cost, $18,684) ...........................                18,459

     Series J (Emerging Growth Series) - 585,572 shares at net asset value
       of $18.25 per share (cost, $10,498) .................................                10,687

     Series K (Global Aggressive Bond Series) - 366,144 shares at net
       asset value of $10.72 per share (cost, $4,032) ......................                 3,925

     Series M (Specialized Asset Allocation Series) - 1,351,411 shares at
       net asset value of $12.05 per share (cost, $15,180) .................                16,285

     Series N (Managed Asset Allocation Series) - 704,076 shares at net
       asset value of $12.02 per share (cost, $7,861) ......................                 8,463

     Series O (Equity Income Series) - 1,728,336 shares at net asset value
       of $14.01 per share (cost, $21,854) .................................                24,214

     Series S (Social Awareness Series) - 169,763 shares at net asset value
       of $19.08 per share (cost, $3,169) ..................................                 3,239
                                                                                          --------
Total assets ...............................................................              $169,472
                                                                                          ========
</TABLE>


                                       8

<PAGE>   49



NET ASSETS
Net assets are represented by (Note 3):

<TABLE>
<CAPTION>
                                                                    NUMBER
                                                                    OF UNITS     UNIT VALUE      AMOUNT
                                                                  ------------------------------------------
   <S>                                                              <C>          <C>           <C>
   Growth Series:
     Accumulation units ...............                              1,987,463      $15.96     $ 31,719

   Growth-Income Series:
     Accumulation units ...............                              1,388,519       14.80       20,552

   Money Market Series:
     Accumulation units ...............                              1,520,180       10.72       16,299

   Worldwide Equity Series:
     Accumulation units ...............                              1,183,160       13.21       15,630

   High Grade Income Series:
     Accumulation units ...............                              1,631,708       11.31       18,459

   Emerging Growth Series:
     Accumulation units ...............                                772,390       13.84       10,687

   Global Aggressive Bond Series:
     Accumulation units ...............                                328,077       11.96        3,925

   Specialized Asset Allocation Series:
     Accumulation units ...............                              1,361,078       11.96       16,285

   Managed Asset Allocation Series:
     Accumulation units ...............                                715,033       11.84        8,463

   Equity Income Series:
     Accumulation units ...............                              1,764,015       13.73       24,214

   Social Awareness Series:
     Accumulation units ...............                                220,549       14.69        3,239
                                                                                               --------
Total net assets ......................                                                        $169,472
                                                                                               ========
</TABLE>

See accompanying notes.


                                       9


<PAGE>   50

                          Variable Annuity Account VIII

                Statement of Operations and Changes in Net Assets

                          Year ended December 31, 1996
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                                              HIGH
                                                                           GROWTH     MONEY      WORLDWIDE    GRADE     EMERGING
                                                              GROWTH       INCOME     MARKET      EQUITY     INCOME      GROWTH
                                                              SERIES       SERIES     SERIES      SERIES     SERIES      SERIES
                                                           ----------------------------------------------------------------------
                                                           
<S>                                                           <C>          <C>       <C>        <C>       <C>            <C>
Dividend distributions ................................       $    167     $    299   $    619   $    328    $    651   $     13
Expenses (Note 2):
  Mortality and expense risk fee ......................           (202)        (144)      (198)      (100)       (110)       (76)
  Administrative fee ..................................            (24)         (17)       (23)       (12)        (13)        (9)
                                                           ----------------------------------------------------------------------

Net investment income (loss) ..........................            (59)         138        398        216         528        (72)

Capital gains distributions ...........................          1,038        1,447          -        309           -        297
Realized gain (loss) on investments ...................            861          338         62        270        (215)       138
Unrealized appreciation (depreciation) on .............            899         (325)       117        105        (298)       182
                                                           ----------------------------------------------------------------------
Net realized and unrealized gain (loss) on                       
   investments.........................................          2,798        1,460        179        684        (513)       617
                                                           ----------------------------------------------------------------------

Net increase in net assets resulting from .............          2,739        1,598        577        900          15        545
   operations

Net assets at beginning of year .......................          3,825        3,162      2,991      1,441       2,777      1,589
Variable annuity deposits (Notes 2 and 3) .............         36,931       19,038     52,927     16,001      20,763     13,962
Terminations and withdrawals (Notes 2 and 3) ..........        (11,776)      (3,246)   (40,196)    (2,712)     (5,096)    (5,409)
                                                           ----------------------------------------------------------------------
Net assets at end of year .............................       $ 31,719     $ 20,552   $ 16,299   $ 15,630    $ 18,459   $ 10,687
                                                           =======================================================================
<CAPTION>
                                                                           SPECIALIZED   MANAGED
                                                               GLOBAL         ASSET      ASSET       EQUITY     SOCIAL
                                                             AGGRESSIVE    ALLOCATION  ALLOCATION    INCOME    AWARENESS
                                                             BOND SERIES     SERIES      SERIES      SERIES     SERIES
                                                             ----------------------------------------------------------
<S>                                                          <C>           <C>         <C>          <C>         <C>
Dividend distributions ................................       $   260      $    144   $    39     $    42    $     8
Expenses (Note 2):
   Mortality and expense risk fee .....................           (30)         (145)      (72)       (189)       (20)
   Administrative fee .................................            (4)          (18)       (8)        (22)        (3)
                                                             ----------------------------------------------------------
Net investment income (loss) ..........................           226           (19)      (41)       (169)       (15)

Capital gains distributions ...........................            44            67         8           3         41
Realized gain (loss) on investments ...................           156           285       155         622         78
Unrealized appreciation (depreciation) on investments .          (114)          998       536       2,141         53
                                                             ----------------------------------------------------------

Net realized and unrealized gain (loss) on investments.            86         1,350       699       2,766        172
                                                             ----------------------------------------------------------

Net increase in net assets resulting from operations ..           312         1,331       658       2,597        157

Net assets at beginning of year .......................           923         5,004     2,468       3,102        467
Variable annuity deposits (Notes 2 and 3) .............         4,266        12,169     6,890      21,963      3,033
Terminations and withdrawals (Notes 2 and 3) ..........        (1,576)       (2,219)   (1,553)     (3,448)      (418)
                                                             ----------------------------------------------------------
Net assets at end of year .............................       $ 3,925      $ 16,285   $ 8,463     $ 24214    $ 3,239
                                                             ==========================================================
</TABLE>

See accompanying notes

                                       10


<PAGE>   51


                          Variable Annuity Account VIII

                Statement of Operations and Changes in Net Assets

           Period from April 1, 1995 (inception) to December 31, 1995
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                                                                    HIGH
                                                                                 GROWTH-     MONEY     WORLDWIDE    GRADE   EMERGING
                                                                     GROWTH      INCOME      MARKET     EQUITY     INCOME    GROWTH
                                                                     SERIES      SERIES      SERIES     SERIES     SERIES    SERIES
                                                                   -----------------------------------------------------------------

<S>                                                                <C>          <C>        <C>        <C>          <C>      <C>
Dividend distributions ........................................    $      8     $     18   $     55   $     --       $  35   $  -- 
Expenses (Note 2):
   Mortality and expense risk fee .............................         (10)         (10)       (10)        (4)         (7)     (5)
   Administrative fee .........................................          (1)          (1)        (1)        (1)         (1)     (1)
                                                                   -----------------------------------------------------------------
Net investment income (loss) ..................................          (3)           7         44         (5)        (27)     (6)

Capital gains distributions ...................................          34           --         --          6          --      --
Realized gain (loss) on investments ...........................          49           55        (33)        15          (4)     35
Unrealized appreciation (depreciation) on investments .........         128          106        (22)        37          73       7
                                                                   -----------------------------------------------------------------

Net realized and unrealized gain (loss) on investments ........         211          161        (55)        58          69      42
                                                                   -----------------------------------------------------------------

Net increase (decrease) in net assets resulting from operations         208          168        (11)        53          96      36
Net assets at beginning of period .............................          --           --         --         --          --      --
Variable annuity deposits (Notes 2 and 3) .....................       3,949        3,079      5,045      1,419       2,894   1,769
Terminations and withdrawals (Notes 2 and 3) ..................        (332)         (85)    (2,043)       (31)       (213)   (216)
                                                                   -----------------------------------------------------------------
Net assets at end of period ...................................    $  3,825     $  3,162   $  2,991   $  1,441      $2,777  $1,589
                                                                   =================================================================
<CAPTION>
                                                                SPECIALIZED    MANAGED
                                                      GLOBAL      ASSET        ASSET    EQUITY      SOCIAL
                                                    AGGRESSIVE  ALLOCATION  ALLOCATION  INCOME     AWARENESS
                                                   BOND SERIES    SERIES      SERIES    SERIES      SERIES
                                                  ------------------------------------------------------------
<S>                                                <C>          <C>         <C>         <C>         <C>
Dividend distributions..........................      $  42       $    -      $    -       $    -     $  1
Expenses (Note 2):
   Mortality and expense risk fee...............         (4)         (20)         (7)         (11)      (2)
   Administrative fee...........................         (1)          (2)         (1)          (1)       -
                                                  ------------------------------------------------------------
Net investment income (loss)....................         37          (22)         (8)         (12)      (1)

Capital gains distributions.....................          4            -           -            -        -
Realized gain (loss) on investments.............          1           92          14           48       16
Unrealized appreciation (depreciation) on                 7          107          66          219       17
   investments..................................
                                                  ------------------------------------------------------------

Net realized and unrealized gain (loss) on               12          199          80          267       33
   investments..................................
                                                  ------------------------------------------------------------

Net increase (decrease) in net assets resulting          49          177          72          255       32
   from operations..............................

Net assets at beginning of period...............          -            -           -            -        -
Variable annuity deposits (Notes 2 and 3).......        887        5,116       2,556        2,966      436
Terminations and withdrawals (Notes 2 and 3)....        (13)        (289)       (160)        (119)      (1)
                                                  ============================================================
Net assets at end of period.....................       $923       $5,004      $2,468       $3,102     $467
                                                  ============================================================
</TABLE>

See accompanying notes.


                                       11

<PAGE>   52


                          Variable Annuity Account VIII

                          Notes to Financial Statements

                           December 31, 1996 and 1995



1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Variable Annuity Account VIII (the Account) is a separate account of Security
Benefit Life Insurance Company (SBL). The Account is registered as a unit
investment trust under the Investment Company Act of 1940, as amended. Deposits
received by the Account are invested in the 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 J
(Emerging Growth Series - emphasis on capital appreciation), Series K (Global
Aggressive Bond Series - emphasis on high current income with secondary emphasis
on capital appreciation), Series M (Specialized Asset Allocation Series -
emphasis on high total return consisting of capital appreciation and current
income), Series N (Managed Asset Allocation Series - emphasis on high level of
total return), Series O (Equity Income Series - emphasis on substantial dividend
income and capital appreciation) and Series S (Social Awareness Series -
emphasis on high total return).

Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company, LLC (SMC),
which is owned 50% by SBL and 50% by Security Benefit Group, Inc. (SBG), a
wholly-owned subsidiary of SBL. SMC has engaged Lexington Management Corporation
to provide sub-advisory services for the Worldwide Equity Series and Global
Aggressive Bond Series and has engaged T. Rowe Price Associates, Inc. to provide
sub-advisory services for the Managed Asset Allocation Series and the Equity
Income Series. SMC has also entered into agreements with Templeton Quantitative
Advisors, Inc. and Meridian Investment Management Corporation to provide certain
quantitative research services with respect to the Specialized Asset Allocation
Series.

INVESTMENT VALUATION

Investments in mutual fund shares are carried in the balance sheet at market
value (net asset value of the underlying mutual fund). The first-in, first-out
cost method is used to determine gains and losses. Security transactions are
accounted for on the trade date.


                                       12

<PAGE>   53

                          Variable Annuity Account VIII

                    Notes to Financial Statements (continued)


1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The cost of investments purchased and proceeds from investments sold were as
follows:

<TABLE>
<CAPTION>
                                                                               PERIOD FROM
                                                                              APRIL 1, 1995
                                                          YEAR ENDED         (INCEPTION) TO
                                                       DECEMBER 31, 1996    DECEMBER 31, 1995
                                               ---------------------------------------------------
                                               COST OF      PURCHASES      COST OF      PROCEEDS
                                               PURCHASES    FROM SALES     PURCHASES   FROM SALES
                                               ---------------------------------------------------
                                                                         (In Thousands)
<S>                                            <C>          <C>            <C>         <C>   
Growth Series .....................            $40,767      $14,633        $4,914      $1,266
Growth-Income Series ..............             22,294        4,917         3,964         963
Money Market Series ...............             57,357       44,228         5,704       2,658
Worldwide Equity Series ...........             17,845        4,031         1,854         465
High Grade Income Series ..........             23,119        6,924         3,733       1,025
Emerging Growth Series ............             15,884        7,106         2,237         690
Global Aggressive Bond Series .....              5,138        2,178           936          21
Specialized Asset Allocation Series             13,727        3,729         8,733       3,928
Managed Asset Allocation Series ...              7,768        2,464         2,963         575
Equity Income Series ..............             23,567        5,218         3,264         429
Social Awareness Series ...........              3,333          692           549         115
</TABLE>

SBG's investment in the subaccounts represented the following number of units
and contract value of Variable Annuity Account VIII contracts owned at December
31, 1996 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                   NUMBER OF UNITS            CONTRACT VALUE
                                                              ------------------------------------------------------
<S>                                                                <C>                        <C>
Global Aggressive Bond Series.................................           50,000                      $598
Managed Asset Allocation Series...............................           40,000                       474
</TABLE>

ANNUITY RESERVES

As of December 31, 1996, annuity reserves have not been established because
there are no contracts that have matured and are in the payout stage. Such
reserves would be computed on the basis of published mortality tables using
assumed interest rates that will provide reserves as prescribed by law. In cases
where the payout option selected is life contingent, SBL periodically
recalculates the required annuity reserves, and any resulting adjustment is
either charged or credited to SBL and not to the Account.


                                       13

<PAGE>   54

                          Variable Annuity Account VIII

                    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.


                                       14


<PAGE>   55


                          Variable Annuity Account VIII

                    Notes to Financial Statements (continued)

                           December 31, 1996 and 1995


3.  SUMMARY OF UNIT TRANSACTIONS

<TABLE>
<CAPTION>
                                                                                  UNITS
                                                         ---------------------------------------------------------
                                                                                      PERIOD FROM APRIL 1, 1995
                                                                  YEAR ENDED                (INCEPTION) TO
                                                               DECEMBER 31 1996           DECEMBER 31, 1995
                                                         ---------------------------------------------------------
                                                                                (In Thousands)
<S>                                                            <C>                    <C>
Growth Series:
   Variable annuity deposits.............................            2,499                         316
   Terminations and withdrawals..........................              802                          26
Growth-Income Series:
   Variable annuity deposits.............................            1,372                         256
   Terminations and withdrawals..........................              232                           7
Money Market Series:
   Variable annuity deposits.............................            5,023                         491
   Terminations and withdrawals..........................            3,792                         202
Worldwide Equity Series:
   Variable annuity deposits.............................            1,273                         129
   Terminations and withdrawals..........................              216                           3
High Grade Income Series:
   Variable annuity deposits.............................            1,846                         259
   Terminations and withdrawals..........................              454                          19
Emerging Growth Series:
   Variable annuity deposits.............................            1,048                         151
   Terminations and withdrawals..........................              410                          18
Global Aggressive Bond Series:
   Variable annuity deposits.............................              380                          88
   Terminations and withdrawals..........................              138                           1
Specialized Asset Allocation Series:
   Variable annuity deposits.............................            1,089                         782
   Terminations and withdrawals..........................              199                         310
Managed Asset Allocation Series:
   Variable annuity deposits.............................              625                         247
   Terminations and withdrawals..........................              142                          16
Equity Income Series:
   Variable annuity deposits.............................            1,772                         278
   Terminations and withdrawals..........................              275                          11
Social Awareness Series:
   Variable annuity deposits.............................              215                          37
   Terminations and withdrawals..........................               32                           -
</TABLE>


                                       15
<PAGE>   56

            Security Benefit Life Insurance Company and Subsidiaries

                        Consolidated Financial Statements


                  Years ended December 31, 1996, 1995 and 1994




                                    CONTENTS
<TABLE>
<S>                                                                                                               <C>
Report of Independent Auditors...............................................................................     17

Audited Consolidated Financial Statements
     Consolidated Balance Sheets.............................................................................     18
     Consolidated Statements of Income.......................................................................     20
     Consolidated Statements of Changes in Equity............................................................     21
     Consolidated Statements of Cash Flows...................................................................     22
     Notes to Consolidated Financial Statements..............................................................     24
</TABLE>



                                       16

<PAGE>   57



                         Report of Independent Auditors



The Board of Directors
Security Benefit Life Insurance Company

We have audited the accompanying consolidated balance sheets of Security Benefit
Life Insurance Company and Subsidiaries (the Company) as of December 31, 1996
and 1995, and the related consolidated statements of income, changes in equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security Benefit
Life Insurance Company and Subsidiaries at December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, in 1996, the
Company adopted certain accounting changes to conform with generally accepted
accounting principles for mutual life insurance enterprises and retroactively
restated the 1994 and 1995 financial statements for the change. Also, as
discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for debt securities as of January 1, 1994.



                                                               Ernst & Young LLP

Kansas City, Missouri
February 7, 1997



                                       17

<PAGE>   58





            Security Benefit Life Insurance Company and Subsidiaries

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                            DECEMBER 31
                                                                                      1996               1995*
                                                                                ------------------------------------
                                                                                          (In Thousands)
<S>                                                                                   <C>              <C>       
ASSETS
Investments:
   Securities available-for-sale, at fair value (Notes 2 and 9):
     Fixed maturities ..........................................                         $1,805,066     $1,778,370
     Equity securities .........................................                             89,188         21,880
   Fixed maturities held-to-maturity, at amortized cost (Note 2)                            528,045        536,137
   Mortgage loans ..............................................                             66,611         74,342
   Real estate .................................................                              4,000          5,864
   Policy loans ................................................                            106,822        100,452
   Short-term investments ......................................                                  -            992
   Cash and cash equivalents ...................................                              8,310         16,788
   Other invested assets .......................................                             40,531         37,769
                                                                                ------------------------------------
Total investments ..............................................                          2,648,573      2,572,594

Premiums deferred and uncollected ..............................                                149            574
Accrued investment income ......................................                             32,161         30,623
Accounts receivable ............................................                              4,256          3,064
Reinsurance recoverable (Note 4) ...............................                             92,197         78,877
Notes receivable ...............................................                                110            147
Property and equipment, net ....................................                             18,592         18,884
Deferred policy acquisition costs (Note 1) .....................                            216,918        186,940
Other assets ...................................................                             24,680         36,221
Separate account assets (Note 10) ..............................                          2,802,927      2,065,306
                                                                                ------------------------------------
                                                                                         $5,840,563     $4,993,230
                                                                                ====================================
</TABLE>


                                       18

<PAGE>   59




<TABLE>
<CAPTION>
                                                                                            DECEMBER 31
                                                                                      1996               1995*
                                                                                ------------------------------------
                                                                                          (In Thousands)
<S>                                                                                   <C>              <C>       
LIABILITIES AND EQUITY
Liabilities:
   Policy reserves and annuity account values ..................                         $2,497,998     $2,495,113
   Policy and contract claims ..................................                             10,607         10,571
   Other policyholder funds ....................................                             24,073         21,305
   Accounts payable and accrued expenses .......................                             18,003         13,609
   Income taxes payable (Note 5):
     Current ...................................................                              6,686         10,371
     Deferred ..................................................                             54,847         53,659
   Long-term debt (Note 8) .....................................                             65,000             --
   Other liabilities ...........................................                             11,990         11,619
   Separate account liabilities ................................                          2,793,911      2,051,292
                                                                                ------------------------------------
Total liabilities ..............................................                          5,483,115      4,667,539




Equity:
   Retained earnings ...........................................                            357,927        314,084
   Unrealized appreciation (depreciation) of securities
     available-for-sale, net ...................................                               (479)        11,607
                                                                                ------------------------------------
Total equity ...................................................                            357,448        325,691
                                                                                ------------------------------------
                                                                                         $5,840,563     $4,993,230
                                                                                ====================================

*As restated

</TABLE>

See accompanying notes to consolidated financial statements.



                                       19

<PAGE>   60


            Security Benefit Life Insurance Company and Subsidiaries

                        Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31
                                                                     1996             1995*            1994*
                                                              ------------------------------------------------------
                                                                                 (In Thousands)
<S>                                                                <C>               <C>              <C>     
Revenues:
   Insurance premiums and other considerations ..                  $  28,848         $ 49,608         $ 55,148
   Net investment income ........................                    192,636          179,940          166,857
   Asset based fees .............................                     55,977           40,652           33,809
   Other product charges ........................                     10,470           10,412            7,335
   Realized gains (losses) on investments .......                       (244)           3,876              134
   Other revenues ...............................                     20,033           22,164           27,241
                                                              ------------------------------------------------------
Total revenues ..................................                    307,720          306,652          290,524

Benefits and expenses:
   Annuity and interest sensitive life benefits:
     Interest credited to account balances ......                    108,705          113,700          103,087
     Benefit claims in excess of account balances                      7,541            6,808            7,145
   Traditional life insurance benefits ..........                      6,474            7,460            6,203
   Supplementary contract payments ..............                     11,121           11,508           11,286
   Increase in traditional life reserves ........                      8,580           13,212           12,977
   Dividends to policyholders ...................                      2,374            2,499            2,669
   Other benefits ...............................                     20,790           22,379           29,924
                                                              ------------------------------------------------------
Total benefits ..................................                    165,585          177,566          173,291

Commissions and other operating expenses ........                     45,539           46,233           39,998
Amortization of deferred policy acquisition costs                     25,930           26,628           24,674
Other expenses ..................................                      1,667            1,099              785
Interest expense ................................                      4,285                7              630
                                                              ------------------------------------------------------
Total benefits and expenses .....................                    243,006          251,533          239,378
                                                              ------------------------------------------------------

Income before income taxes ......................                     64,714           55,119           51,146
Income taxes (Note 5) ...........................                     20,871           17,927           17,129
                                                              ------------------------------------------------------
Net income ......................................                  $  43,843         $ 37,192         $ 34,017
                                                              ======================================================
</TABLE>

*As restated

See accompanying notes to consolidated financial statements.



                                       20

<PAGE>   61


            Security Benefit Life Insurance Company and Subsidiaries

                  Consolidated Statements of Changes in Equity
<TABLE>
<CAPTION>
                                                                                   DECEMBER 31
                                                                     1996             1995*            1994*
                                                              ------------------------------------------------
                                                                                 (In Thousands)
<S>                                                           <C>                 <C>              <C>
Retained earnings:
   Beginning of year, as previously reported .............      $ 207,669         $ 150,726        $ 128,785
   Cumulative effect of change in accounting principle....        106,415           126,166          114,090  
                                                              ------------------------------------------------

   Beginning of year, as restated ........................        314,084           276,892          242,875
   Net income ............................................         43,843            37,192           34,017
                                                              ------------------------------------------------
   End of year ...........................................        357,927           314,084          276,892

Unrealized appreciation (depreciation)
  of securities available-for-sale, net:
     Beginning of year ...................................         11,607           (48,466)         (10,034)
     Cumulative effect of change in accounting principle
       (Note 1) ..........................................             --                --           10,733
     Change in unrealized appreciation (depreciation) of
       securities available-for-sale, net ................        (12,086)           60,073          (49,165)
                                                              ------------------------------------------------
     End of year .........................................           (479)           11,607          (48,466)
                                                              ------------------------------------------------
Total equity .............................................      $ 357,448         $ 325,691        $ 228,426
                                                              ================================================
</TABLE>

*As restated

See accompanying notes to consolidated financial statements.



                                       21

<PAGE>   62


            Security Benefit Life Insurance Company and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31
                                                                     1996             1995*            1994*
                                                              ------------------------------------------------
                                                                                 (In Thousands)
<S>                                                             <C>               <C>              <C>      
OPERATING ACTIVITIES
Net income .......................................              $  43,843         $  37,192        $  34,017
Adjustments to reconcile net income to net cash 
   provided by operating activities:
     Annuity and interest sensitive life products:
       Interest credited to account balances .....                108,705           113,700          103,087
       Charges for mortality and administration ..                (13,115)          (16,585)         (17,000)
     Decrease (increase) in traditional life 
       policy reserves ...........................                 10,697             2,142           (5,950)
     Increase in accrued investment income .......                 (1,538)           (4,573)            (567)
     Policy acquisition costs deferred ...........                (36,865)          (33,021)         (38,737)
     Policy acquisition costs amortized ..........                 25,930            26,628           24,674
     Accrual of discounts on investments .........                 (3,905)           (3,421)          (3,588)
     Amortization of premiums on investments .....                 11,284             9,782           15,726
     Provision for depreciation and amortization .                  3,748             3,750            3,201
     Other .......................................                 (3,379)           (4,225)           2,511
                                                              ------------------------------------------------
Net cash provided by operating activities ........                145,405           131,369          117,374

INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
   Fixed maturities available-for-sale ...........                870,240           517,480          318,252
   Fixed maturities held-to-maturity .............                 58,874            59,873          147,043
   Equity securities available-for-sale ..........                  8,857            10,242            3,830
   Mortgage loans ................................                 12,545            23,248           21,096
   Real estate ...................................                  2,935             3,173            2,782
   Short-term investments ........................                 20,069           229,871          834,082
   Other invested assets .........................                  6,224            22,839            6,748
                                                              ------------------------------------------------
                                                                  979,744           866,726        1,333,833
Acquisition of investments:
   Fixed maturities available-for-sale ...........               (936,376)         (591,121)        (552,433)
   Fixed maturities held-to-maturity .............                (52,422)         (125,276)         (56,398)
   Equity securities available-for-sale ..........                (68,222)          (19,500)          (4,627)
   Mortgage loans ................................                 (4,538)           (4,179)         (34,260)
   Real estate ...................................                 (2,637)           (1,511)            (554)
   Short-term investments ........................                (19,070)         (180,259)        (854,833)
   Other invested assets .........................                 (3,712)          (31,861)         (18,581)
                                                              ------------------------------------------------
                                                                (1,086,977)        (953,707)       (1,521,686)
</TABLE>


                                       22
<PAGE>   63


            Security Benefit Life Insurance Company and Subsidiaries

                Consolidated Statements of Cash Flows (continued)

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31
                                                                     1996             1995*            1994*
                                                              ------------------------------------------------
                                                                                 (In Thousands)
<S>                                                           <C>                 <C>              <C>
INVESTING ACTIVITIES (CONTINUED) 
Other investing activities:
   Purchase of property and equipment ............              $  (1,879)        $  (2,036)       $  (2,932)
   Net increase in policy loans ..................                 (6,370)           (8,058)          (5,569)
   Net cash transferred per coinsurance agreement.                     --           (16,295)              --
                                                              ------------------------------------------------
Net cash used in investing activities ............               (115,482)         (113,370)        (196,354)

FINANCING ACTIVITIES
Issuance of long-term debt .......................                 65,000                --               --
Annuity and interest sensitive life products:
   Deposits credited to account balances .........                705,118           509,183          553,542
   Withdrawals from account balances .............               (808,519)         (526,509)        (466,760)
                                                              ------------------------------------------------
Net cash provided by (used in) financing 
   activities.....................................                (38,401)          (17,326)          86,782
                                                              ------------------------------------------------

Increase (decrease) in cash and cash equivalents .                 (8,478)              673            7,802
Cash and cash equivalents at beginning of year ...                 16,788            16,115            8,313
                                                              ------------------------------------------------
Cash and cash equivalents at end of year .........              $   8,310         $  16,788        $  16,115
                                                              ================================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION 
Cash paid during the year for:
   Interest ......................................              $   2,966         $     120        $     157
                                                              ================================================

   Income taxes ..................................              $  16,213         $  11,551        $  14,634
                                                              ================================================

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
   FINANCING ACTIVITIES
Conversion of mortgage loans to real estate owned               $     844         $      --        $   2,350
                                                              ================================================
                                                              

</TABLE>

*As restated

See accompanying notes to consolidated financial statements.



