Prospectus

SCARBOROUGH ADVANTAGE VARIABLE ANNUITY

May 1, 2015

Important Privacy Notice Included

See Back Cover

Variable annuity contracts issued by Security Benefit Life Insurance Company and offered by Security Distributors, Inc.

V6914 32-69146-00  2014/05/01

SCARBOROUGH ADVANTAGE VARIABLE ANNUITY

Group Flexible Purchase Payment Deferred Variable Annuity Contract

Issued By: Security Benefit Life Insurance Company One Security Benefit Place Topeka, Kansas 66636-0001 1-800-888-2461 Mailing Address: Security Benefit Life Insurance Company P.O. Box 750497 Topeka, Kansas 66675-0497

This Prospectus describes the Scarborough Advantage Variable Annuity—a flexible purchase payment deferred variable annuity contract (the “Contract”) offered by Security Benefit Life Insurance Company (the “Company”). The Contract is a group contract available for those persons eligible to participate in the International Brotherhood of Electrical Workers (“IBEW”) Local Unions Savings and Retirement Plan and Trust. The Contract is designed to give you flexibility in planning for retirement and other financial goals. This Prospectus is used with both prospective and current Participants.

You may allocate your Purchase Payments and Contract Value to one or more of the Subaccounts that comprise a separate account of the Company called the Variable Annuity Account XI, or to the Fixed Account. Each Subaccount invests in a corresponding mutual fund (the “Underlying Fund”). The Underlying Funds currently available under the Contract are:

·   Goldman Sachs VIT Small Cap Equity Insights

·   Goldman Sachs VIT Strategic Growth

·   Guggenheim VIF All Cap Value

·   Guggenheim VIF Large Cap Value

·   Guggenheim VIF Mid Cap Value

·   Guggenheim VIF World Equity Income

·   Invesco V.I. Global Real Estate

·   Invesco V.I. International Growth

·   Janus Aspen Janus Portfolio

·   Neuberger Berman AMT Socially Responsive

·   PIMCO VIT Real Return

·   PIMCO VIT Total Return

·   Rydex VIF Energy Services

·   T. Rowe Price Mid-Cap Growth

Amounts allocated to the Fixed Account will accrue interest at rates that are paid by the Company as described in “The Fixed Account.” Contract Value in the Fixed Account is guaranteed by the Company, subject to its financial strength and claims-paying ability.

Amounts that you allocate to the Subaccounts under the Contract will vary based on investment performance of the Subaccounts. To the extent that you allocate Contract Value to the Subaccounts, the Company does not guarantee any amount of Contract Value.

When you are ready to receive annuity payments, the Contract provides several options for annuity payments. See “Annuity Options.”

This Prospectus concisely sets forth information about the Contract and the Separate Account that you should know before purchasing the Contract. This Prospectus should be kept for future reference. The “Statement of Additional Information,” dated May 1, 2015, which has been filed with the Securities and Exchange Commission (“SEC”), contains certain additional information. The Statement of Additional Information, as it may be supplemented from time to time, is incorporated by reference into this Prospectus and is available at no charge. You may obtain a Statement of Additional Information or a prospectus for any of the Underlying Funds by writing the Company at One Security Benefit Place, Topeka, Kansas 66636-0001 or by calling 1-800-888-2461. The table of contents of the Statement of Additional Information is set forth on page [INSERT PAGE NUMBER] of this Prospectus.

The Securities and Exchange Commission has not approved or disapproved these securities or deter­mined if the Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Summary prospectuses or prospectuses for the Underlying Funds should be carefully read in conjunction with this Prospectus before investing. You may obtain summary prospectuses or prospectuses for the underlying funds by contacting the Company at 1-800-888-2461.

The Contract is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The value of your Contract will go up and down and you could lose money.

Date:  May 1, 2015

V6914  32-69146-00  2014/05/01

The SEC maintains a web site (http://www.sec.gov) that contains the Statement of Additional Information, material incorporated by reference and other information regarding companies that file electronically with the SEC.