                                       23

<PAGE>   64

            Security Benefit Life Insurance Company and Subsidiaries

                   Notes to Consolidated Financial Statements

                                December 31, 1996


1.  SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Security Benefit Life Insurance Company (SBL or the Company) is a
Kansas-domiciled mutual life insurance company whose insurance operations are
licensed to sell insurance products in 50 states. The Company offers a
diversified portfolio of individual and group annuities, ordinary life and
mutual fund products through multiple distribution channels. In recent years,
the Company's new business activities have increasingly been concentrated in the
individual flexible premium variable annuity markets.

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared on the
basis of generally accepted accounting principles (GAAP). Prior to 1996, the
Company prepared its financial statements in conformity with accounting
practices prescribed or permitted by the Kansas Insurance Department, which
practices were considered GAAP for mutual life insurance companies and their
stock life insurance subsidiaries. Financial Accounting Standards Board (FASB)
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises," as amended, which is
effective for 1996 annual financial statements and thereafter, no longer permits
statutory-basis financial statements to be described as being prepared in
conformity with GAAP. Accordingly, the Company has adopted GAAP, including
Statement of Financial Accounting Standards (SFAS) No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for
Certain Long-Duration Participating Contracts," and Statement of Position 95-1,
"Accounting for Certain Insurance Activities of Mutual Life Insurance
Enterprises," which address the accounting for long-duration and short-duration
insurance and reinsurance contracts, including all participating business.

Pursuant to the requirements of FASB Interpretation No. 40 and SFAS No. 120, the
effect of the changes in accounting have been applied retroactively, and the
previously issued 1995 and 1994 financial statements have been restated for the
change. The effect of the changes applicable to years prior to January 1, 1994
has been presented as a restatement of retained earnings as of that date. The
adoption had the effect of increasing net income for 1996, 1995 and 1994 by
approximately $5,897,000, $8,436,000 and $6,663,000, respectively.

The consolidated financial statements include the operations and accounts of
Security Benefit Life Insurance Company and the following wholly-owned
subsidiaries: Security Benefit Group, Inc., First Security Benefit Life
Insurance and Annuity Company of New York, Security


                                       24

<PAGE>   65


            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Management Company, LLC, Security Distributors, Inc., Security Benefit Academy,
Inc., First Advantage Insurance Agency, Inc. and Creative Impressions, Inc.
Significant intercompany transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

ACCOUNTING CHANGE

Prior to January 1, 1994, fixed maturities were reported at cost, adjusted for
amortization of premiums and accrual of discounts. Effective January 1, 1994,
the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." SFAS No. 115 requires that fixed maturities are to be
classified as either held-to-maturity, trading or available-for-sale. Equity
securities are to be classified as either available-for-sale or trading. The
adoption had no effect on net income and resulted in an increase in equity at
January 1, 1994 of $10,733,000, net of the related effect of deferred policy
acquisition costs and deferred income taxes.

INVESTMENTS

Fixed maturities have been classified as either held-to-maturity or
available-for-sale. Fixed maturities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accrual of discounts. Such amortization and accrual
on these securities are included in investment income. Fixed maturities not
classified as held-to-maturity are classified as available-for-sale.
Available-for-sale fixed maturities are stated at fair value with the unrealized
appreciation or depreciation, net of adjustment of deferred policy acquisition
costs and deferred income taxes, reported in a separate component of equity and,
accordingly, have no effect on net income. The DPAC offsets to the unrealized
appreciation or depreciation represent valuation adjustments or restatements of
DPAC that would have been required as a charge or credit to operations had such
unrealized amounts been realized. The amortized cost of fixed maturities
classified as available-for-sale is adjusted for amortization of premiums and
accrual of discounts. Premiums and discounts are recognized over the estimated
lives of the assets adjusted for prepayment activity.

Equity securities consisting of common stocks, mutual funds and nonredeemable
preferred stock are carried at fair value and are reported in accordance with
SFAS No. 115. Mortgage loans and short-term investments are reported at cost,
adjusted for amortization of premiums and accrual of


                                       25

<PAGE>   66

            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

discounts. Real estate investments are carried at the lower of depreciated cost
or estimated realizable value. Policy loans are reported at unpaid principal.
Investments accounted for by the equity method include investments in, and
advances to, various joint ventures and partnerships. Realized gains and losses
on sales of investments are recognized in revenues on the specific
identification method.

The carrying amounts of all the Company's investments are reviewed on an ongoing
basis. If this review indicates a decline in value that is other than temporary
for any investment, the amortized cost of the investment is reduced to its fair
value. Such reductions in carrying amount are recognized as realized losses in
the determination of net income.

The Company's principal objective in holding derivatives for purposes other than
trading is asset-liability management. The operations of the Company are subject
to risk of interest rate fluctuations to the extent that there is a difference
between the amount of the Company's interest-earning assets and interest-bearing
liabilities that reprice or mature in specified periods. The principal objective
of the Company's asset-liability management activities is to provide maximum
levels of net interest income while maintaining acceptable levels of interest
rate and liquidity risk and facilitating the funding needs of the Company. To
achieve that objective, the Company uses financial futures instruments and
interest rate exchange agreements. Financial futures contracts are commitments
to either purchase or sell a financial instrument at a specific future date for
a specified price and may be settled in cash or through delivery of the
financial instrument. Interest rate exchange agreements generally involve the
exchange of fixed and floating rate interest payments without an exchange of the
underlying principal.

Interest rate exchange agreements are used to convert the interest rate
characteristics (fixed or variable) of certain investments to match those of the
related insurance liabilities that the investments are supporting. The net
interest effect of such swap transactions is reported as an adjustment of
interest income as incurred.

Gains and losses on those instruments are included in the carrying amount of the
underlying hedged investments, or anticipated investment transactions, and are
amortized over the remaining lives of the hedged investments as adjustments to
investment income. Any unamortized gains or losses are recognized when the
underlying investments are sold.

DEFERRED POLICY ACQUISITION COSTS

To the extent recoverable from future policy revenues and gross profits,
commissions and other policy-issue, underwriting and marketing costs incurred to
acquire or renew traditional life insurance, interest sensitive life and
deferred annuity business that vary with and are primarily related to the
production of new and renewal business have been deferred.


                                       26

<PAGE>   67


            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Traditional life insurance deferred policy acquisition costs are being amortized
in proportion to premium revenues over the premium-paying period of the related
policies using assumptions consistent with those used in computing policy
benefit reserves.

For interest sensitive life and deferred annuity business, deferred policy
acquisition costs are amortized in proportion to the present value (discounted
at the crediting rate) of expected gross profits from investment, mortality and
expense margins. That amortization is adjusted retrospectively when estimates of
current or future gross profits to be realized from a group of products are
revised.

CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers certificates
of deposits with original maturities of 90 days or less to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment, including real estate, furniture and fixtures, and data
processing hardware and related systems, are recorded at cost, less accumulated
depreciation. The provision for depreciation of property and equipment is
computed using the straight-line method over the estimated lives of the related
assets.

SEPARATE ACCOUNTS

The separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for the benefit of
contractholders who bear the investment risk. The separate account assets and
liabilities are carried at fair value. Revenues and expenses related to separate
account assets and liabilities, to the extent of benefits paid or provided to
the separate account contractholders, are excluded from the amounts reported in
the consolidated statements of income. Investment income and gains or losses
arising from separate accounts accrue directly to the contractholders and are,
therefore, not included in investment earnings in the accompanying statements of
income. Revenues to the Company from separate accounts consist principally of
contract maintenance charges, administrative fees, and mortality and expense
risk charges.

POLICY RESERVES AND ANNUITY ACCOUNT VALUES

The liabilities for future policy benefits for traditional life and reinsurance
products are computed using a net level premium method, including assumptions as
to investment yields, mortality, withdrawals, and other assumptions that
approximate expected experience.


                                       27

<PAGE>   68
            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Liabilities for future policy benefits for interest sensitive life and deferred
annuity products represent accumulated contract values without reduction for
potential surrender charges and deferred front-end contract charges that are
amortized over the life of the policy. Interest on accumulated contract values
is credited to contracts as earned. Crediting rates ranged from 3.5% to 7.25%
during 1996, 4.0% to 7.75% during 1995, and 4.5% to 7.75% during 1994.

INCOME TAXES

Income taxes have been provided using the liability method in accordance with
SFAS No. 109, "Accounting for Income Taxes." Under that method, deferred tax
assets and liabilities are determined based on differences between the financial
reporting and income tax bases of assets and liabilities and are measured using
the enacted tax rates and laws. Deferred income tax expenses or credits
reflected in the Company's statements of income are based on the changes in
deferred tax assets or liabilities from period to period (excluding the SFAS
No. 115 adjustment, which is charged or credited directly to equity).

RECOGNITION OF REVENUES

Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these traditional products are
recognized as revenues when due. Revenues from interest sensitive life insurance
products and deferred annuities consist of policy charges for the cost of
insurance, policy administration charges and surrender charges assessed against
contractholder account balances during the period.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

     Cash, certificates of deposits and short-term investments: The carrying
     amounts reported in the balance sheet for these instruments approximate
     their fair values.

     Investment securities: Fair values for fixed maturities are based on quoted
     market prices, where available. For fixed maturities not actively traded,
     fair values are estimated using values obtained from independent pricing
     services or estimated by discounting expected future cash flows using a
     current market rate applicable to the yield, credit quality and maturity of
     the investments. The fair values for equity securities are based on quoted
     market prices.

     Mortgage loans and policy loans: Fair values for mortgage loans and policy
     loans are estimated using discounted cash flow analyses based on interest
     rates currently being offered

                                       28

<PAGE>   69

            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     for similar loans to borrowers with similar credit ratings. Loans with
     similar characteristics are aggregated for purposes of the
     calculations.

     Investment-type contracts: Fair values for the Company's liabilities under
     investment-type insurance contracts are estimated using the assumption
     reinsurance method, whereby the amount of statutory profit the assuming
     company would realize from the business is calculated. Those amounts are
     then discounted at a rate of return commensurate with the rate presently
     offered by the Company on similar contracts.

     Long-term debt: Fair values for long-term debt are estimated using
     discounted cash flow analyses based on current borrowing rates available
     for similar types of borrowing arrangements.

2.  INVESTMENTS

Information as to the amortized cost, gross unrealized gains and losses, and
fair values of the Company's portfolio of fixed maturities and equity securities
at December 31, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>
                                                                          DECEMBER 31, 1996
                                                   --------------------------------------------------------------
                                                                        GROSS            GROSS
                                                    AMORTIZED        UNREALIZED        UNREALIZED
                                                      COST              GAINS            LOSSES       FAIR VALUE
                                                   --------------------------------------------------------------
                                                                            (In Thousands)
<S>                                                <C>               <C>               <C>            <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of U.S. 
   government corporations and agencies ........   $  173,884        $   414           $ 1,431        $  172,867
Obligations of states and political 
   subdivisions.................................       23,244            361               705            22,900
Special revenue and assessment .................          330             --                --               330
Corporate securities ...........................      863,124         13,758            18,651           858,231
Mortgage-backed securities .....................      627,875          9,091             9,308           627,658
Asset-backed securities ........................      122,523            832               275           123,080
                                                   --------------------------------------------------------------
Total fixed maturities .........................   $1,810,980        $24,456           $30,370        $1,805,066
                                                   ==============================================================

Equity securities ..............................   $   86,991        $ 2,422           $   225        $   89,188
                                                   ==============================================================

</TABLE>


                                       29
<PAGE>   70
            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (CONTINUED)

2.  INVESTMENTS (CONTINUED)

<TABLE>
<CAPTION>

                                                                            DECEMBER 31, 1996
                                                     ---------------------------------------------------------------
                                                                         GROSS              GROSS
                                                     AMORTIZED         UNREALIZED         UNREALIZED
                                                        COST             GAINS              LOSSES        FAIR VALUE
                                                     ---------------------------------------------------------------
                                                                            (In Thousands)
<S>                                                  <C>                <C>                <C>              <C>       
HELD-TO-MATURITY
Obligations of states and political
 subdivisions ............................           $ 81,791           $  463             $ 1,036          $ 81,218  
Special revenue and assessment ...........                420                -                   -               420   
Corporate securities .....................            128,487            2,003               1,830           128,660  
Mortgage-backed securities ...............            264,155            2,121               1,347           264,929  
Asset-backed securities ..................             53,192              382                  97            53,477  
                                                     ---------------------------------------------------------------
Total fixed maturities ...................           $528,045           $4,969             $ 4,310          $528,704  
                                                     ===============================================================
</TABLE>
                                                     

<TABLE>
<CAPTION>
                                                                          DECEMBER 31, 1996
                                                  ------------------------------------------------------------------
                                                                        GROSS              GROSS
                                                    AMORTIZED         UNREALIZED         UNREALIZED
                                                       COST              GAINS             LOSSES         FAIR VALUE
                                                  ------------------------------------------------------------------
                                                                            (In Thousands)
<S>                                               <C>                    <C>            <C>             <C>       
AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of
  U.S.government corporations and agencies        $     5,746            $    522       $      --       $     6,268
Obligations of states and political                                                                                
  subdivisions ...........................             23,304                 510             139            23,675
Special revenue and assessment ...........                330                   2              --               332
Corporate securities .....................            857,926              29,671          13,146           874,451
Mortgage-backed securities ...............            857,685              17,838           1,879           873,644
                                                  -----------------------------------------------------------------
Total fixed securities ...................        $ 1,744,991            $ 48,543       $  15,164       $ 1,778,370
                                                  ==================================================================
Equity securities ........................        $    21,278            $    687       $      85       $    21,880
                                                  ==================================================================
HELD-TO-MATURITY
Obligations of states and political
 subdivisions ............................        $    67,160            $  1,221       $      --       $    68,381 
Special revenue and assessment ...........                870                  --              --               870
Corporate securities .....................            163,032               6,426              43           169,415
Mortgage-backed securities ...............            305,075               5,539               4           310,610
                                                  -----------------------------------------------------------------
Totals ...................................        $   536,137            $ 13,186       $      47       $   549,276 
                                                  =================================================================
</TABLE>

The change in the Company's unrealized appreciation (depreciation) on fixed
maturities was $(51,773,000), $220,048,000 and $(219,496,000) during 1996, 1995
and 1994, respectively; the corresponding amounts for equity securities were
$1,595,000, $1,034,000 and $(1,702,000) during 1996, 1995 and 1994,
respectively.

                                       30
<PAGE>   71
            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (CONTINUED)


2. INVESTMENTS (CONTINUED)

The amortized cost and fair value of fixed maturities at December 31, 1996, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>

                                                        AVAILABLE-FOR-SALE                   HELD-TO-MATURITY
                                                 -------------------------------------------------------------------
                                                      AMORTIZED                         AMORTIZED
                                                        COST             FAIR VALUE        COST         FAIR VALUE
                                                 -------------------------------------------------------------------
                                                                           (In Thousands)
<S>                                                  <C>               <C>              <C>             <C>   
Due in one year or less........................       $   17,711       $   17,764       $    320        $    320
Due after one year through five years..........          197,414          197,267         12,184          12,240
Due after five years through 10 years..........          469,394          471,099         47,804          48,193
Due after 10 years.............................          376,063          368,198        150,390         149,545
Mortgage-backed securities.....................          627,875          627,658        264,155         264,929
Asset-backed securities........................          122,523          123,080         53,192          53,477
                                                 -------------------------------------------------------------------
                                                      $1,810,980       $1,805,066       $528,045        $528,704
                                                 ===================================================================
</TABLE>

Late in 1995, the FASB issued a special report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." This report provided companies with an opportunity for a one-time
reassessment and reclassification of securities as of a single measurement date
without tainting the held-to-maturity debt securities classification. On
December 8, 1995, the Company reclassified securities with an amortized cost of
$202,417,000 from held-to-maturity to available-for-sale. The transfer resulted
in an increase to unrealized gains on securities of approximately $2,162,000 net
of related adjustments for deferred policy acquisition costs and deferred income
taxes.

The Company did not hold any investments that individually exceeded 10% of
equity at December 31, 1996 except for securities guaranteed by the U.S.
government or an agency of the U.S. government.


                                       31

<PAGE>   72
            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (CONTINUED)


2.  INVESTMENTS (CONTINUED)

Major categories of net investment income are summarized as follows:
<TABLE>
<CAPTION>

                                                                       1996             1995              1994
                                                                     --------------------------------------------   
                                                                                 (In Thousands)                     
<S>                                                                  <C>              <C>               <C>         
Interest on fixed maturities................................         $174,592          $165,684         $154,739    
Dividends on equity securities..............................            5,817             1,309              712    
Interest on mortgage loans..................................            6,680             7,876            7,746    
Real estate income..........................................              781             1,287            1,326    
Interest on policy loans....................................            6,372             5,927            5,462    
Interest on short-term investments..........................            1,487             2,625            2,272    
Other.......................................................            3,418             1,453              525    
                                                                     --------------------------------------------   
Total investment income.....................................          199,147           186,161          172,782    
                                                                                                                    
Investment expenses.........................................            6,511             6,221            5,925    
                                                                     ============================================   
Net investment income.......................................         $192,636          $179,940         $166,857    
                                                                     ============================================   
</TABLE>

Proceeds from sales of fixed maturities and equity securities and related
realized gains and losses, including valuation adjustments, are as follows:

<TABLE>
<CAPTION>
                                                                       1996             1995              1994
                                                                     -------------------------------------------
                                                                                  (In Thousands)
<S>                                                                  <C>               <C>              <C>     
Proceeds from sales.........................................         $393,189          $310,590         $128,533
Gross realized gains........................................            9,407             5,901            5,814
Gross realized losses.......................................            9,723             3,361            4,889
</TABLE>

The composition of the Company's portfolio of fixed maturities by quality rating
at December 31, 1996 is as follows:

<TABLE>
<CAPTION>

    QUALITY RATING                    CARRYING AMOUNT                    %
- ------------------------------   ---------------------------    --------------------
                                         (In Thousands)

<S>                              <C>                            <C>
AAA..........................             $1,199,762                    51.4%
AA...........................                158,785                     6.8
A............................                361,008                    15.5
BBB..........................                416,589                    17.9
Noninvestment grade..........                196,967                     8.4
                                 ===========================    ====================
                                          $2,333,111                   100.0%
                                 ===========================    ====================
</TABLE>

The Company has a diversified portfolio of commercial and residential mortgage
loans outstanding in 14 states. The loans are somewhat geographically
concentrated in the midwestern


                                       32
<PAGE>   73
            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (CONTINUED)


2.  INVESTMENTS (continued)

and southwestern United States with the largest outstanding balances at December
31, 1996 being in the states of Kansas (34%), Iowa (15%) and Texas (14%).

Net realized gains (losses) consist of the following:

<TABLE>
<CAPTION>

                                                                     1996              1995                1994
                                                                    -------------------------------------------     
                                                                                 (In Thousands)                     
<S>                                                                  <C>                <C>               <C>       
Fixed maturities............................................         $(1,329)           $1,805            $397      
Equity securities...........................................           1,013               735             528      
Other.......................................................              72             1,336            (791)     
                                                                    ===========================================     
Total realized gains (losses)...............................         $  (244)           $3,876            $134      
                                                                    ===========================================     
</TABLE>

Deferred losses totaling $2.2 million and $3.9 million at December 31, 1996 and
1995, respectively, resulting from terminated and expired futures contracts are
included in fixed maturities and will be amortized as an adjustment to net
investment income. The notional amount of outstanding agreements to sell
securities was $79 million at December 31, 1995. There were no outstanding
agreements at December 31, 1996.

For interest rate exchange agreements, one agreement was terminated during 1996
resulting in a deferred gain of $1.1 million. The notional amount of the
remaining outstanding agreements was $30 million at December 31, 1996. Also, as
of December 31, 1996, these agreements have maturities ranging from March 1997
to May 2005. Under these agreements, the Company receives variable rates based
on the one- and three-month LIBOR and pays fixed rates ranging from 6.875% to
7.215%.

3.  EMPLOYEE BENEFIT PLANS

Substantially all Company employees are covered by a qualified, noncontributory
defined benefit pension plan sponsored by the Company and certain of its
affiliates. Benefits are based on years of service and an employee's highest
average compensation over a period of five consecutive years during the last 10
years of service. The Company's policy has been to contribute funds to the plan
in amounts required to maintain sufficient plan assets to provide for accrued
benefits. In applying this general policy, the Company considers, among other
factors, the recommendations of its independent consulting actuaries, the
requirements of federal pension law and the limitations on deductibility imposed
by federal income tax law. The Company records pension cost in accordance with
the provisions of SFAS No. 87, "Employers' Accounting for Pensions."


                                       33
<PAGE>   74
            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (CONTINUED)


3.  EMPLOYEE BENEFIT PLANS (CONTINUED)


Pension cost for the plan for 1996, 1995 and 1994 is summarized as follows:

<TABLE>
<CAPTION>
                                                                     1996             1995              1994
                                                              ------------------------------------------------------
                                                                                 (In Thousands)
<S>                                                               <C>               <C>                <C> 
Service cost................................................      $   670           $   528            $679
Interest cost...............................................          587               508             535
Actual return on plan assets................................       (1,064)           (1,568)            310
Net amortization and deferral...............................          284               900            (949)
                                                              ======================================================
Net pension cost............................................      $   477           $   368            $575
                                                              ======================================================
</TABLE>

The funded status of the plan as of December 31, 1996 and 1995 was as follows:

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31
                                                                                         1996            1995
                                                                                   ---------------------------------
                                                                                            (In Thousands)
<S>                                                                                    <C>               <C>     
Actuarial present value of benefit obligations:
   Vested benefit obligation.....................................................      $  (6,059)        $ (5,243)
   Non-vested benefit obligation.................................................           (202)            (165)
                                                                                   ---------------------------------
   Accumulated benefit obligation................................................         (6,261)          (5,408)

   Excess of projected benefit obligation
   over accumulated benefit obligation...........................................
                                                                                          (2,961)          (2,865)
                                                                                   ---------------------------------
   Projected benefit obligation..................................................         (9,222)          (8,273)
Plan assets, at fair market value................................................         10,085            8,342
                                                                                   ---------------------------------
Plan assets greater than projected benefit obligation............................            863               69

Unrecognized net loss............................................................          1,007            1,560
Unrecognized prior service cost..................................................            700              758

Unrecognized net asset established at the date of initial application............         (1,841)          (2,025)
                                                                                   ---------------------------------
Net prepaid pension cost.........................................................      $     729         $    362
                                                                                   =================================
</TABLE>

Assumptions were as follows:

<TABLE>
<CAPTION>
                                                                               1996         1995          1994
                                                                           -----------------------------------------
<S>                                                                            <C>           <C>          <C>
Weighted average discount rate...........................................      7.75%         7.5%         8.5%
Weighted average rate of increase in compensation for participants age
   45 and older..........................................................       4.5          4.5          4.5
Weighted average expected long-term return on plan assets................       9.0          9.0          9.0
</TABLE>

                                       34
<PAGE>   75
            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (CONTINUED)

3.  EMPLOYEE BENEFIT PLANS (CONTINUED)


Compensation rates that vary by age for participants under age 45 were used in
determining the actuarial present value of the projected benefit obligation in
1996. Plan assets are invested in a diversified portfolio of affiliated mutual
funds that invest in equity and debt securities.

In addition to the Company's defined benefit pension plan, the Company provides
certain medical and life insurance benefits to full-time employees who have
retired after the age of 55 with five years of service. The plan is
contributory, with retiree contributions adjusted annually and contains other
cost-sharing features such as deductibles and coinsurance. Contributions vary
based on the employee's years of service earned after age 40. The Company's
portion of the costs is frozen after 1996 with all future cost increases passed
on to the retirees. Retirees in the plan prior to July 1, 1993 are covered 100%
by the Company.

Retiree medical care and life insurance cost for the total plan for 1996, 1995
and 1994 is summarized as follows:

<TABLE>
<CAPTION>

                                                                     1996             1995              1994
                                                              ------------------------------------------------------
                                                                                 (In Thousands)
<S>                                                                   <C>             <C>               <C>
Service cost................................................           $157              $151             $116
Interest cost...............................................            280               305              275
                                                              ======================================================
                                                                       $437              $456             $391
                                                              ======================================================
</TABLE>

The funded status of the plan as of December 31, 1996 and 1995 was as follows:

<TABLE>
<CAPTION>
                                                                                            DECEMBER 31
                                                                                      1996              1995
                                                                                ------------------------------------
                                                                                          (In Thousands)
<S>                                                                                    <C>              <C>     
Accumulated postretirement benefit obligation:
   Retirees..................................................................          $(2,498)         $(2,514)
Active participants:
   Retirement eligible.......................................................             (568)            (632)
   Others....................................................................           (1,023)          (1,035)
                                                                                ------------------------------------
                                                                                        (4,089)          (4,181)
Unrecognized net (gain) loss.................................................             (348)              67
                                                                                ====================================
Accrued postretirement benefit cost..........................................          $(4,437)         $(4,114)
                                                                                ====================================
</TABLE>

The annual assumed rate of increase in the per capita cost of covered benefits
is 10% for 1996 and is assumed to decrease gradually to 5% for 2001 and remain
at that level thereafter. The health care cost trend rate has a significant
effect on the amount reported. For example, increasing the assumed health care
cost trend rates by one percentage point each year would increase the
accumulated postretirement benefit obligation as of December 31, 1996 by
$191,000 


                                       35
<PAGE>   76
           Security Benefit Life Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (CONTINUED)


3.  EMPLOYEE BENEFIT PLANS (CONTINUED)


and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1996 by $54,000.

The discount rate used in determining the accumulated postretirement benefit
obligation was 7.75%, 7.5% and 8.5% at December 31, 1996, 1995 and 1994,
respectively.

The Company has a profit-sharing and savings plan for which substantially all
employees are eligible after one year of employment with the Company.
Contributions for profit sharing are based on a formula established by the Board
of Directors with pro rata allocation among employees based on salaries. The
savings plan is a tax-deferred, 401(k) retirement plan. Employees may contribute
up to 10% of their eligible compensation. The Company matches 50% of the first
6% of the employee contributions. Employee contributions are fully vested, and
Company contributions are vested over a five-year period. Company contributions
to the profit-sharing and savings plan charged to operations were $1,783,000,
$1,567,000 and $1,075,000 for 1996, 1995 and 1994, respectively.

4.  REINSURANCE

The Company assumes and cedes reinsurance with other companies to provide for
greater diversification of business, allow management to control exposure to
potential losses arising from large risks, and provide additional capacity for
growth. The Company's maximum retention on any one life is $500,000. The Company
does not use financial or surplus relief reinsurance. Life insurance in force
ceded at December 31, 1996 and 1995 was $4.0 and $3.9 billion, respectively.

Principal reinsurance transactions are summarized as follows:
<TABLE>
<CAPTION>
                                                                     1996             1995              1994
                                                              ------------------------------------------------------
                                                                                 (In Thousands)
<S>                                                                 <C>                <C>              <C>   
Reinsurance ceded:
   Premiums paid............................................        $ 25,442           $ 5,305          $3,980
                                                              ======================================================

   Commissions received.....................................        $  4,669           $   230          $1,443
                                                              ======================================================

   Claim recoveries.........................................        $  5,235            $3,089          $2,485
                                                              ======================================================
</TABLE>

In the accompanying financial statements, premiums, benefits, settlement
expenses and deferred policy acquisition costs are reported net of reinsurance
ceded; policy liabilities and accruals are reported gross of reinsurance ceded.
The Company remains liable to policyholders if the reinsurers are unable to meet
their contractual obligations under the applicable reinsurance agreements. To
minimize its exposure to significant losses from reinsurance insolvencies, the


                                       36
<PAGE>   77
           Security Benefit Life Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (CONTINUED)


4.  REINSURANCE (CONTINUED)


the Company evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar geographic regions,
activities or economic characteristics of reinsurers. At December 31, 1996 and
1995, the Company had established a receivable totaling $92,197,000 and
$78,877,000 for reserve credits, reinsurance claims and other receivables from
its reinsurers. The amount of reinsurance assumed is not significant.

In 1995, the Company transferred, through a 100% coinsurance agreement, $66.9
million in policy reserves and claim liabilities. The agreement related to a
block of whole life and decreasing term life insurance business.

In prior years, the Company was involved in litigation arising out of its
participation from 1986 to 1990 in a reinsurance pool. The litigation related to
the pool manager and a reinsurance intermediary placing major medical business
in the pool without authorization. During 1993, the Company settled the major
medical portion of the pool's activity with no significantly adverse effect on
the Company. The nonmajor medical business placed in the pool has experienced
significant losses. At December 31, 1996, the Company believes adequate
provision has been made for such losses.

5.  INCOME TAXES

The Company files a life/nonlife consolidated federal income tax return. The
provision for income taxes includes current federal income tax expense or
benefit and deferred income tax expense or benefit due to temporary differences
between the financial reporting and income tax bases of assets and liabilities.
Such differences relate principally to liabilities for future policy benefits
and accumulated contract values, deferred compensation, deferred policy
acquisition costs, postretirement benefits, deferred selling commissions,
depreciation expense and unrealized appreciation (depreciation) on securities
available-for-sale.

Income tax expense consists of the following for 1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                                                     1996             1995              1994
                                                              ------------------------------------------------------
                                                                                 (In Thousands)

<S>                                                                  <C>              <C>              <C>    
Current.....................................................         $12,528          $ 15,200         $ 11,361
Deferred....................................................           8,343             2,727            5,768
                                                              ======================================================
                                                                     $20,871          $ 17,927         $ 17,129
                                                              ======================================================
</TABLE>

The provision for income taxes differs from the amount computed at the statutory
federal income tax rate due primarily to dividends received deductions and tax
credits.


                                       37
<PAGE>   78
            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (CONTINUED)



4.  INCOME TAXES (CONTINUED)


Income taxes paid by the Company were $16,213,000, $11,551,000, and 
$14,634,000 during 1996, 1995, and 1994, respectively.

Net deferred tax assets or liabilities consist of the following:

<TABLE>
<CAPTION>

                                                                                      1996              1995
                                                                                ------------------------------------
                                                                                          (In Thousands)
<S>                                                                                    <C>              <C>    
Deferred tax assets:
   Future policy benefits....................................................          $20,487          $17,780
   Net unrealized depreciation on securities available-for-sale..............            1,409                -
   Guaranty fund assessments.................................................            1,400            1,260
   Employee benefits.........................................................            4,852            3,836
   Other.....................................................................            4,620            3,662
                                                                                ------------------------------------
Total deferred tax assets....................................................           32,768           26,538

Deferred tax liabilities:
   Deferred policy acquisition costs.........................................           69,647           50,580
   Net unrealized appreciation on securities available-for-sale..............                -           12,539
   Deferred gain on investments..............................................           10,446            8,681
   Depreciation..............................................................            2,061              988
   Other.....................................................................            5,461            7,409
                                                                                ------------------------------------
Tax deferred tax liabilities.................................................           87,615           80,197
                                                                                ------------------------------------
Net deferred tax liabilities.................................................          $54,847          $53,659
                                                                                 ===================================
</TABLE>

6.  CONDENSED FAIR VALUE INFORMATION

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosures of fair value information about financial instruments, whether
recognized or not recognized in a company's balance sheet, for which it is
practicable to estimate that value. The methods and assumptions used by the
Company to estimate the following fair value disclosures for financial
instruments are set forth in Note 1.

SFAS No. 107 excludes certain insurance liabilities and other nonfinancial
instruments from its disclosure requirements. However, the liabilities under all
insurance contracts are taken into consideration in the Company's overall
management of interest rate risk that minimizes exposure to changing interest
rates through the matching of investment maturities with amounts due under
insurance contracts. The fair value amounts presented herein do not include an
amount for the value associated with customer or agent relationships, the
expected interest margin (interest earnings in excess of interest credited) to
be earned in the future on investment-type products or other intangible items.
Accordingly, the aggregate fair value amounts presented herein do not
necessarily represent the underlying value of the Company; likewise, care should
be exercised in 


                                       38
<PAGE>   79
            Security Benefit Life Insurance Company and Subsidiaries
            
             Notes to Consolidated Financial Statements (CONTINUED)

6.  CONDENSED FAIR VALUE INFORMATION (CONTINUED)


deriving conclusions about the Company's business or financial condition based
on the fair value information presented herein.

<TABLE>
<CAPTION>

                                                      DECEMBER 31, 1996                   DECEMBER 31, 1995
                                               --------------------------------      -------------------------------
                                                  CARRYING                               CARRYING        
                                                   AMOUNT         FAIR VALUE              AMOUNT      FAIR VALUE
                                               --------------------------------      -------------------------------
                                                                          (In Thousands)
<S>                                                 <C>             <C>                 <C>             <C>       
Investments:
   Fixed maturities (Note 2).................       $2,333,111      $2,333,770          $2,314,507      $2,327,646
   Equity securities (Note 2)................           89,188          89,188              21,880          21,880
   Mortgage loans............................           66,611          69,004              74,342          80,175
   Policy loans..............................          106,822         108,685             100,452         104,077
   Short-term investments....................                -               -                 992             992
   Cash and cash equivalents.................            8,310           8,310              16,788          16,788
   Accrued investment income.................           32,161          32,161              30,623          30,623
   Futures contracts.........................                -               -                   -            (737)
   Interest rate exchange agreements.........                -            (282)                  -          (2,291)

Liabilities:
   Supplementary contracts without life
     contingencies...........................           33,225          33,803              34,363          35,387
   Individual and group annuities............        1,942,697       1,767,692           1,922,901       1,774,642
   Long-term debt............................           65,000          67,683                   -               -

</TABLE>

7.  COMMITMENTS AND CONTINGENCIES

The Company leases various equipment under several operating lease agreements.
Total expense for all operating leases amounted to $1,904,000, $1,302,000 and
$1,450,000 for 1996, 1995 and 1994, respectively. The Company has aggregate
future lease commitments at December 31, 1996 of $4,337,000 for noncancelable
operating leases consisting of $992,000 in 1997, $941,000 in 1998, $829,000 in
1999, $818,000 in 2000 and $757,000 in 2001 and thereafter.

In addition, in 2001, under the terms of an operating lease for an airplane, the
Company has the option to renew the lease for another five years, purchase the
airplane for approximately $4.7 million, or return the airplane to the lessor
and pay a termination charge of approximately $3.7 million. If the option to
renew the lease for five years is selected, at the end of the five-year period
(2006), the Company has the option to purchase the airplane for approximately
$3.4 million or return the airplane to the lessor and pay a termination charge
of approximately $2.7 million.


                                       39
<PAGE>   80
            Security Benefit Life Insurance Company and Subsidiaries

             Notes to Consolidated Financial Statements (CONTINUED)


7.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

The economy and other factors have caused an increase in the number of insurance
companies that have required regulatory supervision. Guaranty fund assessments
are levied on the Company by life and health guaranty associations in most
states in which it is licensed to cover losses of policyholders of insolvent or
rehabilitated insurers. In some states, these assessments can be partially
recovered through a reduction in future premium taxes. The Company cannot
predict whether and to what extent legislative initiatives may affect the right
to offset. Based on information from the National Organization of Life and
Health Guaranty Association and information from the various state guaranty
associations, the Company believes that it is probable that these insolvencies
will result in future assessments. The Company regularly evaluates its reserve
for these insolvencies and updates its reserve based on the Company's
interpretation of information recently received. The associated costs for a
particular insurance company can vary significantly based on its premium volume
by line of business in a particular state and its potential for premium tax
offset. The Company accrued and charged to expense $1,574,000, $2,302,000 and
$237,000 for 1996, 1995 and 1994, respectively. At December 31, 1996, the
Company has reserved $4,000,000 to cover current and estimated future
assessments net of related premium tax credits.

8.  LONG-TERM DEBT

The Company has a $75.5 million line of credit facility from the Federal Home
Loan Bank of Topeka. Any borrowings in connection with this facility bear
interest at .1% over the Federal Funds rate. No amounts were outstanding at
December 31, 1996.

In February 1996, the Company negotiated three separate $5,000,000 advances with
the Federal Home Loan Bank of Topeka. The advances are due February 27, 1998,
February 26, 1999 and February 28, 2001 and carry interest rates of 5.59%, 5.76%
and 6.04%, respectively.

In May 1996, the Company issued $50 million of 8.75% surplus notes maturing on
May 15, 2016. The surplus notes were issued pursuant to Rule 144A under the
Securities Act of 1933. The surplus notes have repayment conditions and
restrictions whereby each payment of interest on or principal of the surplus
notes may be made only with the prior approval of the Kansas Insurance
Commissioner and only out of surplus funds that the Kansas Insurance
Commissioner determines to be available for such payment under the Kansas
Insurance Code.

9.  RELATED-PARTY TRANSACTIONS

The Company owns shares of mutual funds managed by Security Management Company,
LLC with a net asset value totaling $60,559,000 and $5,364,000 at December 31,
1996 and 1995, respectively.


                                       40
<PAGE>   81






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<PAGE>   82






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<PAGE>   83






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<PAGE>   84
                                     PART C

                                OTHER INFORMATION
<TABLE>
<S>               <C>                                           
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)  (a) Service Facilities Agreement
                                (b) Variable Annuity Sales Agreement
                           (4)  (a) Individual Contract (Form V6022) 
                                (b) Annuity Loan Endorsement (Form V6846 1/97)(b) 
                                (c) Loan Endorsement (Form V6846 10/94)(b) 
                                (d) SIMPLE IRA Endorsement (Form 453C-5S)(b) 
                                (e) Tax-Sheltered Annuity Endorsement (Form 6832A)(b) 
                                (f) Individual Retirement Annuity Endorsement (Form 6849A)(b)
                           (5)  Sample Application
                           (6)  (a) Composite of Articles of Incorporation of SBL(b)
                                (b) Bylaws of SBL
                           (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(c)
                          (14)  Financial Data Schedules
                          (15)  Powers of Attorneys of Howard R. Fricke, Thomas R. Clevenger, Sister Loretto
                                Marie Colwell, John C. Dicus, William W. Hanna, John E. Hayes, Jr., Laird G.
                                Noller, Frank C. Sabatini and Robert C. Wheeler(b)
</TABLE>

(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).

(b)  Incorporated herein by reference to the Exhibits filed with the
     Registrant's Post-Effective Amendment No. 3 under the Securities Act of
     1933 and Amendment No. 4 under the Investment Company Act of 1940 to
     Registration Statement No. 33-85592 (April 30, 1997).

(c)  Incorporated herein by reference to the Exhibits filed with Registrant's
     Post-Effective Amendment No. 4 under the Securities Act of 1933 and
     Amendment No. 5 under the Investment Company Act of 1940 to Registration
     Statement No. 33-85592 (July 7, 1997)



<PAGE>   85
Item 25.           Directors and Officers of the Depositor

<TABLE>
<CAPTION>
Name and Principal Business Address               Positions and Offices with Depositor
- -----------------------------------               ------------------------------------
<S>                                               <C>
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

Steven J. Douglass                                Director
3231 East 6th Street
Topeka, KS 66607

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
</TABLE>

<PAGE>   86
Item 25.        Directors and Officers of the Depositor

<TABLE>
<CAPTION>
Name and Principal Business Address               Positions and Offices with Depositor
- -----------------------------------               ------------------------------------
<S>                                               <C>
Kris A. Robbins*                                  Executive Vice President

Donald J. Schepker*                               Senior Vice President, Chief Financial Officer and
                                                  Treasurer

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, Vice President and Assistant Secretary

James R. Schmank*                                 Vice President

Kathleen R. Blum*                                 Vice President - Administration
</TABLE>

*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
controlled by its policy owners. No one person holds more than approximately
0.0004% of the voting power of SBL. The Registrant is a segregated asset account
of SBL.

<PAGE>   87
     The following chart indicates the persons controlled by or under common
control with Variflex LS or SBL:

<TABLE>                                                                     
<CAPTION>                                                                   
                                                                                         Percent of Voting Securities
                  Name                        Jurisdiction of Incorporation               Owned or controlled by SBL 
                  ----                        -----------------------------               --------------------------
<S>                                           <C>                                        <C>
Security Benefit Life Insurance Company                  Kansas                                -----
(Mutual Life Insurance Company)

Security Benefit Group, Inc. (Holding                    Kansas                                 100%
Company)

Security Management Company, LLC                         Kansas                                 100%
(Investment Adviser)

Security Distributors, Inc.                              Kansas                                 100%
(Broker/Dealer, Principal Underwriter
of Mutual Funds)

Security Benefit Academy, Inc. (Daycare                  Kansas                                 100%
Company)

Creative Impressions, Inc.                               Kansas                                 100%
(Advertising Agency)

Security Benefit Clinic and Hospital                     Kansas                                 100%
(Nonprofit provider of hospital
benevolences for fraternal certificate
holders)

First Advantage Insurance Agency, Inc.                   Kansas                                 100%
(Insurance Agency)

First Security Benefit Life Insurance                   New York                                100%
and Annuity Company of New York
</TABLE>
<PAGE>   88


         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              15.1%        Security Income Fund      7.3%
                                               Corporate Bond Series

Security Growth and Income Fund   40.2%        SBL Fund                  100%

Security Ultra Fund               33%

Item 27.          Number of Contract Owners

         As of  September 30, 1997, there were 2,344 owners of Variflex LS 
Non-Qualified Contracts and 1,256 owners of Variflex LS Qualified 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>   89

                  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, Variable Annuity Account VIII (Variflex
Signature), 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, LLC, an affiliate of SBL, acts as investment
adviser: Security Equity Fund, Security Income Fund, Security Growth and Income
Fund, Security Tax-Exempt Fund, and Security Ultra Fund. 
<PAGE>   90

(b)

<TABLE>
<CAPTION>
          Name and Principal                    Position and Offices
          Business Address*                     with Underwriter
          ------------------                    ------------------

          <S>                                   <C>
          Richard K Ryan                        President and Director

          John D. Cleland                       Vice President and Director

          James R. Schmank                      Vice President and Director

          Mark E. Young                         Vice President

          Amy J. Lee                            Secretary

          Brenda M. Harwood                     Treasurer

          Daniel J. McNichol                    Vice President

          Jennifer A. Zaat                      Regional Vice President

          Kent N. Spillman                      Regional Vice President

          Carla D. Griffin                      Regional Vice President

          Anthony Hammock                       Regional Vice President

          William G. Mancuso                    Regional Vice President

          Clark A. Anderson                     Regional Vice President

          Paul A. Richardson                    Regional Vice President

          Marek E. Lakotko                      Regional Vice President

          Susan L. Tully                        Regional Vice President

          Eric M. Aanes                         Regional Vice President
</TABLE>

*700 Harrison, Topeka, Kansas 66636-0001

(c)      Not applicable.

Item 30.          Location of Accounts and Records

All accounts and records required to be maintained by Section 31(a) of the 1940
Act and the rules under it are maintained by SBL at its administrative
offices--700 Harrison Street, Topeka, Kansas 66636-0001.

Item 31.          Management Services

All management contracts are discussed in Part A or Part B.



<PAGE>   91
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.

(f) Depositor represents that the fees and charges deducted under the contract,
in the aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by the Depositor.

<PAGE>   92


                                   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(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf, in the City
of Topeka, and State of Kansas on this 1st day of October, 1997.

<TABLE>
<CAPTION>

SIGNATURES AND TITLES
<S>                                        <C>
Howard R. Fricke                           SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of the Board,           (The Depositor)
President and Chief Executive Officer

                                           By:                      /s/ Roger K. Viola
                                                   ------------------------------------------------------------------
Thomas R. Clevenger                                Roger K. Viola, Senior Vice President, General 
Director                                           Counsel and Secretary as Attorney-In-Fact for the 
                                                   Officers and Directors Whose Names Appear Opposite

Sister Loretto Marie Colwell
Director

                                           VARIFLEX LS
John C. Dicus                              (The Registrant)
Director

                                           By:     SECURITY BENEFIT LIFE INSURANCE COMPANY
William W. Hanna                                   (The Depositor)
Director

John E. Hayes, Jr.                         By:                      /s/ Howard R. Fricke
Director                                           ------------------------------------------------------------------
                                                   Howard R. Fricke, Chairman of the Board, President
                                                   and Chief Executive Officer

Laird G. Noller
Director

                                           By:                      /s/ Donald J. Schepker
                                                   ------------------------------------------------------------------
Frank C. Sabatini                                  Donald J. Schepker, Senior Vice President, Chief Financial
Director                                           Officer and Treasurer

Robert C. Wheeler                          (ATTEST):                         /s/ Roger K. Viola
Director                                                    ---------------------------------------------------------
                                                            Roger K. Viola, Senior Vice President, General Counsel
                                                            and Secretary

                                                       Date: October 1, 1997
</TABLE>

<PAGE>   93


                                  EXHIBIT INDEX

   (1)   None

   (2)   None

   (3)   (a)      Service Facilities Agreement
         (b)      Variable Annuity Sales Agreement

   (4)   (a)    Individual Contract
         (b)    None
         (c)    None
         (d)    None
         (e)    None
         (f)    None

   (5)   Sample Application

   (6)   (a)    None
         (b)    Bylaws

   (7)   None

   (8)   None

   (9)   None

  (10)   Consent of Independent Auditors

  (11)   None

  (12)   None

  (13)   None

  (14)   Financial Data Schedules

  (15)   None

<PAGE>   1

                         SERVICE FACILITIES AGREEMENT

THIS  AGREEMENT,  made and  entered  into  this 1st day of April,  1987,  by and
between  Security  Distributors,  Inc.,  and  Security  Benefit  Life  Insurance
Company, both Kansas corporations.

WITNESSETH:

WHEREAS,  Security Distributors,  Inc. is a wholly-owned  subsidiary of Security
Management  Company,  which is a  wholly-owned  subsidiary  of Security  Benefit
Group, Inc., which in turn is a wholly-owned subsidiary of Security Benefit Life
Insurance Company; and

WHEREAS,  one of the  purposes of Security  Distributors,  Inc.,  is to act as a
broker/dealer  and principal  underwriter  pursuant to the  requirements  of the
Securities  Act of  1934  for the  offering  and  selling  of  Variable  Annuity
Contracts and Variable Life Insurance  Policies to be issued by Security Benefit
Life Insurance  Company for  investment in the various SBL Variable  Annuity and
Variable Life Separate Accounts; and

WHEREAS,  because Security Benefit Life Insurance Company has facilities for the
handling  of the  recordkeeping  and  other  related  administrative  duties  of
Security Distributors, Inc. pertaining to the sale of Variable Annuity Contracts
and Variable Life Insurance Policies;

NOW, THEREFORE,  IT IS MUTUALLY AGREED between Security  Distributors,  Inc. and
Security Benefit Life Insurance Company, both Kansas corporations,  that for and
in  consideration  of the  principal  underwriting  and  broker/dealer  services
rendered and to be rendered by Security Distributors,  Inc. relating to Security
Benefit Life Insurance  Company's Variable Annuity and Variable Life operations,
Security  Benefit  Life  Insurance  Company  convenants  and agrees that it will
furnish  services and facilities to Security  Distributors,  Inc. as hereinafter
set forth:

1.   Administrative and clerical personnel as may be needed from time to time to
     properly carry out the functions and duties of Security Distributors,  Inc.
     relating to the Variable Annuity and Variable Life operations.

2.   Maintain all books and records of Security Distributors, Inc. in connection
     with persons offering and selling  Variable Annuity  Contracts and Variable
     Life Insurance  Policies  funded by various  separate  accounts of Security
     Benefit Life  Insurance  Company who are  licensed as  insurance  agents of
     Security   Benefit  Life   Insurance   Company  and  are  also   Registered
     Representatives of independent broker/dealers which have Selling Agreements
     with  Security  Distributors,  Inc. Such books and records to be maintained
     and  preserved  in  conformity  with the  requirements  of Rule 17(a)-3 and
     17(a)-4 of the Securities Act of 1934 to the extent that such  requirements
     are  applicable to Variable  Annuity  Contracts and Variable Life Insurance
     Policies.

3.   All such  books  and  records  are to be  maintained  and held by  Security
     Benefit  Life  Insurance  Company  on behalf  of and as agent for  Security
     Distributors,  Inc.  and such  books  and  records  shall  remain  the sole
     property of Security Distributors, Inc.

                                       1
<PAGE>   2

4.   Such books and records  shall at all times be subject to  inspection by the
     Securities and Exchange  Commission in accordance with Section 17(a) of the
     Securities Act of 1934 and the National  Association of Securities Dealers,
     Inc.

5.   It is further  understood  and agreed  that the making of any  payments  by
     Security Benefit Life Insurance  Company to registered  representatives  of
     independent  broker/dealers  which have Selling  Agreements  with  Security
     Distributors,  Inc. are  performed as purely as  administerial  service and
     that the records in respect thereof are properly reflected on the books and
     records maintained by or for Security Distributors, Inc.

6.   Since the crediting of a payment made by a participant (applicant of owner)
     of a Variable  Annuity Contract or by an owner of a Variable Life Insurance
     Policy on the books and records maintained by or for Security Distributors,
     Inc. constitutes the sale of a security, and, therefore, a "transaction" as
     that term is used in Rule  15(c) 1-4 under the  Securities  Act of 1934,  a
     confirmation  for each such  transaction will be sent to the participant at
     or before the completion of the transaction,  and such  confirmation  shall
     reflect the facts of the  transaction,  and the form thereof will show that
     it is being sent on behalf of Security Distributors, Inc. and acting in the
     capacity of agent for Security Benefit Life Insurance Company.

7.   Security Distributors, Inc. has and does assume full responsibility for the
     securities  activities  of all persons  associated  with it who are engaged
     directly  or  indirectly  in the  Variable  Annuity  and/or  Variable  Life
     operation of Security  Benefit  Life  Insurance  Company,  each such person
     being a "person  associate"  of Security  Distributors,  Inc. as defined in
     Section 3(a)-18 of the Securities Act of 1934, and, therefore, a person for
     whom Security Distributors, Inc. has full responsibility in connection with
     training, supervision and control as contemplated by Section 15(b)(5)(E) of
     the Securities Act of 1934, provided, however, Security Distributors,  Inc.
     shall  not be  responsible  for  persons  not  associated  with it that are
     registered  broker/dealers  or who are offering or selling Variable Annuity
     Contracts or Variable Life Policies and are affiliated and registered  with
     a broker/dealer for such purposes.

ANY CHANGES in this  Agreement  shall be mutually  agreed to by both parties and
shall be in writing.

THIS  AGREEMENT  shall be in effect  as of April 1,  1987,  and shall  remain in
effect until otherwise  terminated by either party upon thirty (30) days written
notice to the other party at that party's last known address as reflected on the
records of the terminating party.