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Table of Contents

	Page
Definitions	6
Summary	7
Purpose of the Contract	7
The Separate Account and the Underlying Funds	7
Fixed Account	7
Purchase Payments	7
Contract Benefits	7
Charges and Deductions	8
Federal Tax Considerations	8
Tax-Free Exchanges	8
Contacting The Company	8
Expense Tables	9
Participant Transaction Expenses	9
Periodic Expenses	9
Examples	9
Condensed Financial Information	10
Information About the Company, the Separate Account, and the Underlying Funds	10
Security Benefit Life Insurance Company	10
Published Ratings	10
Separate Account	10
The Underlying Funds	11
Services and Administration	12
The Contract	12
General	12
Important Information About Your Benefits Under the Contract	13
Application to Invest in the Contract	13
Purchase Payments	13
Allocation of Purchase Payments	14
Dollar Cost Averaging Option	14
Asset Reallocation Option	15
Transfers of Contract Value	16
Contract Value	18
Determination of Contract Value	18
Cut-Off Times	19
Full and Partial Withdrawals	19
Systematic Withdrawals	20
Death Benefit	20
Distribution Requirements	21
Charges and Deductions	22
Mortality and Expense Risk Charge	22
Administration and Distribution Charge	22
Premium Tax Charge	22
Other Charges	22
Variations in Charges	23
Guarantee of Certain Charges	23
Underlying Fund Expenses	23
Annuity Period	23
General	23
Annuity Options	24
The Fixed Account	24
Interest	25
Death Benefit	25
Contract Charges	25
Transfers and Withdrawals from the Fixed Account	25
Payments from the Fixed Account	25
More About the Contract	25
Holder	25
Designation and Change of Beneficiary	25
Dividends	26
Payments from the Separate Account	26
Proof of Age and Survival	26
Misstatements	26
Cyber Security	26
Federal Tax Matters	26
Introduction	26
Tax Status of the Company and the Separate Account	27
Income Taxation of Annuities in General—Non-Qualified Plans	27
Additional Considerations	28
Other Tax Considerations	29
Other Information	30
Voting of Underlying Fund Shares	30
Changes to Investments	31
Changes to Comply with Law and Amendments	31
Reports to Participants	31
Electronic Privileges	32
Legal Proceedings	32
Legal Matters	32
Sale of the Contract	32
Performance Information	33
Additional Information	34
Registration Statement	34
Financial Statements	34
Table of Contents for Statement of Additional Information	34
Objectives for Underlying Funds	34
Appendix A – Condensed Financial Information

You may not be able to purchase the Contract in your state. You should not consider this Prospectus to be an offering if the Contract may not be lawfully offered in your state. You should only rely upon information contained in this Prospectus or that we have referred you to. We have not authorized anyone to provide you with information that is different.

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Definitions

Various terms commonly used in this Prospectus are defined as follows:

Accumulation Unit — A unit of measure used to calculate Contract Value.

Administrative Office — PlanMember Securities Corp/Scarborough Alliance Group, One Bridge Street, Irvington, New York 10533.

Annuitant — The person that you designate to receive annuity payments. If you designate Joint Annuitants, “Annuitant” means both Annuitants unless otherwise stated.

Annuity — A series of periodic income payments made by the Company to an Annuitant, Joint Annuitant, or Designated 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 Start Date — The date when annuity payments are to begin.

Automatic Investment Program — A program pursuant to which Purchase Payments are automatically paid from your bank account on a specified day of each month or a payroll deduction arrangement.

Contract Date — The date of your first contribution to the Contract. Annual Contract anniversaries are measured from the Contract Date. It is usually the date that your initial Purchase Payment is credited to the Contract.

Contractholder or Holder — The IBEW Local Unions Savings and Retirement Plan and Trust holds the Contract for the benefit of Participants.

Contract Value — The total value of your account which includes amounts allocated to the Subaccounts and the Fixed Account.

Contract Year — Each twelve-month period measured from the Contract Date.

Designated Beneficiary — The person designated by you as having the right to the death benefit, if any, payable upon your death.

Fixed Account — A separate account of the Company to which you may allocate all or a portion of your Contract Value to be held for accumulation at fixed rates of interest declared periodically by the Company.

General Account — All assets of the Company other than those allocated to the Separate Account, the Fixed Account, or to any other separate account of the Company.

Participant — A Participant as defined in the Trust Agreement.

Purchase Payment — An amount paid to the Company as consideration for the Contract.