                                       2
<PAGE>   3

IN WITNESS WHEREOF,  the parties by their duly authorized officers have executed
this Agreement on this 1st day of April, 1987.

SECURITY BENEFIT LIFE INSURANCE COMPANY

By:  ARCHIE R. DYKES
    ---------------------------------------------
     Archie R. Dykes, President

ATTEST:

ROGER K. VIOLA
- -------------------------------------------------
Roger K. Viola, General Counsel and Secretary

SECURITY DISTRIBUTORS, INC.

By:  WINSLOW H. ADAMS
    ---------------------------------------------
     Winslow H. Adams, President

ATTEST:

BARBARA W. RANKIN
- -------------------------------------------------
Barbara W. Rankin, Secretary

                                       3

<PAGE>   1

[SBL Logo]
SECURITY BENEFIT LIFE
INSURANCE COMPANY
- --------------------------------------------------------------------------------
A MEMBER OF THE SECURITY                               700 SW HARRISON ST.
BENEFIT GROUP OF COMPANIES                             TOPEKA, KANSAS 66636-0001
                                                       (785) 431-3000


                                                           SBL VARIABLE PRODUCTS
                                                           BROKER/DEALER
                                                           SALES AGREEMENT


BROKER/DEALER:

EFFECTIVE DATE:

   1.  Security Benefit Life Insurance Company, of Topeka, Kansas, and its
       affiliated company, Security Distributors, Inc., hereinafter jointly
       called "SBL", hereby authorize the above-designated Broker/Dealer to
       solicit and service (1) variable annuities issued under Security Benefit
       Life Insurance Company's several Variable Annuity Accounts and (2)
       variable life insurance policies issued under Security Benefit Life
       Insurance Company's variable life accounts, each of which has been
       registered as securities under the Securities Act of 1933 with Security
       Distributors, Inc. (a member of the National Association of Securities
       Dealers, Inc.) having been designated Principal Underwriter thereof. Said
       variable annuity contracts and variable life insurance policies are
       referred to herein as "Variable products."

   2.  Broker/Dealer hereby accepts such authorization to solicit and service
       such SBL variable products and confirms that it is properly licensed to
       solicit and service such variable products for SBL and is a member in
       good standing of the National Association of Securities Dealers, Inc.,
       hereinafter called "NASD", and further agrees to notify SBL if it ceases
       to be a member of NASD.

   3.  Broker/Dealer shall have the authority to recruit, train and supervise
       registered representatives for the sale of variable products of SBL.
       Appointment of any registered representative shall be subject to prior
       approval of SBL. SBL reserves the right to require termination of any
       registered representative's right to sell SBL variable products.
       Broker/Dealer shall be responsible for any registered representative
       appointed hereunder complying with the terms, conditions and limitations
       as set forth in this Agreement. All registered representatives recruited
       by Broker/Dealer to sell SBL's variable products shall be duly licensed
       as annuity producers and/or insurance producers pursuant to applicable
       state laws and regulations. Broker/Dealer shall be responsible for any
       registered representative becoming so licensed.

   4.  Commissions on stipulated payments or premiums accepted by SBL on behalf
       of an annuitant, participant, or policyholder of a variable product
       covered by this Agreement will be in accordance with the Schedule of
       Commissions made part of this Agreement, and are in full consideration of
       all services rendered and expenses incurred hereunder by the
       Broker/Dealer or its representatives. First year commissions are payable
       when an individual variable annuity contract, group variable annuity
       certificate or variable life insurance policy is issued and paid for upon
       an application submitted through Broker/Dealer and accepted by the
       applicant thereof. Broker/Dealer is not authorized to deduct commissions
       prior to forwarding any remittance received to SBL. All checks or drafts
       received by the Broker/Dealer in regards to any variable product shall be
       made payable to Security Benefit Life Insurance Company. All compensation
       payable hereunder shall be subject to a first lien and may be reduced or
       set off as to any indebtedness owed by the Broker/Dealer to SBL. Any
       commissions paid to a third party at the request of the Broker/Dealer
       shall be deducted from the commissions payable hereunder.

   5.  Broker/Dealer agrees to be bound by the terms, conditions and limitations
       set forth in this Agreement and the rules and practices of SBL that are
       now and hereafter in force. Broker/Dealer agrees not to solicit or submit
       applications for variable products to SBL unless it and its registered
       representatives are properly licensed, and further agrees that it will
       conform to all applicable state, federal and local laws and regulations
       in conducting business under this Agreement. Both parties hereby agree to
       abide by the applicable Rules of Fair Practice of the NASD which Rules
       are incorporated herein as set forth in full. The signing of this
       Agreement and the purchase of variable products pursuant thereto is a
       representation of SBL that Broker/Dealer is a properly registered
       Broker/Dealer under the Securities and Exchange Act of 1934.

   6.  Neither the Broker/Dealer nor its representatives are authorized to make
       any representations concerning the variable products, its sponsor (SBL),
       the principal underwriter (Security Distributors, Inc.) or the underlying
       mutual funds except those contained in the applicable current
       prospectuses and in the printed information furnished by SBL.
       Broker/Dealer agrees not to use any other advertising or sales material
       relating to the variable products unless specifically approved in writing
       by SBL.

<PAGE>   2

   7.  Broker/Dealer is not authorized and has no authority (a) to make, alter
       or discharge any contract for or on behalf of SBL, (b) endorse any check
       or draft payable to SBL, (c) to accept any variable product consideration
       after the initial remittance, (d) to waive or modify any prospectus,
       contract, policy or application provision, condition or obligation, and
       (e) to extend the time for payment of any variable product consideration
       or accept payment of any past due variable product consideration.

   8.  This Agreement shall not create or be construed as creating an
       Employer-Employee or Master-Servant relationship between Broker/Dealer
       and SBL.

   9.  Broker/Dealer agrees to keep accurate records on all business written and
       moneys received under this Agreement. Such records may be examined by SBL
       or its representatives at any reasonable time. All moneys and documents
       belonging to SBL in possession of Broker/Dealer shall be held in trust
       and shall not be used or commingled with funds or property belonging to
       Broker/Dealer and shall be promptly remitted to SBL. Broker/Dealer agrees
       to be responsible for any county or municipal occupational or privilege
       fee, tax or license which may be required of Broker/Dealer or its
       representatives as a result of business submitted under this Agreement.

  10.  Neither this Agreement nor the compensation payable hereunder shall be
       assigned or pledged without the written consent of SBL. SBL reserves the
       right to reject any assignment or pledge.

  11.  No consent or change in this agreement shall be binding upon SBL unless
       in writing and signed by the president, vice president, secretary or an
       assistant secretary of SBL. Any failure of SBL to insist upon strict
       compliance with the provisions of this Agreement shall not constitute or
       be construed as a waiver thereof.

  12.  SBL shall have the right to decline or modify any application or to
       refund any variable product consideration or any portion thereof, and
       Broker/Dealer shall refund immediately upon request any commissions
       received in connection therewith. All applications for variable products
       are subject to acceptance by SBL and become effective only upon
       confirmation by SBL. Broker/Dealer agrees to return to SBL without delay
       any commissions received on a variable product, contract or policy if
       such contract or policy is tendered for redemption within seven (7)
       business days after acceptance of the application by SBL.

  13.  Variable products, contracts and policies will be offered to the public
       at the price as outlined in the applicable variable product's current
       prospectus. All cash surrenders require the written request and consent
       of the contract or policy owner and such surrenders will conform to the
       provisions set forth in the applicable contract or policy.

  14.  SBL has been and is designated Administrative Agent of Security
       Distributors, Inc. to perform duties, including recordkeeping and payment
       of commissions, necessary under this Agreement in connection with the
       solicitation, sales and servicing of variable annuity contracts sold and
       solicited hereunder.

  15.  SBL reserves the right to amend or terminate this Agreement at any time.
       In the event Broker/Dealer ceases to be a member in good standing of the
       NASD, this Agreement shall terminate automatically without notice. After
       termination Broker/Dealer upon request, shall without delay pay in full
       any indebtedness owed to SBL and return all SBL property to their home
       office. In the event Broker/Dealer ceases doing business in such manner
       that servicing would be impossible, SBL reserves the right to reassign
       the business and service fees to another Broker/Dealer. Should
       Broker/Dealer fail to comply with any of the terms of this Agreement, SBL
       reserves the right to terminate this Agreement and terminate vesting as
       to all commissions payable thereunder.

  16.  This Agreement is effective as of the Effective Date set forth above and
       replaces any previous agreement between the parties relating to variable
       products of SBL except as to any commissions payable thereunder.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date set forth above.

SECURITY DISTRIBUTORS, INC.                 BROKER/DEALER

By 
   --------------------------------         ------------------------------------
      Title:                                      (Signature of Principal)

                                            ------------------------------------
                                                     (Name of Principal)
SECURITY BENEFIT LIFE INSURANCE COMPANY

By
   --------------------------------         ------------------------------------
      Title:                                 Title:

                                  [ ] Individual [ ] Corporation [ ] Partnership

                                  Tax Identification No. 
                                                        ------------------------
<PAGE>   3
[SBL LOGO]
SECURITY BENEFIT LIFE
INSURANCE COMPANY
- --------------------------------------------------------------------------------
A MEMBER OF THE SECURITY                               700 SW HARRISON ST.
BENEFIT GROUP OF COMPANIES                             TOPEKA, KANSAS 66636-0001
                                                       (785) 431-3000


                                                       SBL VARIABLE PRODUCTS
                                                       COMMISSION SCHEDULE

   
                                                    VARIFLEX LS VARIABLE ANNUITY
    


Broker/Dealer:

EFFECTIVE DATE OF COMMISSION SCHEDULE:

COMMISSIONS - This Commission Schedule is hereby made a part of and amends the
SBL Variable Products Agreement (the "Agreement") with Security Benefit Life
Insurance Company and Security Distributors, Inc., (hereinafter jointly called
"SBL") and commissions payable hereunder are subject to the provisions contained
in the Agreement and this Commission Schedule. Minimum Purchase Payments are as
set out in the applicable prospectus and contract. Commissions to a
Broker/Dealer are equal to the percentage of Purchase Payments written by that
Broker/Dealer, as follows:

1.   The rate of commissions paid on Purchase Payments made with respect to each
     particular Variflex LS Contract will be based on the length of time since 
     the Contract Date that the Purchase Payment was received by SBL and the
     issue age of the Owner (or of the Annuitant if the contract is owned by a
     non-natural person) as set forth below. 

<TABLE>
<CAPTION>
                                                      TABLE A                 TABLE B
 NUMBER OF MONTHS SINCE THE                       ISSUE AGE 0 - 85        ISSUE AGE 86 - 90
       CONTRACT DATE                              COMMISSION RATE*         COMMISSION RATE*
 <S>                                              <C>                     <C>
            0 through the 6th month                      1.35%                   0.80%
            7th month through the 9th month              0.50%                   0.40%
            10th month through the 12th month            0.25%                   0.20%
            13th month and beyond                        0.00%                   0.00%
</TABLE>

     *No Commission will be paid on Purchase Payments made which are less than
     the minimum specified in the prospectus.

2.   ASSET BASED COMMISSIONS: SBL will pay an asset based commission at the end
     of each calendar month on the aggregate Contract Value of Variflex LS
     Contracts for which the initial Purchase Payment is more than 12 months
     old. The amount of the asset based commission is equal to 1/12th of 1.00%
     of such aggregate Contract Value for which the issue age of the Owner (or
     the Annuitant if a Contract is owned by a non-natural person) is 0 through
     85 and 1/12th of 0.80% of such aggregate Contract Value for which the
     issue age of the Owner (or of the Annuitant if a Contract is owned by a
     non-natural person) is 86 through 90, written by the Broker/Dealer, as of
     the calendar month end. No asset based commission will be paid on
     Contracts which have annuitized under an immediate life contingent annuity
     option. An Annuitization Fee may be available as discussed in paragraph 5.
        
3.   CONTRACT YEAR: For the purpose of this Commission Schedule, the term
     "Contract Year" shall be measured from the date the first Purchase Payment
     is credited to the Contract.

4.   TRANSFER OF SBL CONTRACT VALUES:  No commission (including asset based
     commission) is paid on the transfer of cash, loan or surrender value of a
     life insurance or annuity contract issued by SBL or other members of The
     Security Benefit Group of Companies applied to a Variflex LS Contract under
     this Commission Schedule.

     Death Benefit Applied to an Annuity Option:  In the event that a
     beneficiary under a Variflex LS contract under this Commission Schedule
     applies the death benefit as to one of the annuity forms under the
     Contract, no commission will be payable upon such application.  An
     Annuitization fee may be available as discussed in paragraph 5 below,

5.   ANNUITIZATION:  An Annuitization Fee will be paid to Marketing
     Organizations who secure from the Contract Owner (or his or her
     beneficiary) the proper forms and information to commence an immediate life
     contingent annuity option and has significantly assisted the client and
     SBL in such settlement.  The Annuitization Fee will be equal to the amount
     applied to such life contingent annuity option times the applicable
     percentage amount below:

          Contract Year*             Fixed Amount            Variable Amount
     -----------------------     --------------------     --------------------
              2                           2%                      .50%
              3                           3%                        1%
      4th year and later                  4%                        2%

     *  AN ANNUITIZATION FEE WILL NOT BE PAID IF ANNUITIZATION OCCURS BEFORE
     THE END OF THE FIRST CONTRACT YEAR.

6.   COMMISSION CHARGEBACK PROVISIONS:

     Full Withdrawals from the Contract:  Any commissions paid on Purchase
     Payments received will be charged back to the Broker/Dealer in the event
     of a full withdrawal within the first Contract Year.

     Partial Withdrawals in the First Contract Year:  Commission chargebacks
     will be made in the first Contract Year on partial withdrawals which exceed
     the Free Amount.  The amount of the chargeback will be equal to the amount
     of the withdrawal which exceeds the Free Amount, multiplied by the average
     commission rate paid.  The Free Amount is 10% of the Purchase Payments
     made as of the date of the partial withdrawal, reduced by any
     previous withdrawals that were not subject to a chargeback.  The average
     commission rate paid is equal to the total commission paid on the Contract
     divided by the total Purchase Payments made as of the date of the partial
     withdrawal.

     Death Benefit Paid in First Contract Year:  Any commission paid on a
     Contract under which a death benefit is paid during the first Contract
     Year shall be charged back to the Broker/Dealer if the age of any Contract
     Owner (or Annuitant if the Owner is a non natural person) on the Contract
     Date was 76 or older.

7.   CHANGE OF COMMISSION SCHEDULE:  Notwithstanding any other provision of the
     Agreement to the contrary, the following provisions shall apply.  SBL
     reserves the right at any time, with or without notice, to change,
     modify or discontinue the commissions, asset based commissions or any
     other compensation payable under the Commission Schedule.  However, any
     such change will not apply to the commissions or asset based commissions
     applicable to Contracts issued before the effective date of such change.

8.   CHANGE OF DEALER:  A Contract Owner shall have the right to designate a
     new broker/dealer, or to terminate a broker/dealer without designating a
     replacement, by sending written notice of such designation or termination
     to SBL.  After receipt by SBL of notice of such a designation or
     termination, no further commissions, asset based commissions or any other
     compensation shall be payable to the Broker/Dealer on Purchase Payments
     received by SBL for the Contract or on assets maintained in the Contract.

9.   TERMINATION OF THE AGREEMENT/VESTING:  In the event of termination of the
     Agreement for any reason, all rights to receive commissions, asset based
     commissions or other compensation under this Commission Schedule shall
     terminate, unless each of the following requirements is met:  (i) the
     Agreement has been in force for at least one year; (ii) Broker/Dealer is at
     the time such commissions are payable properly licensed to receive such
     commissions; (iii) Broker/Dealer is providing service to the Contract
     Owner and performing its duties in a manner satisfactory to SBL, (iv)
     commissions paid to Broker/Dealer in the previous calendar year amounted
     to at least $500; and (v) Broker/Dealer has not been terminated, nor a new
     broker/dealer designated, by the Contract Owner as set forth in paragraph
     8 above.

THIS COMMISSION SCHEDULE  replaces any previous Commission Schedule for the
Variable Annuity Contract listed above as of the Effective Date set forth
above.


<TABLE>
<CAPTION>
<S>                                            <C>
SECURITY DISTRIBUTORS, INC.                    SECURITY BENEFIT LIFE INSURANCE COMPANY

By:     RICHARD K. RYAN                        By:            RICHARD K. RYAN
   ------------------------                       ------------------------------------

Title:   PRESIDENT                             Title:     SENIOR VICE PRESIDENT - SALES
      ---------------------                           ---------------------------------                                   
</TABLE>

9485 (R7-97)        
        

<PAGE>   1

                     SECURITY BENEFIT LIFE INSURANCE COMPANY

                   A MUTUAL COMPANY/FOUNDED IN 1892/TOPEKA, KS



               FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT

THE COMPANY'S PROMISE

In  consideration  for  the  Purchase  Payments  and the  attached  application,
Security Benefit Life Insurance Company (the "Company") will pay the benefits of
this Contract according to its provisions.

LEGAL CONTRACT

PLEASE READ YOUR CONTRACT  CAREFULLY.  It is a legal Contract  between the Owner
and the Company. The Contract's table of contents is on page 2.

FREE LOOK PERIOD-RIGHT TO CANCEL

IF FOR ANY REASON THE OWNER IS NOT SATISFIED WITH THIS  CONTRACT,  HE OR SHE MAY
RETURN IT TO THE  COMPANY  WITHIN 10 DAYS  FROM THE DATE OF  RECEIPT.  IT MAY BE
RETURNED BY DELIVERING OR MAILING IT TO THE COMPANY. IF RETURNED,  THIS CONTRACT
SHALL BE DEEMED  VOID FROM THE  CONTRACT  DATE.  THE  COMPANY  WILL  REFUND  ANY
PURCHASE  PAYMENTS  MADE AND  ALLOCATED  TO THE FIXED  ACCOUNT  AND WILL  REFUND
SEPARATE  ACCOUNT  CONTRACT VALUE AS OF THE DATE THE RETURNED POLICY IS RECEIVED
BY THE COMPANY.

Signed for Security Benefit Life Insurance Company on the Contract Date.

       ROGER K. VIOLA                                  HOWARD R. FRICKE
          Secretary                                        President

                      A BRIEF DESCRIPTION OF THIS CONTRACT

This is a FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT.

* Purchase  Payments may be made until the earlier of the Annuity  Start Date or
  termination of the Contract.

* A Death Benefit may be paid prior to the Annuity  Start Date  according to the
  Contract  provisions.

* Annuity Payments begin on the Annuity Start Date using the method specified in
  this Contract.

* This Contract is Participating.

ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT,  WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT.  THERE ARE NO
GUARANTEED  MINIMUM  PAYMENTS OR CASH VALUES.  (SEE "CONTRACT  VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)

                                   [SBL LOGO]
                     SECURITY BENEFIT LIFE INSURANCE COMPANY
               A Member of The Security Benefit Group of Companies
                     P.O. Box 750497, Topeka, KS 66675-0497
                  700 SW Harrison Street, Topeka, KS 66636-0001
                                 1-800-888-2461

Form V6022 (10-94)

<PAGE>   2


- --------------------------------------------------------------------------------
                                TABLE OF CONTENTS
- --------------------------------------------------------------------------------

                                                                           Page

CONTRACT SPECIFICATIONS................................................      3
DEFINITIONS............................................................    4-6
GENERAL PROVISIONS.....................................................    7,8
     The Contract......................................................      7
     Compliance........................................................      7
     Misstatement of Age and Sex.......................................      7
     Evidence of Survival..............................................      7
     Incontestability..................................................      7
     Assignment........................................................      7
     Transfers...................... ..................................      8
     Claims of Creditors...............................................      8
     Nonforfeiture Values..............................................      8
     Participation.....................................................      8
     Statements........................................................      8

OWNERSHIP, ANNUITANT AND BENEFICIARY PROVISIONS........................      9
     Ownership.........................................................      9
     Joint Ownership...................................................      9
     Annuitant.........................................................      9
     Primary and Secondary Beneficiaries...............................      9
     Ownership and Beneficiary Changes.................................      9

PURCHASE PAYMENT PROVISIONS............................................     10
     Flexible Purchase Payments........................................     10
     Purchase Payment Limitations......................................     10
     Purchase Payment Allocation.......................................     10
     Place of Payment..................................................     10

CONTRACT VALUE AND EXPENSE PROVISIONS..................................  10-12
     Contract Value....................................................     10
     Fixed Account Contract Value......................................     10
     Fixed Account Interest Crediting..................................     11
     Separate Account Contract Value...................................     11
     Accumulation Unit Value...........................................     11
     Determining Accumulation Units....................................     11
     Mortality and Expense Risk Charge.................................     12
     Premium Tax Expense...............................................     12
     Administrative Charge.............................................     12
     Mutual Fund Expenses..............................................     12

WITHDRAWAL PROVISIONS..................................................  12,13
     Withdrawals.......................................................  12,13
     Withdrawal Value..................................................     13
     Systematic Withdrawals............................................     13
     Date of Request...................................................     13
     Payment of Withdrawal Benefits....................................     13

DEATH BENEFIT PROVISIONS...............................................  14,15
     Death Benefit.....................................................     14
     Proof of Death....................................................     14
     Distribution Rules................................................  14,15

ANNUITY PAYMENT PROVISIONS
     Annuity Start Date................................................     15
     Change of Annuity Start Date......................................     15
     Annuity Start Amount..............................................     15
     Annuity Tables....................................................     16
     Annuity Payments..................................................     16
     Change of Annuity Option..........................................     16
     Fixed Annuity Payments............................................     16
     Variable Annuity Payments.........................................     16
     Annuity Units.....................................................  16,17
     Net Investment Factor.............................................     17
     Alternate Annuity Option Rates....................................     17
     Annuity Options...................................................     18

ANNUITY TABLES.........................................................     19

AMENDMENTS OR ENDORSEMENTS, if any

                                      -2-

<PAGE>   3


- --------------------------------------------------------------------------------
              VARIFLEX LS VARIABLE ANNUITY CONTRACT SPECIFICATIONS
- --------------------------------------------------------------------------------

OWNER NAME:  John A. Doe                CONTRACT NUMBER:  Specimen

OWNER DATE OF BIRTH:  10-30-1953        CONTRACT DATE:  6-30-1993

JOINT OWNER NAME:  Mary K. Doe          ISSUE DATE:  6-30-1993

JOINT OWNER DATE OF BIRTH:  7-18-1981   ANNUITY START DATE:  7-1-2025*

ANNUITANT NAME:  Betty M. Doe           PLAN:  Non-Qualified

ANNUITANT DATE OF BIRTH:  5-13-1987     ASSIGNMENT: This policy may be assigned.
                                        See Assignment Provision of your Policy.

ANNUITANT'S SEX:  Female

PRIMARY BENEFICIARY NAME:

Linda L. Doe

- --------------------------------------------------------------------------------

INITIAL PURCHASE PAYMENT...............  $25,000

MINIMUM SUBSEQUENT PURCHASE PAYMENTS...  $1,000

MINIMUM SYSTEMATIC WITHDRAWAL..........  $100

MORTALITY AND EXPENSE RISK CHARGE......  1.25% Annually

ADMINISTRATION CHARGE..................  .15% Annually

GUARANTEED FIXED ACCOUNT RATE..........  3%

ANNUITY OPTION.........................  Life with 10-Year Fixed Period Option*

SUBACCOUNTS:
   Money Market Subaccount
   High Grade Income Subaccount
   High Yield Subaccount
   Global Aggressive Subaccount
   Growth-Income Subaccount
   Equity Income Subaccount
   Managed Asset Allocation Subaccount
   Specialized Asset Allocation Subaccount
   Growth Subaccount
   Value Subaccount
   Worldwide Equity Subaccount
   Social Awareness Subaccount
   Emerging Growth Subaccount
   Small Cap Subaccount

METHOD FOR DEDUCTIONS:

   Deductions  for  Premium  Taxes,  and any  unallocated  partial  withdrawals,
   including Systematic Withdrawals, will be made sequentially from the Contract
   Value in descending order of the Subaccounts  listed above. The value of each
   account will be depleted before the next is charged. The Fixed Account is the
   last Account charged.

*  The Owner may select the Annuity Start Date and the Annuity  Option.  If no
   Annuity Start Date or Annuity  Option is selected by the Owner,  they will be
   assigned automatically.

                                      -3-
V6022 A (R5-97)
<PAGE>   4


- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------

ACCOUNT
     An Account is one of the Subaccounts or the Fixed Account.

ACCUMULATION UNIT
     The  Accumulation  Unit is a unit of  measure.  It is used to  compute  the
     Separate Account Contract Value prior to the Annuity Start Date. It is also
     used to compute the Variable Annuity Payments for Annuity Options 5 and 6.

ANNUITANT
     The  Annuitant  is the person  named by the Owner on whose life the Annuity
     Payments  depend for Annuity  Options 1 through 4. The  Annuitant  receives
     Annuity Payments under this Contract.  Please see "Annuitant" provisions on
     page 9.

ANNUITY OPTION
     An  Annuity  Option is a set of  provisions  that form the basis for making
     Annuity  Payments.  The Annuity  Option is set prior to the  Annuity  Start
     Date. Please see "Annuity Options" on page 18.

ANNUITY START DATE
     The Annuity Start Date is the date on which Annuity  Payments are scheduled
     to begin.  This date may be changed by the Owner. The Annuity Start Date is
     shown on Page 3. Please see "Annuity Start Date" on page 15.

ANNUITY UNIT
     The  Annuity  Unit is a unit of measure  used to compute  Variable  Annuity
     Payments for Annuity Options 1 through 4.

AUTOMATIC TRANSFERS
     Automatic  Transfers  are  Transfers  among the  Subaccounts  and the Fixed
     Account.  Such transfers are made  automatically on a periodic basis by the
     Company at the written request of the Owner. The Company reserves the right
     to discontinue, modify or suspend Automatic Transfers.

COMPANY
     The Company is Security  Benefit Life Insurance  Company,  P.O. Box 750497,
     Topeka, Kansas 66675-0497.

CONTRACT ANNIVERSARY
     A Contract Anniversary is a 12-month anniversary of the Contract Date.

CONTRACT DATE
     The Contract  Date is the date the Contract  begins.  The Contract  Date is
     shown on page 3.

CONTRACT YEAR
     Contract Years are measured from the Contract Date.

CURRENT INTEREST
     The Company may in its discretion pay Current Interest on the Fixed Account
     at a rate that  exceeds  the  Guaranteed  Rate shown on page 3. The Company
     will declare the rate of Current interest, if any, from time to time.

DESIGNATED BENEFICIARY

     Upon the death of the Owner or Joint Owner, the Designated Beneficiary will
     be the  first  person  on the  following  list  who is alive on the date of
     death:

     1.   Owner;

     2.   Joint Owner;

     3.   Primary Beneficiary;

     4.   Secondary Beneficiary;

     5.   Annuitant; and

     6.   the Owner's estate if no one listed above is alive.

                                      -4-
V6022 B (10-94)
<PAGE>   5


- --------------------------------------------------------------------------------
DEFINITIONS (Continued)
- --------------------------------------------------------------------------------

DESIGNATED  BENEFICIARY  (Continued)
     The Designated  Beneficiary  receives a death benefit upon the death of the
     Owner prior to the Annuity Start Date.  Please see  "Ownership,  Annuitant,
     and  Beneficiary  Provisions" on page 9 and "Death  Benefit  Provisions" on
     pages 14 and 15.

FIXED ACCOUNT
     The Fixed Account is part of the  Company's  general  account.  The Company
     manages the general  account and guarantees that it will credit interest on
     Fixed  Account  Contract  Value at an  annual  rate at  least  equal to the
     Guaranteed Rate. This Rate is shown on page 3.

GUARANTEE PERIOD
     Current interest,  if declared, is fixed for rolling periods of one or more
     years,  referred to as Guarantee  Periods.  The Company may offer Guarantee
     Periods of different  durations.  The Guarantee  Period that applies to any
     Fixed  Account  Contract  Value:  (1) starts on the date that such Contract
     Value is allocated to the Fixed Account pursuant to: (a) a Purchase Payment
     Received by the Company;  or (b) a Transfer to the Fixed  Account;  and (2)
     ends on the last day of the same  month in the year in which the  Guarantee
     Period expires.  When any Guarantee Period expires,  a new Guarantee Period
     shall  start  for  such  Contract  Value  on the  date  that  follows  such
     expiration date. Such period shall end on the immediately preceding date in
     the year in which the Guarantee  Period  expires.  For example,  assuming a
     one-year Guarantee Period,  Contract Value transferred to the Fixed Account
     on June 1 would have a Guarantee Period starting on that date and ending on
     June 30 of the  following  year. A new  Guarantee  Period for such Contract
     Value  would  start  on  July 1 of  that  year  and  end on  June 30 of the
     following year.

HOME OFFICE
     The address of the Company's Home Office is Security Benefit Life Insurance
     Company, P.O. Box 750497, Topeka, Kansas 66675-0497.

ISSUE DATE
     The  Issue  Date is the date the  Company  uses to  determine  the date the
     Contract becomes  incontestable.  The Issue Date is shown on Page 3. Please
     see "Incontestability" on page 7.

JOINT OWNER
     The  Joint  Owner,  if any,  shares an  undivided  interest  in the  entire
     Contract  with the  Owner.  The Joint  Owner,  if any,  is named on page 3.
     Please see "Joint Ownership" provisions on page 9.

NONNATURAL PERSON
     Any  group  or  entity  that is not a  living  person,  such as a trust  or
     corporation.

OWNER
     The Owner is the person who possesses  all rights under the  Contract.  The
     Owner is named on page 3. Please see "Ownership" provisions on page 9.

PREMIUM TAX
     Any Premium  Taxes levied by a state or other  governmental  entity will be
     charged  against  this  Contract.  When  Premium Tax is assessed  after the
     Purchase Payment is applied, it will be deducted as described on page 3.

PURCHASE PAYMENT
     A Purchase  Payment is money  Received  by the  Company  and applied to the
     Contract.

RECEIVED BY THE COMPANY
     The phrase  "Received by the Company"  means receipt by the Company in good
     order at its Home Office, P.O. Box 750497, Topeka, Kansas 66675-0497.

                                      -5-

<PAGE>   6


- --------------------------------------------------------------------------------
DEFINITIONS (Continued)
- --------------------------------------------------------------------------------

SEPARATE ACCOUNT
     Variable  Annuity  Account  VIII (the  "Separate  Account")  is a  separate
     account  established  and  maintained  by the Company under Kansas law. The
     Separate Account is registered with the Securities and Exchange  Commission
     under the Investment Company Act of 1940 as a Unit Investment Trust. It was
     established  by the  Company to support  variable  annuity  contracts.  The
     Company owns the assets of the Separate  Account and  maintains  them apart
     from the assets of its general account and its other separate accounts. The
     assets  held in the  Separate  Account  equal  to the  reserves  and  other
     Contract  liabilities  with  respect  to the  Separate  Account  may not be
     charged with  liabilities  arising from any other  business the Company may
     conduct.

     Income and  realized  and  unrealized  gains and losses  from assets in the
     Separate Account are credited to, or charged against,  the Separate Account
     without  regard to the income,  gains or losses from the Company's  general
     account or its other  separate  accounts.  The Separate  Account is divided
     into Subaccounts  shown on page 3. Income and realized and unrealized gains
     and losses  from  assets in each  Subaccount  are  credited  to, or charged
     against,  the Subaccount  without regard to income,  gains or losses in the
     other  Subaccounts.  The  Company  has the right to transfer to its general
     account  any  assets  of the  Separate  Account  that are in  excess of the
     reserves  and other  Contract  liabilities  with  respect  to the  Separate
     Account.  The value of the assets in the Separate Account on each Valuation
     Date are determined at the end of each Valuation Date.

SUBACCOUNT NET ASSET VALUE
     The  Subaccount Net Asset Value is equal to: (1) the net asset value of all
     shares of the underlying  mutual fund held by the Subaccount;  plus (2) any
     cash or other assets; less (3) all liabilities of the Subaccount.

SUBACCOUNTS
     The Separate Account is divided into Subaccounts  which invest in shares of
     mutual funds.  Each Subaccount may invest its assets in a separate class or
     series of a designated  mutual fund or funds.  The Subaccounts are shown on
     page 3. Subject to the regulatory  requirements  then in force, the Company
     reserves the right to:

     1.   change or add designated mutual funds or other investment vehicles;

     2.   add, remove or combine Subaccounts;

     3.   add,  delete or make  substitutions  for  securities  that are held or
          purchased by the Separate Account or any Subaccount;

     4.   operate the Separate Account as a management investment company;

     5.   combine  the  assets  of the  Separate  Account  with  other  Separate
          Accounts of the Company or an affiliate thereof;

     6.   restrict or eliminate  any voting  rights of the Owner with respect to
          the Separate Account or other persons who have voting rights as to the
          Separate Account; and

     7.   terminate and liquidate any Subaccount.

     If any of these changes result in a material change to the Separate Account
     or a  Subaccount,  the Company  will  notify the Owner of the  change.  The
     Company  will not change the  investment  policy of any  Subaccount  in any
     material respect without  complying with the filing and other procedures of
     the insurance regulators of the state of issue.

VALUATION DATE
     A Valuation  Date is each day the New York Stock Exchange and the Company's
     Home Office are open for business.

VALUATION PERIOD
     A Valuation  Period is the interval of time from one Valuation  Date to the
     next Valuation Date.

                                      -6-
V6022 C (10-94)
<PAGE>   7


- --------------------------------------------------------------------------------
GENERAL PROVISIONS
- --------------------------------------------------------------------------------

THE CONTRACT
     The entire  Contract  between  the Owner and the  Company  consists of this
     Contract,  the attached  Application,  and any Amendments,  Endorsements or
     Riders to the Contract. All statements made in the Application will, in the
     absence of fraud,  as ruled by the a court of  competent  jurisdiction,  be
     deemed  representations  and  not  warranties.  The  Company  will  use  no
     statement  made by or on behalf of the Owner or the  Annuitant to void this
     Contract  unless  it is  in the  written  Application.  Any  change  in the
     Contract can be made only with the written consent of the President, a Vice
     President, or the Secretary of the Company.

     The Purchase  Payment(s)  and the  Application  must be  acceptable  to the
     Company  under its  rules and  practices.  If they are not,  the  Company's
     liability shall be limited to a return of the Purchase Payment(s).

COMPLIANCE
     The Company reserves the right to make any change to the provisions of this
     Contract  to comply  with or give the Owner the  benefit of any  federal or
     state statute,  rule or regulation.  This includes,  but is not limited to,
     requirements  for annuity  contracts under the Internal Revenue Code or the
     laws of any state.  The Company  will  provide the Owner with a copy of any
     such change and will also file such a change with the insurance  regulatory
     officials of the state in which the Contract is delivered.

MISSTATEMENT OF AGE AND SEX
     If the age or sex of the Annuitant has been  misstated,  payments  shall be
     adjusted, when allowed by law, to the amount which would have been provided
     for  the  correct  age or sex.  Proof  of the  age of an  Annuitant  may be
     required at any time, in a form  suitable to the Company.  If payments have
     already commenced and the misstatement has caused an underpayment, the full
     amount  due  will  be  paid  with  the  next  scheduled  payment.   If  the
     misstatement  has caused an  overpayment,  the amount due will be  deducted
     from one or more future payments.

EVIDENCE OF SURVIVAL
     When any payments under this Contract  depend on the payee being alive on a
     given date,  proof that the payee is living may be required by the Company.
     Such proof must be in a form  accepted by the Company,  and may be required
     prior to making the payments.

INCONTESTABILITY
     This  Contract  will not be  contested  after it has been in force  for two
     years from the Issue Date during the life of the Owner.

ASSIGNMENT
     Please refer to page 3 to see if the Contract may be assigned. If it may be
     assigned,  no Assignment  under this Contract is binding unless Received by
     the  Company in  writing.  The Company  assumes no  responsibility  for the
     validity, legality, or tax status of any Assignment. The Assignment will be
     subject to any payment made or other action taken by the Company before the
     Assignment is Received by the Company. Once filed, the rights of the Owner,
     Annuitant  and  Beneficiary  are  subject to the  Assignment.  Any claim is
     subject to proof of interest of the assignee.

                                      -7-

<PAGE>   8


- --------------------------------------------------------------------------------
GENERAL PROVISIONS (Continued)
- --------------------------------------------------------------------------------

TRANSFERS
     The  Owner  may  Transfer  Contract  Value  among  the  Fixed  Account  and
     Subaccounts subject to the following.

     Transfers are not allowed  within 30 days of the Annuity Start Date.  After
     the  Annuity  Start Date,  for  Annuity  Options 1 through 4, the Owner may
     Transfer Contract Value only among Subaccounts.

     The Company reserves the right to: (1) limit the amount that may be subject
     to Transfer to $1,000,000 per Transfer  without Home Office  approval;  (2)
     limit the number of  Transfers  allowed each  Contract  Year to 14; and (3)
     suspend  Transfers.  Transfers must be at least  $1,000.00 or, if less; (i)
     the remaining balance in a Subaccount,  or (ii) the amount of Fixed Account
     Contract Value the Guarantee  Period of which expires in the calendar month
     in which the Transfer is effected.

     Contract Value may be  transferred  from the Fixed Account only: (1) during
     the calendar month in which the applicable  Guarantee  Period expires;  (2)
     pursuant to an  Automatic  Transfer.  Transfers of Fixed  Account  Contract
     Value shall be made: (1) first from Fixed Account  Contract Value for which
     the  Guarantee  Period  expires  during  the  calendar  month in which  the
     Transfer is effected;  (2) then in the order that starts with Fixed Account
     Contract  Value which has the longest  amount of time before its  Guarantee
     Period  expires;  and (3) ends with that which has the least amount of time
     before its Guarantee Period expires.

     The Company will effect a Transfer to or from a Subaccount  on the basis of
     Accumulation  Unit Value (or Annuity Unit Value)  determined  at the end of
     the Valuation  Period in which the Transfer is effected.  The Company will
     effect a  Transfer  from the Fixed  Account  on the basis of Fixed  Account
     Contract Value at the end of the Valuation  Period in which the Transfer is
     effected.

     The Company  reserves the right to delay  Transfers  from the Fixed Account
     for up to 6 months as required by most states.  The Company will notify you
     if there will be a delay.

CLAIMS OF CREDITORS
     The Contract  Value and other  benefits under this Contract are exempt from
     the claims of creditors of the Owner to the extent allowed by law.

NONFORFEITURE VALUES
     The Death  Benefits,  Withdrawal  Values and Annuity  Payout Values will at
     least equal the minimum required by law.

PARTICIPATION
     The  Company  is a  mutual  life  insurance  company.  Therefore,  it  pays
     dividends on some of its  contracts.  However,  the Company does not expect
     dividends to become payable on this  Contract.  At the end of each Contract
     Year the Company will determine the Contract's dividend,  if any. The Owner
     may  choose to have it:  (1) added to the  Contract  Value;  or (2) paid in
     cash.  If no choice is made,  any  dividend  will be added to the  Contract
     Value.

STATEMENTS
     At least  once  each  Contract  Year the  Owner  shall be sent a  statement
     including the current Contract Value and any other information  required by
     law.  The  Owner  may  send a  written  request  for a  statement  at other
     intervals. The Company may charge a reasonable fee for such statements.

                                      -8-
V6022 D (R6-96)
<PAGE>   9


- --------------------------------------------------------------------------------
OWNERSHIP, ANNUITANT AND BENEFICIARY PROVISIONS
- --------------------------------------------------------------------------------

OWNERSHIP
     During the Owner's  lifetime,  all rights and privileges under the Contract
     may be exercised  only by the Owner.  If the purchaser  names someone other
     than  himself  or  herself  as Owner,  the  purchaser  has no rights in the
     Contract. No Owner may be older than age 90 on the Contract Date.

JOINT OWNERSHIP
     If a Joint  Owner is named in the  application,  then the  Owner  and Joint
     Owner share an undivided  interest in the entire  Contract as joint tenants
     with rights of survivorship. When an Owner and Joint Owner have been named,
     the Company will honor only  requests for changes and the exercise of other
     Ownership rights made by both the Owner and Joint Owner. When a Joint Owner
     is named,  all  references to "Owner"  throughout  this Contract  should be
     construed  to  mean  both  the  Owner  and  Joint  Owner,  except  for  the
     "Statements"  provision  on page 8 and the "Death  Benefit  Provisions"  on
     pages 14 and 15.

ANNUITANT
     The Annuitant is named on page 3. The Owner may change the Annuitant  prior
     to the  Annuity  Start  Date.  The  request for this change must be made in
     writing  and  Received by the Company at least 30 days prior to the Annuity
     Start Date.  No annuitant may be named who is more than 90 years old on the
     Contract Date. When the Annuitant dies prior to the Annuity Start Date, the
     Owner  must  name a new  Annuitant  within 30 days or,  if  sooner,  by the
     Annuity Start Date, except where the Owner is a Nonnatural Person. If a new
     Annuitant is not named, the Owner becomes the Annuitant.

PRIMARY AND SECONDARY BENEFICIARIES
     The  Primary  Beneficiary  is named on page 3. The  Owner  may  change  any
     Beneficiary as described in "Ownership and  Beneficiary  Changes" below. If
     the Primary Beneficiary dies prior to the Owner, the Secondary  Beneficiary
     becomes the Primary Beneficiary.  Unless the Owner directs otherwise,  when
     there  are two or more  Primary  Beneficiaries,  they  will  receive  equal
     shares.

OWNERSHIP AND BENEFICIARY CHANGES
     Subject to the terms of any existing  Assignment,  the Owner may name a new
     Owner, a new Primary  Beneficiary or a new Secondary  Beneficiary.  Any new
     choice of Owner,  Primary Beneficiary or Secondary  Beneficiary will revoke
     any prior  choice.  Any change must be made in writing and  recorded at the
     Home  Office.  The change will become  effective as of the date the written
     request  is  signed,  whether  or not the  Owner is  living at the time the
     change is  recorded.  A new  choice of  Primary  Beneficiary  or  Secondary
     Beneficiary  will not  apply to any  payment  made or  action  taken by the
     Company  prior to the time it was  recorded.  The  Company  may require the
     Contract be returned so these changes may be made.

                                      -9-

<PAGE>   10


- --------------------------------------------------------------------------------
PURCHASE PAYMENT PROVISIONS
- --------------------------------------------------------------------------------

FLEXIBLE PURCHASE PAYMENTS
     The Contract becomes in force when the initial Purchase Payment is applied.
     The Owner is not  required to continue  Purchase  Payments in the amount or
     frequency  originally planned.  The Owner may: (1) increase or decrease the
     amount of Purchase Payments,  subject to any Contract limits; or (2) change
     the  frequency  of Purchase  Payments.  A change in  frequency or amount of
     Purchase Payments does not require a written request.

PURCHASE PAYMENT LIMITATIONS
     Purchase Payments  exceeding  $1,000,000 will not be accepted without prior
     approval by the Company.  The Minimum Subsequent Purchase Payment amount is
     shown on page 3.

PURCHASE PAYMENT ALLOCATION
     Purchase  Payments  may be  allocated  among  the  Fixed  Account  and  the
     Subaccounts.  Purchase Payments will be allocated  according to the Owner's
     instructions in the Application or more recent  instructions,  if any. Each
     allocation to the Fixed Account and the Subaccounts  must be at least 1% of
     the Purchase Payment.  The allocations must be whole percentage amounts and
     must total 100%. The Owner may change the  allocations by written notice to
     the Company.

PLACE OF PAYMENT
     All Purchase  Payments under this Contract are to be paid to the Company at
     its Home Office.  Purchase  Payments after the initial Purchase Payment are
     applied  as of the  end of the  Valuation  Period  during  which  they  are
     Received by the Company.

- --------------------------------------------------------------------------------
CONTRACT VALUE AND EXPENSE PROVISIONS
- --------------------------------------------------------------------------------

CONTRACT VALUE
     On any Valuation  Date,  the Contract Value is the sum of: (1) the Separate
     Account  Contract Value;  and (2) the Fixed Account  Contract Value. At any
     time after the first  Contract Year and before the Annuity Start Date,  the
     Company reserves the right to pay to the Owner the Contract Value as a lump
     sum if it is below $5,000.

FIXED ACCOUNT CONTRACT VALUE
     On any Valuation  Date,  the Fixed Account  Contract  Value is equal to the
     first Purchase Payment allocated under the Contract to the Fixed Account:

     PLUS:

     1.   any other Purchase Payments  allocated under the Contract to the Fixed
          Account;

     2.   any Transfers from the Separate Account to the Fixed Account; and

     3.   any interest credited to the Fixed Account.

     LESS:

     1.   any Withdrawals deducted from the Fixed Account;

     2.   any Transfers from the Fixed Account to the Separate Account;

     3.   any applicable Premium Taxes;

     4.   any Fixed  Account  Contract  Value which is applied to any of Annuity
          Options 1 through 4; and

     5.   any Annuity Payments made under Annuity Options 5 and 6.

                                      -10-
V6022 E (10-94)
<PAGE>   11


- --------------------------------------------------------------------------------
CONTRACT VALUE AND EXPENSE PROVISIONS (Continued)
- --------------------------------------------------------------------------------

FIXED ACCOUNT INTEREST CREDITING
     The Company  shall credit  interest on Fixed Account  Contract  Value at an
     annual  rate at least equal to the  Guaranteed  Rate shown on page 3. Also,
     the Company may in its sole judgment  credit Current  Interest at a rate in
     excess of the Guaranteed Rate. The rate of Current  Interest,  if declared,
     shall be fixed during the Guarantee  Period.  Fixed Account  Contract Value
     shall earn Current  Interest  during each Guarantee  Period at the rate, if
     any, declared by the Company on the first day of the Guarantee Period.

     The  Company  may  credit  Current  Interest  on  Contract  Value  that was
     allocated  or  transferred  to the Fixed  Account  during  one  period at a
     different  rate than amounts  allocated or transferred to the fixed Account
     in another period.  Also, the Company may credit Current  Interest on Fixed
     Account  Contract  Value at  different  rates  based upon the length of the
     Guarantee  Period.  Therefore,  at any  time,  portions  of  Fixed  Account
     Contract  Value may be earning  Current  Interest at different  rates based
     upon the period during which such portions were allocated or transferred to
     the Fixed Account and the length of the Guarantee Period.

SEPARATE ACCOUNT CONTRACT VALUE
     On any Valuation  Date, the Separate  Account  Contract Value is the sum of
     the  then  current  value  of the  Accumulation  Units  allocated  to  each
     Subaccount for this Contract.

ACCUMULATION UNIT VALUE
     The initial  Accumulation  Unit Value for each  Subaccount  was set at $10.
     Other Accumulation Unit Values are found on each Valuation Date by dividing
     (1) by (2) where:

     1.   is the equal to:

          a.   the  Subaccount  Net  Asset  Value  determined  at the end of the
               current Valuation Period;  plus

          b.   any dividends declared by the Subaccount's underlying mutual fund
               that are not part of the  Subaccount  Net Asset  Value;  less the
               accrued Mortality and Expense Risk Charge; and

          c.   the accrued Mortality and Expense Risk Charge; and

          d.   the accrued Administration Charge; and

          e.   any taxes for which the  Company has  reserved  which the Company
               deems to have resulted from the operation of the Subaccount.

     2.   is the  number of  Accumulation  Units at the  start of the  Valuation
          Period.

     The  Accumulation  Unit Value may increase or decrease  from one  Valuation
     Period to the next.

DETERMINING ACCUMULATION UNITS
     The number of  Accumulation  Units  allocated  to a  Subaccount  under this
     Contract is found by dividing:  (1) the amount allocated to the Subaccount;
     by (2) the  Accumulation  Unit Value for the  Subaccount  at the end of the
     Valuation Period during which the amount is applied under the Contract. The
     number of Accumulation  Units allocated to a Subaccount  under the Contract
     will not change as a result of  investment  experience.  Events that change
     the number of Accumulation Units are:

     1.   Purchase Payments that are applied to the Subaccount;

     2.   Contract Value that is Transferred into or out of the Subaccount;

     3.   Withdrawals that are deducted from the Subaccount; and

     4.   Premium Taxes that are deducted from the Subaccount.

                                      -11-

<PAGE>   12


- --------------------------------------------------------------------------------
CONTRACT VALUE AND EXPENSE PROVISIONS (Continued)
- --------------------------------------------------------------------------------

MORTALITY AND EXPENSE RISK CHARGE
     The Company will deduct the Mortality and Expense Risk Charge shown on page
     3. This charge will be computed and deducted  from each  Subaccount on each
     Valuation  Date.  This charge is factored  into the  Accumulation  Unit and
     Annuity Unit Values on each Valuation Date.

PREMIUM TAX EXPENSE
     The Company  reserves the right to deduct  Premium Tax when due or any time
     thereafter.  Any applicable Premium Taxes will be allocated as described on
     page 3.

ADMINISTRATION CHARGE
     The Company  will deduct the  Administration  Charge  shown on page 3. This
     charge will be computed and deducted from each Subaccount on each Valuation
     Date.  This charge is  factored  into the  Accumulation  Unit Value on each
     Valuation Date.

MUTUAL FUND EXPENSES
     Each Subaccount invests in shares of a mutual fund. The net asset value per
     share of each  underlying  fund  reflects the  deduction of any  investment
     advisory and administration fees and other expenses of the fund. These fees
     and expenses are not deducted from the assets of a Subaccount, but are paid
     by the underlying  funds.  The Owner  indirectly  bears a pro rata share of
     such fees and  expenses.  An  underlying  fund's fees and  expenses are not
     specified or fixed under the terms of this Contract.

- --------------------------------------------------------------------------------
WITHDRAWAL PROVISIONS
- --------------------------------------------------------------------------------

WITHDRAWALS
     A full  Withdrawal of the Contract Value or partial  Withdrawal of Separate
     Account Contract Value is allowed at any time. Partial Withdrawals of Fixed
     Account Contract Value are,  however,  restricted as described below.  This
     provision is subject to any federal or state Withdrawal restrictions.

     A partial  Withdrawal of Fixed Account Contract Value may be made only: (1)
     pursuant to Systematic Withdrawals over a period of at least 36 months; (2)
     during the calendar month in which the applicable Guarantee Period expires;
     and (3) once per Contract  Year in an amount up to the greater of $5,000 or
     10% of the Contract  Value in the Fixed  Account at the time of the partial
     Withdrawal.

     Upon the Owner's  request for a full  Withdrawal,  the Company will pay the
     Withdrawal Value in a lump sum.

     All Withdrawals must meet the following conditions.

     1.   The request for Withdrawal  must be Received by the Company in writing
          or under other methods allowed by the Company.

     2.   The Owner must apply:  (a) while this  Contract  is in force;  and (b)
          prior to the Annuity Start Date of Options 1-4.

     3.   The  amount  Withdrawn  must  be at  least  $1,000.00,  except  that a
          Withdrawal  of less than  $1,000.00  is  allowed:  (i) for  Systematic
          Withdrawals,  as discussed on page 13, (ii) for Fixed Account Contract
          Value the Guarantee  Period of which expires during the calendar month
          of the Withdrawal, or (iii) when terminating the Contract.

                                      -12-

V6022 F (10-94)

<PAGE>   13


- --------------------------------------------------------------------------------
WITHDRAWAL PROVISIONS (Continued)
- --------------------------------------------------------------------------------

WITHDRAWALS (Continued)
     A partial  Withdrawal  request must state the allocations for deducting the
     Withdrawal  from each Account.  If no allocation is specified,  the partial
     Withdrawal  will be deducted  from the  Accounts in the order  described on
     page 3, "Method for  Deductions."  Withdrawals  of Fixed  Account  Contract
     Value shall be made: (1) first from Fixed Account  Contract Value for which
     the  Guarantee  Period  expires  during  the  calendar  month in which  the
     Withdrawal  is  effected;  (2) then in the order  that  starts  with  Fixed
     Account  Contract  Value  which has the  longest  amount of time before its
     Guarantee Period expires; and (3) ends with that which has the least amount
     of time before its Guarantee Period expires.

WITHDRAWAL VALUE
     The Withdrawal Value at any time will be: (1) the Contract Value;  less (2)
     any Premium Taxes due or paid by the Company.