Separate Account — The Variable Annuity Account XI. A separate account of the Company that consists of accounts, referred to as Subaccounts, each of which invests in a corresponding Underlying Fund.

Subaccount — A division of the Separate Account of the Company which invests in a corresponding Underlying Fund.

Trust — The IBEW Local Unions Savings and Retirement Plan and Trust.

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Trust Agreement — The Trust Agreement creating the Trust.

Underlying Fund — A mutual fund or series thereof that serves as an investment vehicle for its corresponding Subaccount.

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 observation of the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

Valuation Period — A period used in measuring the investment experience of each Subaccount 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 you will receive upon full withdrawal of the Contract. It is equal to Contract Value less any uncollected premium taxes.

Summary

This summary provides a brief overview of the more significant aspects of the Contract. Further detail is provided in this Prospectus, the Statement of Additional Information, and the Contract. Unless the context indicates otherwise, the discussion in this summary and the remainder of the Prospectus relates to the portion of the Contract involving the Separate Account. The Fixed Account is briefly described under “The Fixed Account” and in the Contract.

Purpose of the Contract — The flexible purchase payment deferred variable annuity contract (the “Contract”) described in this Prospectus is designed to give you flexibility in planning for retirement and other financial goals.

You may purchase the Contract pursuant to the terms of the Trust Agreement if you are eligible to be a Participant under its terms.

The Separate Account and the Underlying Funds — The Separate Account is currently divided into accounts, each referred to as a Subaccount. See “Separate Account.” Each Subaccount invests exclusively in shares of an Underlying Fund, each of which has a different investment objective and policies.

You may allocate your Purchase Payments and Contract Value among the available Subaccounts. Amounts that you allocate to the Subaccounts will increase or decrease in dollar value depending on the investment performance of the Underlying Fund in which such Subaccount invests. You bear the investment risk for amounts allocated to a Subaccount.

Fixed Account — You may allocate all or part of your Purchase Payments to the Fixed Account, which is a separate account of the Company. Amounts that you allocate to the Fixed Account earn interest at rates determined at the discretion of the Company. See “The Fixed Account.”

Purchase Payments — Unless you had an account as of July 1, 1999, the minimum initial Purchase Payment is $2,000. Thereafter, you may choose the amount and frequency of Purchase Payments, except that the minimum subsequent Purchase Payment is $100. There is no minimum for subsequent Purchase Payments made pursuant to an Automatic Investment Program. See “Purchase Payments.”

Contract Benefits — You may transfer your Contract Value among the Subaccounts and to and from the Fixed Account.

At any time before the Annuity Start Date, you may surrender your Contract for its Withdrawal Value, and may make partial withdrawals, including systematic withdrawals, from Contract Value. See “Full and Partial Withdrawals” and “Federal Tax Matters” for more information about withdrawals, including the 10% penalty tax that may be imposed upon full and partial withdrawals (including systematic withdrawals) made prior to attaining age 59½.

The Contract provides for a death benefit upon your death prior to the Annuity Start Date. See “Death Benefit” for more information. The Contract provides for several Annuity Options on a fixed basis. The Company guarantees annuity payments under the fixed Annuity Options. See “Annuity Period.”

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Charges and Deductions — The Company does not deduct sales load from Purchase Payments before allocating them to Contract Value. Certain charges will be deducted in connection with the Contract as described below.

Mortality and Expense Risk Charge. The Company deducts a daily charge from the assets of each Subaccount for mortality and expense risks equal to an annual rate of 0.45% of each Subaccount’s average daily net assets. See “Mortality and Expense Risk Charge.”

Administration and Distribution Charge. The Company currently charges an administration and distribution charge equal to an annual rate of 0.91% of each Subaccount’s average daily net assets, except that the annual rate for the Guggenheim VIF Large Cap Value, Guggenheim VIF World Equity Income, Guggenheim VIF All Cap Value and Guggenheim VIF Mid Cap Value Subaccounts is 0.56%. The Company may deduct a maximum daily administra­tion and distribution charge equal to an annual rate of 0.94% of each Subaccount’s average daily net assets, except the Guggenheim VIF Large Cap Value, Guggenheim VIF World Equity Income, Guggenheim VIF All Cap Value and Guggenheim VIF Mid Cap Value Subaccounts for which the maximum annual rate is 0.59%. See “Administration and Distribution Charge.”

Premium Tax Charge. The Company assesses a premium tax charge to reimburse itself for any premium taxes that it incurs with respect to this Contract. This charge will usually be deducted when you begin receiving annuity payments or upon full withdrawal if a premium tax was incurred by the Company 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 the Company and is not refundable. Currently, in Maine and Wyoming, the company deducts the premium tax from Purchase Payments applied to a Non-Qualified Plan. The Company reserves the right to deduct such taxes when due or anytime thereafter. Premium tax rates currently range from 0% to 3.5%. See “Premium Tax Charge.”

Other Expenses. Investment advisory fees and operating expenses of each Underlying Fund are paid by the Underlying Fund and are reflected in the net asset value of its shares. For a description of these charges and expenses, see the prospectus for each Underlying Fund.

Federal Tax Considerations — All or part of any distribution, including an actual distribution of funds such as a surrender or annuity payment and a pledge or assignment of a contract, is generally taxable as ordinary income, and, in addition, a penalty tax may apply to certain distributions made prior to the Owner's reaching age 59½. Governing federal tax statutes may be amended, revoked, or replaced by new legislation. Changes in interpretation of these statutes may also occur. We encourage you to consult your own tax adviser before making a purchase of the Contract. (See “Federal Tax Matters.”)

Tax-Free Exchanges — You can generally exchange one contract for another in a “tax-free exchange” under Section 1035 of the Internal Revenue Code. Before making an exchange, you should compare both contracts carefully. Remember that if you exchange another contract for the one described in this prospectus, you might have to pay a surrender charge and tax, including a possible penalty tax, on your old contract, there will be new charges for this Contract, which may be higher (or lower), and the benefits may be different. You should not exchange another contract for this one unless you determine, after knowing all the facts, that the exchange is in your best interest and not just better for the person trying to sell you this Contract (that person will generally earn a commission if you buy this Contract through an exchange or otherwise). If you contemplate such an exchange, you should consult a tax adviser to discuss the potential tax effects of such a transaction.

The IRS has also ruled that a partial exchange may also be effected on a tax free basis. However, under certain circumstances, recognition of the gain may be triggered by a distribution from the Contract within 180 days of the exchange. Please see your tax adviser for further information.

Contacting The Company — You should direct all written requests, notices, and forms required by the Contract, and any questions or inquiries to the Administrative Office located at One Bridge Street, Irvington, New York 10533 or by phone by calling (914) 591-9200 or 1-800-223-7608.

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Expense Tables

The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the Contract.

Participant Transaction Expenses are fees and expenses that you will pay when you invest in the Contract or make withdrawals from the Contract. The information below does not reflect state premium taxes (which currently range from 0% to 3.5%), which may be applicable to your Contract.
Sales Load on Purchase Payments	None
Deferred Sales Charge (as a percentage of amount withdrawn attributable to Purchase Payments)	None
Transfer Fee (per transfer)	None
Periodic Expenses are fees and expenses that you will pay periodically during the time that you own the Contract, not including fees and expenses of the Underlying Funds.
Separate Account Annual Expenses (as a percentage of average Subaccount daily net assets)
Annual Mortality and Expense Risk Charge	0.45%
Annual Administration and Distribution Charge	0.94%1
Total Separate Account Annual Expenses	1.39%
1    The maximum annual administration and distribution charge is 0.94% for all Subaccounts, except the Guggenheim VIF Large Cap Value, Guggenheim VIF All Cap Value and Guggenheim VIF Mid Cap Value Subaccounts for which the maximum annual administration and distribution charge is 0.59%. The Company currently assesses an annual administration and distribution charge of 0.91% from the Subaccounts (0.56% from theGuggenheim VIF Large Cap Value, Guggenheim VIF World Equity Income, Guggenheim VIF All Cap Value and Guggenheim VIF Mid Cap Value Subaccounts).

The table below shows the minimum and maximum total operating expenses charged by the Underlying Funds. You will pay the expenses of the Underlying Funds corresponding to the Subaccounts in which you invest during the time that you own the Contract. More detail concerning each Underlying Fund’s fees and expenses is contained in its prospectus.