SYSTEMATIC WITHDRAWALS
     Systematic  Withdrawals  are  automatic  periodic  distributions  from  the
     Contract in substantially equal amounts prior to the Annuity Start Date. In
     order to start Systematic  Withdrawals,  the Owner must make the request in
     writing.  The Minimum  Systematic  Withdrawal is shown on page 3. The Owner
     must  choose  the  type  of  payment  and  its  frequency.  The  Systematic
     Withdrawal request must state the allocations for deducting the Withdrawals
     from each Account.  If no allocation is specified,  the Withdrawals will be
     deducted  from the  Accounts in the order  described on page 3, "Method for
     Deductions."  The payment type may be: (1) a percentage of Contract  Value;
     (2) a specified dollar amount; (3) all earnings in the Contract; (4) over a
     fixed period of time; or (5) based upon the life expectancy of the Owner or
     the Owner and a Beneficiary. The payment frequency may be: (1) monthly; (2)
     quarterly;  (3) semiannually;  or (4) annually.  Systematic  Withdrawals of
     Fixed Account Contract Value must provide for payments over a period of not
     less than 36  months.  Systematic  Withdrawals  may be stopped by the Owner
     upon  proper  written  request  Received by the Company at least 30 days in
     advance. The Company reserves the right to stop, modify,  suspend or charge
     a fee for Systematic Withdrawals at any time.

DATE OF REQUEST
     The Company will effect a Withdrawal of Separate  Account Contract Value on
     the basis of Accumulation Unit Value determined at the end of the Valuation
     Period in which all the required information is Received by the Company.

PAYMENT OF WITHDRAWAL BENEFITS
     The Company  reserves the right to suspend a Transfer or delay payment of a
     Withdrawal from the Separate Account for any period:

     1.   when the New York Stock Exchange is closed; or

     2.   when trading on the New York Stock Exchange is restricted; or

     3.   when an  emergency  exists  as a result  of  which:  (a)  disposal  of
          securities held in the Separate Account is not reasonably practicable;
          or (b) it is not reasonably practicable to fairly value the net assets
          of the Separate Account; or

     4.   during any other period when the Securities  and Exchange  Commission,
          by order, so permits to protect owners of securities.

     Rules and regulations of the Securities and Exchange Commission will govern
     as to whether the conditions set forth above exist.

     The Company  further  reserves  the right to delay  payment of a Withdrawal
     from the Fixed Account for up to six months as required by most states. The
     Company will notify you if there will be a delay.

                                      -13-

<PAGE>   14


- --------------------------------------------------------------------------------
DEATH BENEFIT PROVISIONS
- --------------------------------------------------------------------------------

DEATH BENEFIT
     If any Owner dies prior to the Annuity  Start Date, a Death Benefit will be
     paid to the Designated Beneficiary when due Proof of Death and instructions
     regarding payment are Received by the Company.  If an Owner is a Nonnatural
     Person,  then the Death  Benefit  will be paid in the event of the death of
     the  Annuitant  or any joint  Owner that is a natural  person  prior to the
     Annuity Start Date. Further, if an Owner is a Nonnatural Person, the amount
     of the  death  benefit  is based on the age of the  Annuitant  or any joint
     Owner that is a natural person on the Issue Date.

     If the age of each  Owner was 75 or younger  on the Issue  Date,  the Death
     Benefit will be the greatest of: (1) the sum of all Purchase Payments, less
     any  Premium  Taxes  due or paid by the  Company  and  less  the sum of all
     partial Withdrawals;  (2) the Contract Value on the date due Proof of Death
     and instructions  regarding  payment are Received by the Company,  less any
     Premium  Taxes  due or paid by the  Company;  or (3) the  Stepped-Up  Death
     Benefit described below.

     The Stepped-Up Death Benefit is:

     1.   the largest Death Benefit on any Contract  Anniversary that is both an
          exact  multiple of five and occurs prior to the oldest Owner  reaching
          age 76; plus

     2.   any Purchase  Payments  received since the  applicable  fifth Contract
          Anniversary;  less

     3.   any  reductions  caused  by  Withdrawals  since the  applicable  fifth
          Contract Anniversary; less

     4.   any Premium Taxes due or paid by the Company.

     If the age of any Owner on the Issue Date was 76 or older,  or if due proof
     of  death  (regardless  of the age of any  Owner  on the  Issue  Date)  and
     instructions  regarding  payment are not Received by the Company within six
     months of the date of the Owner's death, the Death Benefit will be: (1) the
     Contract  Value on the date due Proof of Death and  instructions  regarding
     payment are Received by the Company; less (2) any Premium Taxes due or paid
     by the Company.

     If a lump sum payment is requested,  the payment will be made in accordance
     with any laws and regulations that govern the payment of Death Benefits.

PROOF OF DEATH
     Any of the following will serve as Proof of Death:

     1.   certified copy of the death certificate;

     2.   certified  decree  of a  court  of  competent  jurisdiction  as to the
          finding of death;

     3.   written statement by a medical doctor who attended the deceased Owner;
          or

     4.   any proof accepted by the Company.

DISTRIBUTION RULES
     The entire Death  Benefit  with any  interest  shall be paid within 5 years
     after the death of any Owner,  except as provided  below. In the event that
     the Designated Beneficiary elects an Annuity Option, the length of time for
     the  payment  period  may be  longer  than 5 years if:  (1) the  Designated
     Beneficiary  is a natural  person;  (2) the Death Benefit is paid out under
     Annuity  Options 1 through 6; (3) payments are made over a period that does
     not exceed the life or life expectancy of the Designated  Beneficiary;  and
     (4) Annuity  Payments  begin within one year of the death of the Owner.  If
     the deceased Owner's spouse is the sole Designated Beneficiary,  the spouse
     shall  become the sole Owner of the  Contract.  He or she may elect to: (1)
     keep the  Contract in force until the sooner of the  spouse's  death or the
     Annuity Start Date; or (2) receive the Death Benefit.

                                      -14-

V6022 G (R6-96)

<PAGE>   15


- --------------------------------------------------------------------------------
DEATH BENEFIT PROVISIONS (Continued)
- --------------------------------------------------------------------------------

DISTRIBUTION RULES (Continued)
     If any Owner dies after the Annuity  Start  Date,  Annuity  Payments  shall
     continue  to be paid at least as  rapidly  as under the  method of  payment
     being used as of the date of the Owner's death.

     If the Owner is a Nonnatural Person, the distribution rules set forth above
     apply in the event of the death of, or a change  in,  the  Annuitant.  This
     Contract is deemed to  incorporate  any  provision of Section  72(s) of the
     Internal  Revenue Code of 1986, as amended (the  "Code"),  or any successor
     provision.  This Contract is also deemed to incorporate any other provision
     of the Code deemed  necessary  by the  Company,  in its sole  judgment,  to
     qualify this Contract as an annuity.  The  application of the  distribution
     rules will be made in accordance  with Code section 72(s), or any successor
     provision, as interpreted by the Company in its sole judgment.

     The foregoing  distribution  rules do not apply to a Contract which is: (1)
     provided  under a plan described in Code Section  401(a);  (2) described in
     Code section 403(b); (3) an individual retirement annuity or provided under
     an individual  retirement account or annuity;  or (4) otherwise exempt from
     the Code section 72(s) distribution rules.

- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS
- --------------------------------------------------------------------------------

ANNUITY START DATE
     The Owner may choose the Annuity Start Date at the time of application.  If
     no Annuity Start Date is chosen, the Company will use the later of: (1) the
     oldest  Annuitant's   seventieth  birthday;   or  (2)  the  tenth  Contract
     Anniversary. The Annuity Start Date must be prior to the oldest Annuitant's
     ninety-fifth birthday.

     The Annuity  Start Date is the date the first  payment  will be made to the
     Annuitant under any of the Annuity Options.

CHANGE OF ANNUITY START DATE
     The Owner may change the Annuity  Start Date. A request for the change must
     be made in writing.  The written request must be Received by the Company at
     least 30 days prior to the new Annuity  Start Date as well as 30 days prior
     to the previous Annuity Start Date.

ANNUITY START AMOUNT
     The Annuity  Start Amount is applied to one or more of the Annuity  Options
     listed on page 18. The Annuity  Start Amount is: (1) the Contract  Value on
     the  Annuity  Start  Date;  less (2) any  Premium  Taxes due or paid by the
     Company.  Unless  otherwise  directed by the Owner,  Annuity  Start  Amount
     derived  from Fixed  Account  Contract  Value will be applied to purchase a
     Fixed Annuity  Option;  that derived from Separate  Account  Contract Value
     will be applied to purchase a Variable Annuity Option.

                                      -15-

<PAGE>   16


- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (Continued)
- --------------------------------------------------------------------------------

ANNUITY TABLES
     Annuity  Tables A and B show  the  guaranteed  minimum  amount  of  monthly
     Annuity  Payment per $1,000 of Annuity  Start Amount for annuity  options 1
     through 4 that applies to the first  Variable  Annuity  Payment and to each
     payment for Fixed Annuity Payments.  The amount of each Annuity Payment for
     Annuity  Options 1 through 4 will depend on the  Annuitant's sex and age on
     the Annuity Start Date.

     Tables A and B assume  1900 as the year of birth of the  annuitant.  To use
     Table A and B for an Annuitant  born after 1900,  the actual age is reduced
     by 0.1  (one-tenth) of a year for each year the year of birth exceeds 1900.
     For an  annuitant  with a birth  year  prior to  1900,  the  actual  age is
     increased in a like manner. The actual age (in completed months) reduced or
     increased  becomes the  "adjusted  age of the  Annuitant".  The  guaranteed
     payout rate is then found by  interpolating  the  Annuitant's  adjusted age
     between  the ages shown in Tables A and B.  Tables A and B are based on the
     1983 Table "A"  mortality  table and an interest  rate of 3.5% per year. On
     request the Company will furnish the amount of monthly  Annuity Payment per
     $1,000 applied for any ages not shown.

     For  Annuity  Options 5 and 6,  annuity  rates based on age and sex are not
     used to calculate annuity payments.  Annuity Payments for these options are
     computed without reference to the Annuity Tables.

ANNUITY PAYMENTS
     The  Annuity  Option is shown on page 3. The Owner may  choose  any form of
     Annuity  Option  that is  allowed by the  Company.  The Owner may choose an
     Annuity  Option by written  request.  This  request must be Received by the
     Company at least 30 days prior to the Annuity Start Date.  Several  Annuity
     Options  are listed on page 18. No  Annuity  Option  can be  selected  that
     requires the Company to make periodic payments of less than $100.00.  If no
     Annuity  Option is chosen prior to the Annuity Start Date, the Company will
     use Life with 10-Year Fixed Period  Option.  Each Annuity Option allows for
     making Annuity Payments annually, semiannually, quarterly or monthly.

CHANGE OF ANNUITY OPTION
     Prior to the Annuity  Start Date,  the Owner may change the Annuity  Option
     chosen. The Owner must request the change in writing.  This request must be
     Received by the Company at least 30 days prior to the Annuity Start Date.

FIXED ANNUITY PAYMENTS
     With respect to Fixed Annuity Payments, the amounts shown on the Tables are
     the  guaranteed  minimum for each  Annuity  Payment  for Annuity  Options 1
     through 4.

VARIABLE ANNUITY PAYMENTS
     With respect to Variable Annuity  Payments,  the amount shown on the Tables
     is the  guaranteed  minimum  first  Annuity  Payment,  based on the assumed
     interest  rate of 3.5% for Annuity  Options 1 through 4. The amount of each
     Annuity  Payment  after the first for these options is computed by means of
     Annuity Units.

ANNUITY UNITS
     The number of Annuity Units is found by dividing the first Annuity  Payment
     by the Annuity Unit Value for the selected  Subaccount on the Annuity Start
     Date. The number of Annuity Units for the Subaccount then remains constant,
     unless a  Transfer  of  Annuity  Units is made.  After  the  first  Annuity
     Payment,  the dollar amount of each subsequent  Annuity Payment is equal to
     the number of Annuity Units times the Annuity Unit Value for the Subaccount
     on the due date of the Annuity Payment.

                                      -16-
V6022 H (10-94)
<PAGE>   17


- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (Continued)
- --------------------------------------------------------------------------------

ANNUITY UNITS (Continued)
     The  Annuity  Unit Value for each  Subaccount  was first set at $1.00.  The
     Annuity Unit Value for any subsequent  Valuation Date is equal to (a) times
     (b) times (c), where:

     (a)  is the Annuity Unit Value on the immediately preceding Valuation Date;

     (b)  is the Net Investment Factor for the day;

     (c)  is a factor  used to adjust for an assumed  interest  rate of 3.5% per
          year used to  determine  the  Annuity  Payment  amounts.  The  assumed
          interest rate is reflected in the Annuity Tables.

NET INVESTMENT FACTOR
     The Net  Investment  Factor for any  Subaccount at the end of any Valuation
     Period is  determined by dividing (1) by (2) and  subtracting  (3) from the
     result, where:

     1.   is equal to:

          a.   the net  asset  value per  share of the  mutual  fund held in the
               Subaccount,  found at the end of the  current  Valuation  Period;
               plus

          b.   the  per  share   amount  of  any   dividend   or  capital   gain
               distributions  paid by the  Subaccount's  underlying  mutual fund
               that is not  included in the net asset  value per share;  plus or
               minus

          c.   a per share charge or credit for any taxes  reserved  for,  which
               the Company  deems to have  resulted  from the  operation  of the
               Subaccount.

     2.   is the net asset value per share of the Subaccount's underlying mutual
          fund as found at the end of the prior Valuation Period.

     3.   is a factor  representing  the Mortality and Expense Risk Charge which
          is deducted from the Separate Account.

     Underlying mutual funds may declare dividends on a daily basis and pay such
     dividends once a month.  The Net  Investment  Factor allows for the monthly
     reinvestment of these daily  dividends.  As described  above, the gains and
     losses from each  Subaccount are credited or charged against the Subaccount
     without regard to the gains or losses in the Company or other Subaccounts.

ALTERNATE ANNUITY OPTION RATES
     The Company may, at the time of election of an Annuity  Option,  offer more
     favorable  rates  in lieu of the  guaranteed  rates  shown  in the  Annuity
     Tables.

                                      -17-

<PAGE>   18


- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (Continued)
- --------------------------------------------------------------------------------

ANNUITY OPTIONS

     OPTION 1
          LIFE  OPTION:  This  option  provides  payments  for  the  life of the
          Annuitant. Table A shows some of the guaranteed rates for this option.

     OPTION 2
          LIFE WITH FIXED PERIOD OPTION:  This option provides  payments for the
          life of the Annuitant.  A fixed period of 5, 10, 15 or 20 years may be
          chosen.  Payments  will be made to the end of this  period even if the
          Annuitant  dies prior to the end of the period.  If the Annuitant dies
          before  receiving  all the payments  during the fixed  period.  If the
          Annuitant  dies before  receiving  all the  payments  during the fixed
          period,  the  remaining  payments  will  be  made  to  the  Designated
          Beneficiary.  Table A shows  some of the  guaranteed  rates  for  this
          option.

     OPTION 3
          LIFE WITH  INSTALLMENT  OR UNIT REFUND  OPTION:  This option  provides
          payments  for  the  life  of  the  Annuitant,  with a  period  certain
          determined  by dividing the Annuity  Start Amount by the amount of the
          first  payment.  A fixed  number of payments  will be made even if the
          Annuitant  dies.  If the  Annuitant  dies before  receiving  the fixed
          number  of  payments,  any  remaining  payments  will  be  made to the
          Designated Beneficiary. Table A shows some of the guaranteed rates for
          this option.

     OPTION 4
          JOINT AND LAST SURVIVOR OPTION:  This option provides payments for the
          life of the  Annuitant and Joint  Annuitant.  Payments will be made as
          long as either is living.  Table B shows some of the guaranteed  rates
          for this option.

     OPTION 5
          FIXED PERIOD OPTION:  This option provides payments for a fixed number
          of years between 5 and 20. If the Contract  Value is held in the Fixed
          Account,  then the amount of the payments will vary as a result of the
          interest  rate  (as  adjusted  periodically)  credited  on  the  Fixed
          Account.  This rate is  guaranteed  to be no less than the  Guaranteed
          Rate shown on page 3. If the  Contract  Value is held in the  Separate
          Account,  then the amount of the payments will vary as a result of the
          investment   performance  of  the  Subaccounts   chosen.  If  all  the
          Annuitants  die before  receiving  the fixed number of  payments,  any
          remaining payments will be made to the Designated Beneficiary.

     OPTION 6
          FIXED PAYMENT  OPTION:  This option  provides a fixed payment  amount.
          This amount is paid until the amount applied, including daily interest
          adjustments,  is paid.  If the  Contract  Value  is held in the  Fixed
          Account,  then the  number  of  payments  will vary as a result of the
          interest  rate  (as  adjusted  periodically)  credited  on  the  Fixed
          Account.  This rate is  guaranteed  to be no less than the  Guaranteed
          Rate shown on page 3. If the  Contract  Value is held in the  Separate
          Account,  then the  number  of  payments  will vary as a result of the
          investment   performance  of  the  Subaccounts   chosen.  If  all  the
          Annuitants  die  before  receiving  all the  payments,  any  remaining
          payments will be made to the Designated Beneficiary.

                                      -18-
V6022 I (10-94)
<PAGE>   19


                                 ANNUITY TABLES
- --------------------------------------------------------------------------------
                                    TABLE A
                     SETTLEMENT OPTIONS ONE, TWO, AND THREE
       MINIMUM INITIAL MONTHLY INSTALLMENTS PER $1,000 OF AMOUNT APPLIED

                                     Option Two
  Adjusted      Option One      Year Fixed Period Ends          Option Three
    Age            Life        5       10      15      20           Unit
of Annuitant       Only      Years   Years   Years   Years         Refund
- --------------------------------------------------------------------------------
   MALE
    55             4.99       4.97    4.91    4.80    4.66          4.73
    56             5.09       5.07    5.00    4.88    4.72          4.81
    57             5.20       5.17    5.10    4.97    4.78          4.90
    58             5.32       5.29    5.20    5.05    4.85          4.99
    59             5.44       5.41    5.31    5.14    4.91          5.08

    60             5.57       5.53    5.42    5.23    4.97          5.18
    61             5.71       5.67    5.54    5.33    5.04          5.29
    62             5.86       5.81    5.67    5.42    5.10          5.40
    63             6.02       5.97    5.80    5.52    5.16          5.51
    64             6.20       6.13    5.94    5.62    5.22          5.63

    65             6.38       6.31    6.08    5.72    5.28          5.76
    66             6.58       6.49    6.23    5.82    5.33          5.90
    67             6.79       6.69    6.38    5.92    5.38          6.04
    68             7.02       6.90    6.54    6.02    5.43          6.19
    69             7.26       7.12    6.71    6.12    5.48          6.35

    70             7.52       7.35    6.87    6.21    5.52          6.52
    71             7.80       7.60    7.05    6.30    5.55          6.69
    72             8.09       7.86    7.22    6.39    5.59          6.88
    73             8.41       8.13    7.40    6.47    5.62          7.07
    74             8.75       8.42    7.57    6.55    5.64          7.27

    75             9.12       8.72    7.75    6.62    5.66          7.49

  FEMALE
    55             4.54       4.53    4.51    4.46    4.38          4.40
    56             4.62       4.61    4.58    4.53    4.44          4.47
    57             4.71       4.70    4.66    4.60    4.51          4.54
    58             4.80       4.79    4.75    4.68    4.57          4.62
    59             4.90       4.88    4.84    4.76    4.64          4.70

    60             5.00       4.99    4.93    4.84    4.70          4.78
    61             5.11       5.09    5.03    4.93    4.77          4.87
    62             5.23       5.21    5.14    5.02    4.84          4.96
    63             5.36       5.33    5.25    5.12    4.91          5.06
    64             5.49       5.46    5.37    5.21    4.98          5.17

    65             5.64       5.60    5.50    5.31    5.05          5.28
    66             5.79       5.75    5.63    5.42    5.12          5.39
    67             5.95       5.91    5.77    5.53    5.19          5.52
    68             6.13       6.08    5.91    5.63    5.25          5.65
    69             6.32       6.26    6.07    5.74    5.32          5.79

    70             6.53       6.46    6.23    5.86    5.37          5.94
    71             6.75       6.67    6.40    5.97    5.43          6.09
    72             6.99       6.89    6.58    6.08    5.48          6.26
    73             7.26       7.13    6.76    6.18    5.52          6.44
    74             7.54       7.39    6.95    6.29    5.57          6.63

    75             7.85       7.67    7.14    6.39    5.60          6.83

Values  not  shown  will be  provided  upon  request.  Annual,  semiannual,  or
quarterly installments can be determined by multiplying the monthly installments
by 11.812853, 5.9572227, and 2.9914196 respectively.
- --------------------------------------------------------------------------------
                                    TABLE B
                             SETTLEMENT OPTION FOUR
        MINIMUM INITIAL MONTHLY INSTALLMENT PER $1,000 OF AMOUNT APPLIED

   Adjusted Age of                  Adjusted Age of Male Annuitant       
  Female Annuitant        55        60        62        65        70       75
- --------------------------------------------------------------------------------
        55               4.16      4.27      4.30      4.35      4.42     4.47
        60               4.34      4.51      4.57      4.66      4.78     4.86
        62               4.41      4.61      4.68      4.79      4.94     5.04
        65               4.51      4.76      4.85      4.99      5.20     5.35
        70               4.66      4.99      5.13      5.34      5.67     5.95
        75               4.78      5.19      5.37      5.66      6.16     6.63

Values  not  shown  will be  provided  upon  request.  Annual,  semiannual,  or
quarterly installments can be determined by multiplying the monthly installments
by 11.812853, 5.9572227, and 2.9914196 respectively.

                                      -19-

<PAGE>   20






                      A BRIEF DESCRIPTION OF THIS CONTRACT

This is a FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT.

*    Purchase  Payments may be made until the earlier of the Annuity  Start Date
     or termination of the Contract.

*    A Death  Benefit may be paid prior to the Annuity  Start Date  according to
     the Contract provisions.

*    Annuity  Payments  begin on the  Annuity  Start  Date  using the  method as
     specified in this Contract.

*    This Contract is Participating.





ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT,  WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT.  THERE ARE NO
GUARANTEED  MINIMUM  PAYMENTS OR CASH VALUES.  (SEE "CONTRACT  VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)




                                   [SBL LOGO]
                     SECURITY BENEFIT LIFE INSURANCE COMPANY
               A Member of The Security Benefit Group of Companies
                     P.O. Box 750497, Topeka, KS 66675-0497
                  700 SW Harrison Street, Topeka, KS 66636-0001
                                 1-800-888-2461

<PAGE>   1

SBG LOGO

SECURITY BENEFIT LIFE
INSURANCE COMPANY ("SBL")
- --------------------------------------------------------------------------------
A Member of the Security Benefit Group of Companies    700 SW Harrison St.
                                                       Topeka, Kansas 66636-0001

                             VARIFLEX LS APPLICATION
- --------------------------------------------------------------------------------
1.  OWNER (APPLICANT)
    Name _____________________________________________
    Address __________________________________________
    __________________________________________________
    Sex M [ ]  F [ ]  Date of Birth___________________
    Tax ID or SSN ____________________________________
    Annuity Start Date _______________________________
- --------------------------------------------------------------------------------
2.  JOINT OWNER
    Name _____________________________________________
    Address __________________________________________
    __________________________________________________
    Date of Birth ____________________________________
    Tax ID or SSN ____________________________________
    Relationship to Owner ____________________________
- --------------------------------------------------------------------------------
3.  INITIAL PURCHASE PAYMENTS
    (min. $25,000) ___________________________________
- --------------------------------------------------------------------------------
4.  ALLOCATION OF PURCHASE PAYMENTS
    Emerging Growth Series*               ____________%
    Social Awareness Series*              ____________%
    Worldwide Equity Series*              ____________%
    Value Series*                         ____________%
    Growth Series*                        ____________%
    Specialized Asset Allocation Series*  ____________%
    Managed Asset Allocation Series*      ____________%
    Equity Income Series*                 ____________%
    Growth-Income Series*                 ____________%
    Global Aggressive Bond Series*        ____________%
    High Yield Series*                    ____________%
    High Grade Income Series*             ____________%
    Money Market Series*                  ____________%
    Small Cap Series*                     ____________%
    Fixed Account                         ____________%
                                              100%
- --------------------------------------------------------------------------------
5.  ANNUITANT (IF DIFFERENT FROM OWNER)
    Name _____________________________________________
    Address __________________________________________
    __________________________________________________
    Sex M [ ]  F [ ] Date of Birth ___________________
    Tax ID or SSN ____________________________________
- --------------------------------------------------------------------------------
6.  PRIMARY BENEFICIARY
    Name _____________________________________________
    Address __________________________________________
    __________________________________________________
    Relationship to Owner ____________________________
    Date of Birth ____________________________________
    SSN ______________________________________________

    (UPON THE DEATH OF ANY OWNER, THE PRIMARY BENEFICIARY WILL RECEIVE ANY DEATH
    BENEFIT  WHICH IS PAYABLE,  ONLY IF THERE IS NO SURVIVING  JOINT OWNER.  SEE
    PROSPECTUS FOR DETAILS.)
- --------------------------------------------------------------------------------
7.  SECONDARY BENEFICIARY
    Name _____________________________________________
    Address __________________________________________
    __________________________________________________
    Relationship to Owner ____________________________
    Date of Birth ____________________________________
    SSN ______________________________________________
- --------------------------------------------------------------------------------
8.  TYPE OF ANNUITY CONTRACT
    [ ] Non Qualified       [ ] 401(a) (Qual. Pension/Profit Sharing)
    [ ] 403(b) (TSA)        [ ] 401(k) (Qual. Savings Plan)
    [ ] 408 (IRA)           Type of Plan:
    [ ] 408(k) - (SEP)      _________________________________________
    [ ] 408 (Simple)        _________________________________________
    [ ] 457 (Def. Comp.)
- --------------------------------------------------------------------------------
9.  Will this annuity replace or change any other insurance or Annuity?  Yes [ ]
    [ ] No
    If yes, state company(ies) and contract number(s) __________________________
    Type of contract ___________________________________________________________
    If 1035 exchange or other transfer of assets,  attach:  (1) exchange form(s)
    or letter(s); and (2) replacement form(s) if applicable.
- --------------------------------------------------------------------------------
10. SPECIAL INSTRUCTIONS _______________________________________________________
    ____________________________________________________________________________
    ____________________________________________________________________________
- --------------------------------------------------------------------------------
11. PLEASE CHECK THE FOLLOWING SERVICES THAT YOU WISH TO ELECT:
    Telephone Transfer Privilege

    [ ] I (We)  authorize SBL to make  transfers  from  subaccount to subaccount
    and/or  change  the  allocation  of  future  purchases  based  on  telephone
    instructions.  SBL has  procedures  to confirm  that such  instructions  are
    genuine  and  will  not be  liable  for  any  losses  due to  fraudulent  or
    unauthorized  instructions  provided it complies with its procedures.  SBL'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. I (we) agree to hold
    harmless and indemnify  SBL, its  affiliates  and employees and this account
    for: (1) any claim, loss,  liability or expense arising out of any telephone
    transfer  effected;  or (2) any failure or overload to the telephone  system
    provided  that SBL  complies  with its  procedures.  The  policy  concerning
    telephone transfers may require an Owner who authorizes  telephone transfers
    to bear the risk of loss from a fraudulent or unauthorized request.



V6845 (RS-97)
<PAGE>   2


12. [ ] AUTOMATIC DOLLAR COST AVERAGING
    Please establish an automatic transfer from ________________________________
                                                 (Subaccount or Fixed Account)
    (1) _______________________________
         (Subaccount or Fixed Account)
    (Please  indicate  the  dollar or  percentage  split if going to one or more
    Subaccounts) (2) _______________________________
                      (Subaccount or Fixed Account)

    Please establish the transfer under the following option:

    Check only one:
    A. [ ] $___________________________ per transfer over _________months/years
    B. [ ] Fixed Period _____________ months/years
    C. [ ] Only Interest/Earnings over ___________ months/years.  (Earnings will
           accrue for one time period - i.e. monthly, quarterly, etc. - from the
           effective date before the first transfer occurs.)

    Please make transfers:  [ ] Monthly      [ ] Quarterly

    I understand  that  automatic  transfers are subject to: (1) the terms of my
    contract;  (2) the current  prospectus  of  Variflex  LS; and (3) such other
    rules as SBL shall enact. I also understand that any automatic transfer from
    the Fixed  Account may not exceed an amount which would exhaust that account
    within 12 months;  and that Dollar Cost  Averaging  transfers may not exceed
    one each 30 days.
- --------------------------------------------------------------------------------
13. [ ] ASSET REALLOCATION REQUEST
    Emerging Growth Series*               ____________%
    Social Awareness Series*              ____________%
    Worldwide Equity Series*              ____________%
    Value Series*                         ____________%
    Growth Series*                        ____________%
    Specialized Asset Allocation Series*  ____________%
    Managed Asset Allocation Series*      ____________%
    Equity Income Series*                 ____________%
    Growth-Income Series*                 ____________%
    Global Aggressive Bond Series*        ____________%
    High Yield Series*                    ____________%
    High Grade Income Series*             ____________%
    Money Market Series*                  ____________%
    Small Cap Series*                     ____________%
    Fixed Account                         ____________%

Please establish the Asset Reallocation option as follows:

Please make my first transaction on ________________________ and every 3 months
                                    Month      Day     Year
thereafter.

If no date is selected  the first  transaction  will be made 3 months  after the
date of  purchase.  I understand  that any  transfer in my account  which is not
scheduled will cancel the asset reallocation  option. To reinstate this service,
I must complete an Asset Reallocation form and send it to SBL. The Fixed Account
may not be used if the reallocation would violate the transfer provisions of the
Fixed Account as stated in the  prospectus.  INITIAL  PURCHASE  PAYMENT WILL BE
ALLOCATED  BASED ON  INSTRUCTIONS  IN SECTION  4,  UNLESS  OTHERWISE  INDICATED.
- --------------------------------------------------------------------------------
I have been  given an  effective  Variflex  LS  prospectus  that  describes  the
contract for which I am applying. I have been given an effective prospectus from
the fund underlying each series above.  If my annuity  contract  qualifies under
Section 403(b),  I declare that I know: (1) the limits on redemption  imposed by
Section  403(b)(11) of the IRS Code;  and (2) the investment  choices  available
under my employer's  Section 403(b) arrangement to which I may elect to transfer
my account balance. *I KNOW THAT ANNUITY PAYMENTS AND WITHDRAWAL VALUES, IF ANY,
WHEN  BASED  ON THE  INVESTMENT  EXPERIENCE  OF A  SEPARATE  ACCOUNT  OF SBL ARE
VARIABLE  AND DOLLAR  AMOUNTS  ARE NOT  GUARANTEED.  I must give proof of my age
before any annuity payments start. I must give proof to SBL that I am alive when
each payment is due. The proof must be  satisfactory to SBL. The amount paid and
the application must be acceptable to SBL under its rules and practices. If they
are,  the  Variflex LS contract  applied for will be  effective  on its Contract
Date.  If they are not,  SBL's  liability  will be limited to a return of amount
paid.

REPRESENTATIVE'S  STATEMENT - To the best of my knowledge,  this  application is
not  involved in  replacement  of life  insurance  or  annuities,  as defined in
applicable  Insurance  Department  Regulations,  except as stated in  question 9
above. I have complied with the requirements for disclosure and/or replacement.

__________________________________________________
Representative Signature and Number

__________________________________________________
Print Representative's Full Name and Phone Number

__________________________________________________
Broker/Dealer Name and Number

- --------------------------------------------------------------------------------
                   TAX IDENTIFICATION NUMBER CERTIFICATION**
UNDER PENALTIES OF PERJURY I CERTIFY THAT:

1.   The number shown on this form is my correct taxpayer  identification number
     (or I am waiting for a number to be issued to me); and
2.   I am not subject to backup withholding because: (a) I am exempt from backup
     withholding,  or (b) I have  not  been  notified  by the  Internal  Revenue
     Service  (IRS)  that I am subject  to backup  withholding  as a result of a
     failure to report all interest or dividends, or (c) the IRS has notified me
     that I am no longer subject to backup withholding.
THE INTERNAL  REVENUE  SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS  DOCUMENT   OTHER  THAN  THE   CERTIFICATIONS   REQUIRED  TO  AVOID  BACKUP
WITHHOLDING.
- --------------------------------------------------------------------------------
Dated at ________________________________________
this _______ day  of ______________________ 19___
_________________________________________________
                Owner Signature
_________________________________________________
            Joint Owner/Signature
- --------------------------------------------------------------------------------
**CERTIFICATION  INSTRUCTIONS  - You must  cross  out item (2) above if you have
been  notified  by IRS that you are  currently  subject  to  backup  withholding
because  of  underreporting  interest  or  dividends  on your  tax  return.  For
contributions  to an  individual  retirement  arrangement  (IRA),  and generally
payments  other than  interest and  dividends,  you are not required to sign the
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[ ] Check this box if you would like a Statement of Additional Information.

<PAGE>   1

                                    BYLAWS OF

                     SECURITY BENEFIT LIFE INSURANCE COMPANY






                KNIGHTS & LADIES OF SECURITY - FEBRUARY 22, 1892

                SECURITY BENEFIT ASSOCIATION - SEPTEMBER 24, 1919

            SECURITY BENEFIT LIFE INSURANCE COMPANY - JANUARY 2, 1950

<PAGE>   2

                                    BYLAWS OF

                     SECURITY BENEFIT LIFE INSURANCE COMPANY

ARTICLE I - OFFICES

  1.   The Home Office and  principal  place of business of the Company shall be
       in the city of Topeka,  state of Kansas.  The Company may also  establish
       branch  offices at such other places as the Board of  Directors  may from
       time to time determine.

ARTICLE II - MEETINGS OF POLICYHOLDERS

  1.   A meeting of the  policyholders  for the election of  directors  shall be
       held  annually at the home  office of the company at two o'clock  p.m. on
       the first Tuesday in June.  The first annual meeting shall be held on the
       first Tuesday in June in the year 1952.  Subsequent annual meetings shall
       be held on the first Tuesday in June in each year thereafter.

  2.   Notice  of the time and  place of the  annual  meeting  shall be given by
       imprinting the same on either premium notices, premium receipts,  premium
       record stubs, or on annual reports mailed to the policyholders.

  3.   Special  meetings  of  policyholders  may be called at any time,  for any
       purpose or purposes  whatsoever,  by the President,  the Chief  Executive
       Officer,  the  Chairman  of the Board or by the vote of a majority of the
       entire number of the members of the board of directors.

  4.   Notice of the time and place of any special meeting shall be given to all
       policyholders  who  were  shown  on  the  records  of the  Company  to be
       policyholders  on the  date  fixed  by  the  Board  for  the  purpose  of
       determining the members  entitled to notice of and to vote at the special
       meeting  (the  "Record  Date"),  which date shall be not less than 10 nor
       more than 90 days before the date of such meeting,  in writing and mailed
       to the  policyholder at his or her last known address as indicated by the
       Company's records. Notice of any special meeting shall specify the place,
       the day and  the  hour of the  meeting  and  the  general  nature  of the
       business to be  transacted.  Such notice  shall be given not less than 10
       nor more than 60 days before the date of the meeting.

ARTICLE III - VOTING

  1.   The qualified voters of the company shall consist of every  policyholder.
       For the purpose of this  section the term  "policyholder"  shall mean (1)
       the person  insured under an individual  policy of insurance  issued upon
       the  application of such person;  (2) the person who effectuates any such
       policy  upon the life of  another;  (3) the person to whom any annuity or
       pure endowment is presently or  prospectively  payable by the terms of an
       individual  annuity or pure  endowment  policy,  except  where the policy
       declares  some other person to be the owner  thereof,  in which case such
       owner shall be deemed to be the policyholder;  or (4) the employer, firm,
       group or association to whom or in whose name a master policy or contract
       of  group  insurance  or  other  from of  group  hospital  or  disability
       insurance,  including  group

<PAGE>   3

       annuity, shall have been issued and held, which employer,  firm, group or
       association shall be deemed to be one policyholder  within the meaning of
       this section.  No other person shall be deemed to be a "policyholder" for
       the purpose of this section.  A  policyholder  as defined in this section
       shall be  entitled to only one vote  regardless  of the number or size of
       his policies or contracts.  The policyholder  may vote in person;  or may
       vote by proxy  signed by the person  legally  entitled  to vote the same,
       provided  the proxy  shall be  received  by the  Company  by the close of
       business on the day preceding the date of the meeting at which such proxy
       is to be voted.

  2.   The qualified policyholders present, in person or by proxy, at any annual
       or special  meeting  shall  constitute  a quorum and any matter  properly
       before the meeting  shall be decided by a majority  of the  policyholders
       present, unless a different percentage is prescribed by law.

  3.   Each qualified  policyholder present at the annual meeting shall have the
       right to cast as many votes in the aggregate as shall equal the number of
       directors to be regularly elected. Each qualified policyholder, in person
       or by proxy,  may cast the whole number of votes for one candidate or may
       divide his votes among two or more candidates.

  4.   Notwithstanding  any  inconsistent  provisions  of this  section,  if the
       company  by  action of its  directors  establishes  one or more  separate
       accounts for purposes of issuing contracts  providing benefits which vary
       directly according to the investment  experience of such separate account
       or accounts,  the directors,  upon approval of the rules and  regulations
       for each  separate  account will set forth the special  voting rights and
       procedures for owners of variable  contracts under such separate  account
       relating to investment policy, investment advisory services, selection of
       independent  public  accountants,  and such  other  matters  as they deem
       appropriate  in  relation  to the  administration  of the  assets of such
       separate account.

ARTICLE IV - BOARD OF DIRECTORS

  1.   The  management of all the affairs,  property and business of the company
       shall be  vested in and  exercised  by a board of  directors  of ten (10)
       persons,  all of whom shall be policyholders in the company. The board of
       directors may from time to time appoint an executive  committee and other
       committees with such powers as it may see fit, subject to such conditions
       as may be prescribed  by the board.  All  committees  so appointed  shall
       report  their  acts and  doings  to the  board of  directors  at its next
       meeting.  In the absence or  disqualification of a member of a committee,
       the member or members thereof present at any meeting and not disqualified
       from  voting,  whether  or  not  he or  they  constitute  a  quorum,  may
       unanimously  appoint  another  member of the board of directors to act at
       the meeting in the place of any such absent or disqualified member.

  2.   The  directors  now in  office  shall  continue  to hold  office  for the
       remainder of the terms for which they were severally elected.

<PAGE>   4

  3.   At each annual meeting there shall be elected not less than one-fifth nor
       more than one-third of the members of the board of directors to serve for
       not more than five years nor more than three years respectively.

  4.   The board of  directors  shall,  at least ninety days prior to any annual
       meeting,  nominate  candidates for each vacancy in the board to be filled
       at such annual meeting.

  5.   Any group of  qualified  policyholders  equal in number to or  greater in
       number than one percent of the total number of policies of the company in
       force may make other  nominations  for one or more vacancies in the board
       of directors by filing with the secretary,  at least ninety days prior to
       any annual meeting, a duly signed and acknowledged certificate giving the
       names and addresses of the  candidates  nominated.  Upon  receiving  such
       certificate,  the secretary shall thereupon report the receipt thereof to
       the board of directors at its first regular meeting  following receipt of
       such certificate.

  6.   Should the board of directors  fail to nominate  candidates for vacancies
       in the board of directors to be filled at the annual  meeting as provided
       in  Section 4 hereof,  and  should  the  policyholders  fail to  nominate
       candidates  for  vacancies  in the board of directors to be filled at the
       annual  meeting  then,  and in such case,  vacancies  to be filled at the
       annual meeting may be filled by the policyholders.

  7.   Any vacancy in the board occurring in the interim between annual meetings
       shall be filled by the  remaining  members  thereof until the next annual
       meeting, at which time a successor shall be elected to fill the unexpired
       term  except  vacancies  occurring  by  reason of  increase  in number of
       directors,  in which event such  vacancies  shall be filled at the annual
       meeting.

  8.   Regular and special  meetings  of the board of  directors  may be held at
       such place or places  within or without  the state of Kansas as the board
       of directors  may from time to time  designate.  Special  meetings of the
       board of directors  may be called at any time by the  president or by any
       three directors.  The secretary shall give notice of each special meeting
       by  mailing  the  same  at  least  two  days  before  the  meeting  or by
       telegraphing  the  same at  least  one day  before  the  meeting  to each
       director, but such notice may be waived by any director. Unless otherwise
       indicated in the notice  thereof,  any and all business may be transacted
       at a special meeting.  The number of directors  necessary to constitute a
       quorum shall be not less than five; except that if the board of directors
       consists of nine members or less, a majority may constitute a quorum.

  9.   The fee to be paid to the directors for their  services shall be fixed by
       resolution of the board.

 10.   The board of  directors  may appoint  advisory  directors  to serve for a
       period of not more than one year. Such appointed directors shall act only
       in an advisory  capacity without right to vote. An advisory  director may
       be removed by the board of  directors  whenever in its  judgment the best
       interests  of the  company  would be served  thereby.  The fee to be paid
       advisory directors for their services shall be fixed by resolution of the
       board.

<PAGE>   5

11.    Nothing in this Article,  however,  should be construed as to prevent the
       directors from establishing one or more separate accounts for purposes of
       issuing  contracts with variable  benefits and approving such  additional
       voting  rights  for  variable  contract  owners as may be  authorized  or
       required by the law.

ARTICLE V - OFFICERS

  1.   The  officers  of  the  company  shall  be a  chairman  of the  board,  a
       president,  one or more vice  presidents,  a treasurer,  a secretary,  an
       actuary,  and such other  officers  as may be  appointed  by the board of
       directors. Any two or more offices may be held by the same person, except
       the offices of  president  and  secretary.  All  officers of the company,
       except  appointed  officers,  shall be elected  annually  by the board of
       directors at the first meeting of the board of directors  held after each
       annual  meeting of the  policyholders.  If the election of officers shall
       not be  held  at  such  meeting,  such  election  shall  be  held as soon
       thereafter as conveniently may be. Vacancies may be filled or new offices
       filled at any meeting of the board of directors.  Each officer shall hold
       office until his successor  shall have been duly elected or appointed and
       shall have qualified, or until his death, or until he shall have resigned
       or shall have been removed in the manner hereinafter provided.

       Any officer elected or appointed by the board of directors may be removed
       by the board of directors  whenever in its judgment the best  interest of
       the company  would be served  thereby,  but such removal shall be without
       prejudice to the contract rights, if any, of the person so removed.

  2.   The chairman of the board shall preside at all meetings of  policyholders
       or directors  and shall perform such other duties as shall be assigned to
       him by the board of  directors.  In the  absence of the  chairman  of the
       board,  the president  shall preside over  meetings of  policyholders  or
       directors.

  3.   The president shall be chief executive officer of the company, unless the
       chairman of the board is so  designated,  and he shall perform such other
       duties as are  incident to the office of the  president  or are  properly
       assigned to him by the board of directors.

  4.   The vice  presidents  shall have such powers and discharge such duties as
       may be assigned to them from time to time by the board of directors.

  5.   The treasurer shall have charge and custody of and be responsible for all
       funds and  securities  of the  company;  shall  disburse the funds of the
       company in  payments of just  demands  against it or as may be ordered by
       the board of directors, and in general perform all the duties incident to
       the office of treasurer and such other duties as may from time to time be
       assigned to him by the board of directors.  The assistant  treasurer,  if
       any, may sign in place of the treasurer with the same force and effect as
       the treasurer is authorized to sign.

  6.   The secretary shall keep the minutes of meetings of the policyholders and
       of the  board  of  directors,  see  that all  notices  are duly  given in
       accordance  with the  provisions  of these

<PAGE>   6

       bylaws or as required by law; shall be custodian of the corporate records
       and seal of the company,  and in general  perform all duties  incident to
       the office of secretary and such other duties as may from time to time be
       assigned to him by the board of directors.  The assistant  secretary,  if
       any, may sign and attest  documents with the same force and effect as the
       secretary is authorized to sign and attest.

  7.   The actuary shall have general supervision over all computations relating
       to premium  rates,  policy  dividends,  reserves  and  surrender  values,
       preparation  of the annual  statement of the company,  perform such other
       duties as are  incident  to his office and such other  duties as may from
       time to time be assigned to him by the board of directors.  In absence or
       inability  of the  actuary,  his duties may be  performed by an associate
       actuary or by an assistant actuary.

  8.   The  salaries  of the  officers  shall be fixed  from time to time by the
       board of directors, and no officer shall be prevented from receiving such
       salary by reason of the fact that he is also a director of the company.

  9.   The  company  shall  indemnify  every  person,  his heirs,  executors  or
       administrators,  who is or was a  director,  officer,  or employee of the
       company,  or is or  was  serving  at the  request  of  the  company  as a
       director,  officer or employee of another  business  entity,  to the full
       extent permitted or authorized by the laws of the state of Kansas, as now
       in effect and as  hereafter  amended,  against any  liability,  judgment,
       fine, amount paid in settlement,  cost or expense  (including  attorney's
       fees)  asserted or threatened  against and incurred by such person in his
       capacity  as or arising  out of his  status as a  director,  officer,  or
       employee of the company or, if serving at the request of the company as a
       director,   officer  or  employee  of  another   business   entity.   The
       indemnification  provided by this bylaw  provision shall not be exclusive
       of any other rights to which those  indemnified may be entitled under any
       other bylaw or under any agreement, vote of stockholders or disinterested
       directors  or  otherwise,  and shall not limit in any way any right which
       the company may have to make different or further  indemnifications  with
       respect to the same or different persons or classes of persons.

ARTICLE VI - SEAL

  1.   The corporate seal of the company shall consist of two concentric circles
       between which shall be the name of the company and in the center of which
       shall be inscribed the year of its incorporation.

ARTICLE VII - FRATERNAL CERTIFICATES

  1.   The gross  premium  payable  with respect to each  fraternal  certificate
       issued  by  the  corporation   shall  be  the  sum  designated  prior  to
       transformation  of the corporation from a fraternal  benefit society to a
       mutual life  insurance  company as home office  premium plus a collection
       charge equal to the sum paid prior to such  transformation as subordinate
       council  dues or  collection  fee.  Provided,  however,  that the  annual
       collection  charge  payable  with respect to each  fraternal  certificate
       shall not in any case exceed $2.40.

<PAGE>   7

  2.   The gross  premium for each  fraternal  certificate  shall become due and
       payable, without notice, on the first day of the calendar month following
       the period for which  prior  payment  has been made.  The first  calendar
       month  following  the  period  for which  payment  has been made shall be
       allowed as a grace period  during which the  certificate  shall remain in
       full force and effect.  If the gross premium for any  certificate  is not
       paid when due or within the grace period,  such  certificate  shall be in
       default  and all  rights  and  benefits  thereunder  shall be  forfeited,
       without notice,  except as may otherwise be provided by the terms of such
       certificate.

  3.   Every fraternal  certificate  which shall become in default on account of
       nonpayment  of gross  premiums may be reinstated at any time within sixty
       days  after  the date of such  default  by  payment  in full of the gross
       premiums in arrears,  provided the insured under such  certificate  is in
       sound mental and  physical  condition  on the date of such  payment.  Any
       payment of gross premiums made for the purpose of effecting reinstatement
       under the provisions of this section shall constitute a representation by
       the insured  making such  payment  that he or she is in sound  mental and
       physical  condition;  and the receipt and retention of such payment shall
       not effect  reinstatement  of the  certificate  if the  insured is not in
       sound mental and physical condition.

  4.   Every fraternal  certificate  which shall become in default on account of
       nonpayment of gross  premiums,  and which shall not have been  reinstated
       within sixty days after the date of such default,  may be reinstated only
       in  accordance  with and as  permitted by the rules and  regulations  for
       reinstatement prescribed by the board of directors.

  5.   Any  person  or  corporation  may  be  appointed  as a  beneficiary  in a
       fraternal   certificate,   except  as   eligibility   with   respect   to
       beneficiaries  may be  restricted  by the laws of the  state in which the
       certificate was first delivered to the insured.

  6.   The owner of a fraternal  certificate in force may at any time change the
       beneficiary  by filing a satisfactory  written  notice  therefor with the
       company  at its  home  office.  The  fraternal  certificate  need  not be
       presented for endorsement  except upon written request of the company.  A
       change of beneficiary  shall not be effective  until it has been recorded
       by the company at its home  office.  After such  recordation,  the change
       shall relate back to and take effect as of the date the owner signed said
       written request, whether or not the insured be living at the time of such
       recordation,  but  without  prejudice  to the  company  on account of any
       payment  made by it before  receipt of such  written  request at its home
       office.  If  there be more  than  one  beneficiary  the  interest  of any
       deceased  beneficiary  shall pass to the  survivor or  survivors,  unless
       otherwise  directed by the owner and recorded at the home  office.  If no
       designated beneficiary survives the insured, the amount payable under the
       certificate   shall  be  paid  in  a  lump  sum  to  the   executors   or
       administrators of the insured.

  7.   Whenever  the age of an  insured  in a  fraternal  certificate  has  been
       understated in his or her application for insurance,  and the correct age
       was  within the age  limits of the  corporation,  the amount of the death
       benefit payable under such certificate shall be such as the premiums

<PAGE>   8

       paid  would  have   purchased  at  the  correct  age   according  to  the
       corporation's   premium   rates  in  force  on  the  issue  date  of  the
       certificate.  If the  correct  age of the  insured was not within the age
       limits of the corporation,  the liability of the corporation under his or
       her certificate  shall be the premiums paid thereon.  If the age has been
       overstated in the application, no additional amount of insurance or other
       values shall be granted on account of any excess  premium paid,  but such
       excess premium shall be returned without interest.

  8.   That part of the gross premium  designated prior to transformation of the
       corporation  as home office  premium  shall,  with  respect to  fraternal
       certificates issued on the pure assessment plan, be payable in accordance
       with the following premium table:

                        PREMIUMS PER $1,000 OF INSURANCE

  AGE NEAREST                             AGE NEAREST
   BIRTHDAY     MONTHLY        ANNUAL       BIRTHDAY        MONTHLY      ANNUAL

      16        $1.15          $13.25          49            $3.25        $37.45
      17         1.20           13.50          50             3.40         39.25
      18         1.20           13.80          51             3.60         41.10
      19         1.20           14.10          52             3.75         43.10
      20         1.25           14.40          53             3.95         45.30
      21         1.30           14.75          54             4.15         47.55
      22         1.30           15.10          55             4.35         50.00
      23         1.35           15.45          56             4.60         52.65
      24         1.40           15.80          57             4.85         55.45
      25         1.40           16.20          58             5.10         58.45
      26         1.45           16.65          59             5.40         61.65
      27         1.50           17.10          60             5.70         65.05
      28         1.50           17.55          61             6.00         67.25
      29         1.55           18.05          62             6.40         71.10
      30         1.60           18.55          63             6.80         75.30
      31         1.65           19.10          64             7.20         79.85
      32         1.70           19.70          65             7.65         84.70
      33         1.75           20.30          66             8.15         89.95
      34         1.80           20.95          67             8.65         95.60
      35         1.90           21.65          68             9.25        101.70
      36         1.95           22.40          69             9.85        108.30
      37         2.00           23.15          70            10.55        115.45
      38         2.10           24.00          71            11.30        123.15
      39         2.15           24.85          72            12.15        131.55
      40         2.25           25.80          73            13.00        140.60

<PAGE>   9

  AGE NEAREST                             AGE NEAREST
   BIRTHDAY     MONTHLY        ANNUAL       BIRTHDAY        MONTHLY      ANNUAL

      41         2.30           26.80          74            14.00        150.50
      42         2.40           27.85          75            15.10        161.20
      43         2.50           28.95          76            16.25        172.85
      44         2.60           30.15          77            17.55        185.55
      45         2.70           31.45          78            19.00        199.35
      46         2.85           32.80          79            20.60        214.45
      47         2.95           34.25          80 and over   22.35        230.90
      48         3.10           35.90

       The  premium  rates as  stated  in said  table  shall  be based  upon the
       attained  age nearest  birthday  of the insured as of July 1, 1935.  Each
       insured  under  a pure  assessment  fraternal  certificate  shall,  after
       premiums in accordance with the above table have been paid for three full
       years,  be  entitled  to  the  nonforfeiture  options  of  extended  term
       insurance,  paid up insurance or  certificate  loans to the extent of the
       tabular reserve to the credit of such certificate.

  9.   Any insured under a pure assessment fraternal certificate may, in lieu of
       making premium payments in accordance with the premium table specified in
       the preceding  section,  elect to continue to make monthly  payments upon
       his  certificate at the rate paid for the month of January,  1935. In the
       event of such election,  the certificate  upon which such payment is made
       shall  automatically  be  reduced  to such  face  amount  of  whole  life
       insurance  (with the reserve thereon  computed  according to the American
       Experience  Table of Mortality with an interest  assumption of 4%) as the
       payment  actually  made would  purchase  at the rates  specified  in said
       premium table for the attained age nearest  birthday of the insured as of
       July 1, 1935. The payment by any insured for the month of July, 1935, and
       subsequent  months  at the rate  paid by such  insured  for the  month of
       January,  1935, shall be considered an election by such insured to reduce
       the amount of his  certificate  and  continue  the same in force for such
       reduced face amount.  Each insured who elects to continue to make monthly
       payments upon his  certificate at the rate paid for the month of January,
       1935, shall,  after such payments have been made for three full years, be
       entitled to the nonforfeiture options of extended term insurance, paid up
       insurance or  certificate  loans to the extent of the tabular  reserve to
       the credit of such certificate.

10.    Every  fraternal  certificate  issued  prior to January  1,  1938,  which
       contains  nonforfeiture  provisions is, with respect to such  provisions,
       hereby amended as follows:

            In the event the owner does not within sixty days after the due date
            of any  premium  in  default  elect  in  writing  any  of the  other
            available nonforfeiture options, the insurance will be automatically
            continued in force as  nonparticipating  extended term  insurance in
            accordance  with  the  extended  term  insurance  provision  of  the
            certificate:   Provided,   however,   that  the  insurance  under  a
            certificate  which  does not  contain  an  extended  term  insurance
            provision   will   be   automatically    continued   in

<PAGE>   10

            force as  nonparticipating  paid up insurance in accordance with the
            paid up insurance provision of the certificate.

11.    The owner of each  fraternal  certificate  in good standing  prior to the
       transformation  of the corporation from a fraternal  benefit society to a
       mutual  life   insurance   company   shall  have  the  right  after  such
       transformation to transfer the insurance evidenced by such certificate to
       the mutual life plan in the manner provided by law. The company shall not
       have  the  right  to  levy  an  assessment  against  the  owner  of  such
       transferred  insurance or impose a lien  against the reserve  standing to
       the credit thereof.

12.    The right and power  heretofore  existing in the  corporation  to levy an
       assessment in addition to the gross premiums payable with respect to each
       fraternal certificate is hereby irrevocably waived.

13.    The term  "fraternal  certificate,"  wherever  the same  appears in these
       bylaws,  shall mean and apply to all beneficiary  certificates  issued by
       the  corporation  prior to its  transformation  from a fraternal  benefit
       society to a mutual life insurance company.

ARTICLE VIII - AMENDMENTS

  1.   These  bylaws may be  amended,  changed or  repealed by a majority of the
       board of directors at any regular or special  meeting of the board.  They
       may also be amended,  changed or  repealed  at any annual  meeting of the
       policyholders  by a  majority  vote of the  policyholders  at any  annual
       meeting,  provided that such proposed  amendment,  change or repeal to be
       considered  at the annual  meeting of the  policyholders  shall have been
       submitted  in writing and filed with the  secretary  at least ninety days
       before the time for holding the annual meeting at which action thereon is
       to be taken.

<PAGE>   1
                       Consent of Independent Auditors


We consent to the reference to our firm under the caption "Experts" 
and to the use of our reports dated February 7, 1997, with respect to the
financial statements of Security Benefit Life Insurance Company and
Subsidiaries and the financial statements of Variable Annuity Account VIII 
included in Amendment No. 5 to the Registration Statement (Form N-4 No.
33-85592) and the related Statement of Additional Information accompanying the
Prospectus  of Variflex LS Variable Annuity.



                                                        Ernst & Young LLP

Kansas City, Missouri
October 15, 1997

<TABLE> <S> <C>


<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              001
        <NAME>                                SERIES A
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                      30,692
<INVESTMENTS-AT-VALUE>                                     31,719
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                             31,719
<PAYABLE-FOR-SECURITIES>                                   31,719
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                        31,719
<SENIOR-EQUITY>                                                 0
<PAID-IN-CAPITAL-COMMON>                                        0
<SHARES-COMMON-STOCK>                                       1,987
<SHARES-COMMON-PRIOR>                                         290
<ACCUMULATED-NII-CURRENT>                                       0
<OVERDISTRIBUTION-NII>                                          0
<ACCUMULATED-NET-GAINS>                                         0
<OVERDISTRIBUTION-GAINS>                                        0
<ACCUM-APPREC-OR-DEPREC>                                      899
<NET-ASSETS>                                               31,719
<DIVIDEND-INCOME>                                             167
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                226
<NET-INVESTMENT-INCOME>                                      (59)
<REALIZED-GAINS-CURRENT>                                    1,899
<APPREC-INCREASE-CURRENT>                                     899
<NET-CHANGE-FROM-OPS>                                       2,739
<EQUALIZATION>                                                  0
<DISTRIBUTIONS-OF-INCOME>                                       0
<DISTRIBUTIONS-OF-GAINS>                                        0
<DISTRIBUTIONS-OTHER>                                           0
<NUMBER-OF-SHARES-SOLD>                                     2,499
<NUMBER-OF-SHARES-REDEEMED>                                   802
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                      1,697
<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>                                               226
<AVERAGE-NET-ASSETS>                                       17,772
<PER-SHARE-NAV-BEGIN>                                       13.20
<PER-SHARE-NII>                                             (.05)
<PER-SHARE-GAIN-APPREC>                                      2.81
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         15.96
<EXPENSE-RATIO>                                              1.27
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>

<TABLE> <S> <C>



<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              002
        <NAME>                                SERIES B
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                      20,771
<INVESTMENTS-AT-VALUE>                                     20,552
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                             20,552
<PAYABLE-FOR-SECURITIES>                                   20,552
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                        20,552
<SENIOR-EQUITY>                                                 0
<PAID-IN-CAPITAL-COMMON>                                        0
<SHARES-COMMON-STOCK>                                       1,389
<SHARES-COMMON-PRIOR>                                         249
<ACCUMULATED-NII-CURRENT>                                       0
<OVERDISTRIBUTION-NII>                                          0
<ACCUMULATED-NET-GAINS>                                         0
<OVERDISTRIBUTION-GAINS>                                        0
<ACCUM-APPREC-OR-DEPREC>                                    (325)
<NET-ASSETS>                                               20,552
<DIVIDEND-INCOME>                                             299
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                161
<NET-INVESTMENT-INCOME>                                       138
<REALIZED-GAINS-CURRENT>                                    1,785
<APPREC-INCREASE-CURRENT>                                   (325)
<NET-CHANGE-FROM-OPS>                                       1,598
<EQUALIZATION>                                                  0
<DISTRIBUTIONS-OF-INCOME>                                       0
<DISTRIBUTIONS-OF-GAINS>                                        0
<DISTRIBUTIONS-OTHER>                                           0
<NUMBER-OF-SHARES-SOLD>                                     1,372
<NUMBER-OF-SHARES-REDEEMED>                                   232
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                      1,140
<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>                                               161
<AVERAGE-NET-ASSETS>                                       11,857
<PER-SHARE-NAV-BEGIN>                                       12.70
<PER-SHARE-NII>                                               .17
<PER-SHARE-GAIN-APPREC>                                      1.93
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         14.80
<EXPENSE-RATIO>                                              1.36
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>

<TABLE> <S> <C>



<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              003
        <NAME>                                SERIES C
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                      16,204
<INVESTMENTS-AT-VALUE>                                     16,299
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                             16,299
<PAYABLE-FOR-SECURITIES>                                   16,299
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                        16,299
<SENIOR-EQUITY>                                                 0
<PAID-IN-CAPITAL-COMMON>                                        0
<SHARES-COMMON-STOCK>                                       1,520
<SHARES-COMMON-PRIOR>                                         289
<ACCUMULATED-NII-CURRENT>                                       0
<OVERDISTRIBUTION-NII>                                          0
<ACCUMULATED-NET-GAINS>                                         0
<OVERDISTRIBUTION-GAINS>                                        0
<ACCUM-APPREC-OR-DEPREC>                                      117
<NET-ASSETS>                                               16,299
<DIVIDEND-INCOME>                                             619
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                221
<NET-INVESTMENT-INCOME>                                       398
<REALIZED-GAINS-CURRENT>                                       62
<APPREC-INCREASE-CURRENT>                                     117
<NET-CHANGE-FROM-OPS>                                         577
<EQUALIZATION>                                                  0
<DISTRIBUTIONS-OF-INCOME>                                       0
<DISTRIBUTIONS-OF-GAINS>                                        0
<DISTRIBUTIONS-OTHER>                                           0
<NUMBER-OF-SHARES-SOLD>                                     5,023
<NUMBER-OF-SHARES-REDEEMED>                                 3,792
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                      1,231
<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>                                               221
<AVERAGE-NET-ASSETS>                                        9,645
<PER-SHARE-NAV-BEGIN>                                       10.35
<PER-SHARE-NII>                                               .44
<PER-SHARE-GAIN-APPREC>                                     (.07)
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         10.72
<EXPENSE-RATIO>                                              2.29
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>

<TABLE> <S> <C>



<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              004
        <NAME>                                SERIES D
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                      15,488
<INVESTMENTS-AT-VALUE>                                     15,630
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                             15,630
<PAYABLE-FOR-SECURITIES>                                   15,630
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                        15,630
<SENIOR-EQUITY>                                                 0
<PAID-IN-CAPITAL-COMMON>                                        0
<SHARES-COMMON-STOCK>                                       1,183
<SHARES-COMMON-PRIOR>                                         126
<ACCUMULATED-NII-CURRENT>                                       0
<OVERDISTRIBUTION-NII>                                          0
<ACCUMULATED-NET-GAINS>                                         0
<OVERDISTRIBUTION-GAINS>                                        0
<ACCUM-APPREC-OR-DEPREC>                                      105
<NET-ASSETS>                                               15,630
<DIVIDEND-INCOME>                                             328
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                112
<NET-INVESTMENT-INCOME>                                       216
<REALIZED-GAINS-CURRENT>                                      579
<APPREC-INCREASE-CURRENT>                                     105
<NET-CHANGE-FROM-OPS>                                         900
<EQUALIZATION>                                                  0
<DISTRIBUTIONS-OF-INCOME>                                       0
<DISTRIBUTIONS-OF-GAINS>                                        0
<DISTRIBUTIONS-OTHER>                                           0
<NUMBER-OF-SHARES-SOLD>                                     1,273
<NUMBER-OF-SHARES-REDEEMED>                                   216
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                      1,057
<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>                                               112
<AVERAGE-NET-ASSETS>                                        8,536
<PER-SHARE-NAV-BEGIN>                                       11.42
<PER-SHARE-NII>                                               .33
<PER-SHARE-GAIN-APPREC>                                      1.46
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         13.21
<EXPENSE-RATIO>                                              1.31
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>

<TABLE> <S> <C>



<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              005
        <NAME>                                SERIES E
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                      18,684
<INVESTMENTS-AT-VALUE>                                     18,459
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                             18,459
<PAYABLE-FOR-SECURITIES>                                   18,459
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                        18,459
<SENIOR-EQUITY>                                                 0
<PAID-IN-CAPITAL-COMMON>                                        0
<SHARES-COMMON-STOCK>                                       1,632
<SHARES-COMMON-PRIOR>                                         240
<ACCUMULATED-NII-CURRENT>                                       0
<OVERDISTRIBUTION-NII>                                          0
<ACCUMULATED-NET-GAINS>                                         0
<OVERDISTRIBUTION-GAINS>                                        0
<ACCUM-APPREC-OR-DEPREC>                                    (298)
<NET-ASSETS>                                               18,459
<DIVIDEND-INCOME>                                             651
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                123
<NET-INVESTMENT-INCOME>                                       528
<REALIZED-GAINS-CURRENT>                                    (215)
<APPREC-INCREASE-CURRENT>                                   (298)
<NET-CHANGE-FROM-OPS>                                          15
<EQUALIZATION>                                                  0
<DISTRIBUTIONS-OF-INCOME>                                       0
<DISTRIBUTIONS-OF-GAINS>                                        0
<DISTRIBUTIONS-OTHER>                                           0
<NUMBER-OF-SHARES-SOLD>                                     1,846
<NUMBER-OF-SHARES-REDEEMED>                                   454
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                      1,392
<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>                                               123
<AVERAGE-NET-ASSETS>                                       10,618
<PER-SHARE-NAV-BEGIN>                                       11.56
<PER-SHARE-NII>                                               .56
<PER-SHARE-GAIN-APPREC>                                     (.81)
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         11.31
<EXPENSE-RATIO>                                              1.16
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>

<TABLE> <S> <C>



<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              006
        <NAME>                                SERIES S
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                       3,169
<INVESTMENTS-AT-VALUE>                                      3,239
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                              3,239
<PAYABLE-FOR-SECURITIES>                                    3,239
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                         3,239
<SENIOR-EQUITY>                                                 0
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<SHARES-COMMON-STOCK>                                         221
<SHARES-COMMON-PRIOR>                                          37
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<OVERDISTRIBUTION-NII>                                          0
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<OVERDISTRIBUTION-GAINS>                                        0
<ACCUM-APPREC-OR-DEPREC>                                       53
<NET-ASSETS>                                                3,239
<DIVIDEND-INCOME>                                               8
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                 23
<NET-INVESTMENT-INCOME>                                      (15)
<REALIZED-GAINS-CURRENT>                                      119
<APPREC-INCREASE-CURRENT>                                      53
<NET-CHANGE-FROM-OPS>                                         157
<EQUALIZATION>                                                  0
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<DISTRIBUTIONS-OF-GAINS>                                        0
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<NUMBER-OF-SHARES-SOLD>                                       216
<NUMBER-OF-SHARES-REDEEMED>                                    32
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                        184
<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>                                                23
<AVERAGE-NET-ASSETS>                                        1,853
<PER-SHARE-NAV-BEGIN>                                       12.56
<PER-SHARE-NII>                                             (.12)
<PER-SHARE-GAIN-APPREC>                                      2.25
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         14.69
<EXPENSE-RATIO>                                              1.24
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>

<TABLE> <S> <C>



<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              007
        <NAME>                                SERIES J
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                      10,498
<INVESTMENTS-AT-VALUE>                                     10,687
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                             10,687
<PAYABLE-FOR-SECURITIES>                                   10,687
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                        10,687
<SENIOR-EQUITY>                                                 0
<PAID-IN-CAPITAL-COMMON>                                        0
<SHARES-COMMON-STOCK>                                         772
<SHARES-COMMON-PRIOR>                                         134
<ACCUMULATED-NII-CURRENT>                                       0
<OVERDISTRIBUTION-NII>                                          0
<ACCUMULATED-NET-GAINS>                                         0
<OVERDISTRIBUTION-GAINS>                                        0
<ACCUM-APPREC-OR-DEPREC>                                      182
<NET-ASSETS>                                               10,687
<DIVIDEND-INCOME>                                              13
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                 85
<NET-INVESTMENT-INCOME>                                      (72)
<REALIZED-GAINS-CURRENT>                                      435
<APPREC-INCREASE-CURRENT>                                     182
<NET-CHANGE-FROM-OPS>                                         545
<EQUALIZATION>                                                  0
<DISTRIBUTIONS-OF-INCOME>                                       0
<DISTRIBUTIONS-OF-GAINS>                                        0
<DISTRIBUTIONS-OTHER>                                           0
<NUMBER-OF-SHARES-SOLD>                                     1,048
<NUMBER-OF-SHARES-REDEEMED>                                   410
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                        638
<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>                                                85
<AVERAGE-NET-ASSETS>                                        6,138
<PER-SHARE-NAV-BEGIN>                                       11.89
<PER-SHARE-NII>                                             (.16)
<PER-SHARE-GAIN-APPREC>                                      2.11
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         13.84
<EXPENSE-RATIO>                                              1.38
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>

<TABLE> <S> <C>



<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              008
        <NAME>                                SERIES K
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                       4,032
<INVESTMENTS-AT-VALUE>                                      3,925
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                              3,925
<PAYABLE-FOR-SECURITIES>                                    3,925
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                         3,925
<SENIOR-EQUITY>                                                 0
<PAID-IN-CAPITAL-COMMON>                                        0
<SHARES-COMMON-STOCK>                                         328
<SHARES-COMMON-PRIOR>                                          86
<ACCUMULATED-NII-CURRENT>                                       0
<OVERDISTRIBUTION-NII>                                          0
<ACCUMULATED-NET-GAINS>                                         0
<OVERDISTRIBUTION-GAINS>                                        0
<ACCUM-APPREC-OR-DEPREC>                                    (114)
<NET-ASSETS>                                                3,925
<DIVIDEND-INCOME>                                             260
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                 34
<NET-INVESTMENT-INCOME>                                       226
<REALIZED-GAINS-CURRENT>                                      200
<APPREC-INCREASE-CURRENT>                                   (114)
<NET-CHANGE-FROM-OPS>                                         312
<EQUALIZATION>                                                  0
<DISTRIBUTIONS-OF-INCOME>                                       0
<DISTRIBUTIONS-OF-GAINS>                                        0
<DISTRIBUTIONS-OTHER>                                           0
<NUMBER-OF-SHARES-SOLD>                                       380
<NUMBER-OF-SHARES-REDEEMED>                                   138
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                        242
<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>                                                34
<AVERAGE-NET-ASSETS>                                        2,424
<PER-SHARE-NAV-BEGIN>                                       10.67
<PER-SHARE-NII>                                              1.09
<PER-SHARE-GAIN-APPREC>                                       .20
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         11.96
<EXPENSE-RATIO>                                              1.40
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>

<TABLE> <S> <C>



<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              009
        <NAME>                                SERIES M
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                      15,180
<INVESTMENTS-AT-VALUE>                                     16,285
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                             16,285
<PAYABLE-FOR-SECURITIES>                                   16,285
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                        16,285
<SENIOR-EQUITY>                                                 0
<PAID-IN-CAPITAL-COMMON>                                        0
<SHARES-COMMON-STOCK>                                       1,361
<SHARES-COMMON-PRIOR>                                         471
<ACCUMULATED-NII-CURRENT>                                       0
<OVERDISTRIBUTION-NII>                                          0
<ACCUMULATED-NET-GAINS>                                         0
<OVERDISTRIBUTION-GAINS>                                        0
<ACCUM-APPREC-OR-DEPREC>                                      998
<NET-ASSETS>                                               16,285
<DIVIDEND-INCOME>                                             144
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                163
<NET-INVESTMENT-INCOME>                                      (19)
<REALIZED-GAINS-CURRENT>                                      352
<APPREC-INCREASE-CURRENT>                                     998
<NET-CHANGE-FROM-OPS>                                       1,331
<EQUALIZATION>                                                  0
<DISTRIBUTIONS-OF-INCOME>                                       0
<DISTRIBUTIONS-OF-GAINS>                                        0
<DISTRIBUTIONS-OTHER>                                           0
<NUMBER-OF-SHARES-SOLD>                                     1,089
<NUMBER-OF-SHARES-REDEEMED>                                   199
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                        890
<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>                                               163
<AVERAGE-NET-ASSETS>                                       10,645
<PER-SHARE-NAV-BEGIN>                                       10.62
<PER-SHARE-NII>                                             (.02)
<PER-SHARE-GAIN-APPREC>                                      1.36
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         11.96
<EXPENSE-RATIO>                                              1.53
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>

<TABLE> <S> <C>



<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              010
        <NAME>                                SERIES N
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                       7,861
<INVESTMENTS-AT-VALUE>                                      8,463
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                              8,463
<PAYABLE-FOR-SECURITIES>                                    8,463
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                         8,463
<SENIOR-EQUITY>                                                 0
<PAID-IN-CAPITAL-COMMON>                                        0
<SHARES-COMMON-STOCK>                                         715
<SHARES-COMMON-PRIOR>                                         232
<ACCUMULATED-NII-CURRENT>                                       0
<OVERDISTRIBUTION-NII>                                          0
<ACCUMULATED-NET-GAINS>                                         0
<OVERDISTRIBUTION-GAINS>                                        0
<ACCUM-APPREC-OR-DEPREC>                                      536
<NET-ASSETS>                                                8,463
<DIVIDEND-INCOME>                                              39
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                 80
<NET-INVESTMENT-INCOME>                                      (41)
<REALIZED-GAINS-CURRENT>                                      163
<APPREC-INCREASE-CURRENT>                                     536
<NET-CHANGE-FROM-OPS>                                         658
<EQUALIZATION>                                                  0
<DISTRIBUTIONS-OF-INCOME>                                       0
<DISTRIBUTIONS-OF-GAINS>                                        0
<DISTRIBUTIONS-OTHER>                                           0
<NUMBER-OF-SHARES-SOLD>                                       625
<NUMBER-OF-SHARES-REDEEMED>                                   192
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                        483
<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>                                                80
<AVERAGE-NET-ASSETS>                                        5,466
<PER-SHARE-NAV-BEGIN>                                       10.64
<PER-SHARE-NII>                                             (.09)
<PER-SHARE-GAIN-APPREC>                                      1.29
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         11.84
<EXPENSE-RATIO>                                              1.46
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>

<TABLE> <S> <C>



<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              011
        <NAME>                                SERIES O
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                      21,854
<INVESTMENTS-AT-VALUE>                                     24,214
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                             24,214
<PAYABLE-FOR-SECURITIES>                                   24,214
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                        24,214
<SENIOR-EQUITY>                                                 0
<PAID-IN-CAPITAL-COMMON>                                        0
<SHARES-COMMON-STOCK>                                       1,764
<SHARES-COMMON-PRIOR>                                         267
<ACCUMULATED-NII-CURRENT>                                       0
<OVERDISTRIBUTION-NII>                                          0
<ACCUMULATED-NET-GAINS>                                         0
<OVERDISTRIBUTION-GAINS>                                        0
<ACCUM-APPREC-OR-DEPREC>                                    2,141
<NET-ASSETS>                                               24,214
<DIVIDEND-INCOME>                                              42
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                211
<NET-INVESTMENT-INCOME>                                     (169)
<REALIZED-GAINS-CURRENT>                                      625
<APPREC-INCREASE-CURRENT>                                   2,141
<NET-CHANGE-FROM-OPS>                                       2,597
<EQUALIZATION>                                                  0
<DISTRIBUTIONS-OF-INCOME>                                       0
<DISTRIBUTIONS-OF-GAINS>                                        0
<DISTRIBUTIONS-OTHER>                                           0
<NUMBER-OF-SHARES-SOLD>                                     1,772
<NUMBER-OF-SHARES-REDEEMED>                                   275
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                      1,497
<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>                                               211
<AVERAGE-NET-ASSETS>                                       13,658
<PER-SHARE-NAV-BEGIN>                                       11.61
<PER-SHARE-NII>                                             (.17)
<PER-SHARE-GAIN-APPREC>                                      2.29
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         13.73
<EXPENSE-RATIO>                                              1.54
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>

<TABLE> <S> <C>



<ARTICLE>                                     6
<CIK>                                         0000932020
<NAME>                                        VARIFLEX LS
<SERIES>
        <NUMBER>                              012
        <NAME>                                SERIES P
<MULTIPLIER>                                  1,000
<CURRENCY>                                    U.S. DOLLARS
       
<S>                                           <C>
<PERIOD-TYPE>                                 YEAR
<FISCAL-YEAR-END>                                     DEC-31-1996
<PERIOD-START>                                        JAN-01-1996
<PERIOD-END>                                          DEC-31-1996
<EXCHANGE-RATE>                                                 1
<INVESTMENTS-AT-COST>                                           0
<INVESTMENTS-AT-VALUE>                                          0
<RECEIVABLES>                                                   0
<ASSETS-OTHER>                                                  0
<OTHER-ITEMS-ASSETS>                                            0
<TOTAL-ASSETS>                                                  0
<PAYABLE-FOR-SECURITIES>                                        0
<SENIOR-LONG-TERM-DEBT>                                         0
<OTHER-ITEMS-LIABILITIES>                                       0
<TOTAL-LIABILITIES>                                             0
<SENIOR-EQUITY>                                                 0
<PAID-IN-CAPITAL-COMMON>                                        0
<SHARES-COMMON-STOCK>                                           0
<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>                                                    0
<DIVIDEND-INCOME>                                               0
<INTEREST-INCOME>                                               0
<OTHER-INCOME>                                                  0
<EXPENSES-NET>                                                  0
<NET-INVESTMENT-INCOME>                                         0
<REALIZED-GAINS-CURRENT>                                        0
<APPREC-INCREASE-CURRENT>                                       0
<NET-CHANGE-FROM-OPS>                                           0
<EQUALIZATION>                                                  0
<DISTRIBUTIONS-OF-INCOME>                                       0
<DISTRIBUTIONS-OF-GAINS>                                        0
<DISTRIBUTIONS-OTHER>                                           0
<NUMBER-OF-SHARES-SOLD>                                         0
<NUMBER-OF-SHARES-REDEEMED>                                     0
<SHARES-REINVESTED>                                             0
<NET-CHANGE-IN-ASSETS>                                          0
<ACCUMULATED-NII-PRIOR>                                         0
<ACCUMULATED-GAINS-PRIOR>                                       0
<OVERDISTRIB-NII-PRIOR>                                         0
<OVERDIST-NET-GAINS-PRIOR>                                      0
<GROSS-ADVISORY-FEES>                                           0
<INTEREST-EXPENSE>                                              0
<GROSS-EXPENSE>                                                 0
<AVERAGE-NET-ASSETS>                                            0
<PER-SHARE-NAV-BEGIN>                                           0
<PER-SHARE-NII>                                                 0
<PER-SHARE-GAIN-APPREC>                                         0
<PER-SHARE-DIVIDEND>                                            0
<PER-SHARE-DISTRIBUTIONS>                                       0
<RETURNS-OF-CAPITAL>                                            0
<PER-SHARE-NAV-END>                                         10.60
<EXPENSE-RATIO>                                                 0
<AVG-DEBT-OUTSTANDING>                                          0
<AVG-DEBT-PER-SHARE>                                            0
        



</TABLE>


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