	Minimum	Maximum
Gross Annual Underlying Fund Operating Expenses1	0.65%	1.66%
1    Expenses deducted from Underlying Fund assets include management fees, distribution (12b-1) fees, service fees and other expenses. The maximum expenses above represent the total annual operating expenses of that Underlying Fund with the highest total operating expenses for the one year period ended December 31, 2014, and the minimum expenses represent the total annual operating expenses of that Underlying Fund with the lowest total operating expenses for the one year period ended December 31, 2014. The Total Annual Fund Operating Expenses do not take into account any voluntary or contractual expense waivers or reimbursements. Current and future total operating expenses of the Underlying Funds could be higher or lower than those shown in the table.

Examples — This Example is intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include separate account annual expenses and Underlying Fund fees and expenses but do not include state premium taxes, which may be applicable to the Contract.

The Example assumes that you invest $10,000 in the Contract for the time periods indicated. The Example also assumes that your investment has a 5% return each year and assumes the maximum fees and expense of the Contract and any of the Underlying Funds. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

Based on Maximum Underlying Fund Expenses	1 Year	3 Years	5 Years	10 Years
Whether or not you surrender or annuitize your Contract at the end of the applicable time period	$308	$942	$1,601	$3,365

Based on Minimum Underlying Fund Expenses	1 Year	3 Years	5 Years	10 Years
Whether or not you surrender or annuitize your Contract at the end of the applicable time period	$207	$640	$1,098	$2,369

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Condensed Financial Information

Condensed financial information appears in Appendix A of this Prospectus.

Information About the Company, the Separate Account, and the Underlying Funds

Security Benefit Life Insurance Company — The Company is a life insurance company organized under the laws of the State of Kansas. It was organized originally as a fraternal benefit society and commenced business February 22, 1892. It became a mutual life insurance company under its present name on January 2, 1950, and converted to a stock life insurance company on July 31, 1998. The Company is a wholly owned subsidiary of Security Benefit Corporation and is ultimately controlled by Sammons Enterprises, Inc., Dallas, Texas. Sammons Enterprises has controlling or substantial stock interests in a large number of other companies engaged in the areas of insurance, corporate services, and industrial distribution.

The Company offers life insurance policies and annuity contracts, as well as financial and retirement services. It is admitted to do business in the District of Columbia, and in all states except New York. As of the end of 2014, the Company had total assets of approximately $24.5 billion.

The Principal Underwriter for the Contract is Security Distributors, Inc. (“SDI”), One Security Benefit Place, Topeka, Kansas 66636-0001. SDI, an affiliate of the Company, is registered as a broker-dealer with the SEC and is a wholly-owned subsidiary of Security Benefit Corporation.

Published Ratings — The Company may from time to time publish in advertisements, sales literature and reports to Participants, the ratings and other information assigned to it by one or more independent rating organizations such as A.M. Best Company and Standard & Poor’s. The purpose of the ratings is to reflect the financial strength and/or claims-paying ability of the Company and should not be considered as bearing on the investment performance of assets held in the Separate Account. Each year A.M. Best Company reviews the financial status of thousands of insurers, culminating in the assignment of Best’s Ratings. These ratings reflect their current opinion of the relative financial strength and operating performance of an insurance company in comparison to the norms of the life/health insurance industry. In addition, the claims-paying ability of the Company as measured by Standard & Poor’s Insurance Ratings Services may be referred to in advertisements or sales literature or in reports to Participants. 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 Company established the Separate Account under Kansas law on October 26, 1998. The Contract provides that the income, gains, or losses of the Separate Account, whether or not realized, are credited to or charged against the assets of the Separate Account without regard to other income, gains, or losses of the Company. Kansas law provides that assets in a separate account attributable to the reserves and other liabilities under the contracts may not be charged with liabilities arising from any other business that the insurance company conducts if, and to the extent the contract so provides. The Contract contains such a provision. The Company owns the assets in the Separate Account and is required to maintain sufficient assets in the Separate Account to meet all Separate Account obligations under the Contract. Such Separate Account assets are not subject to claims of the Company’s creditors. The Company may transfer to its General Account assets that exceed anticipated obligations of the Separate Account. All obligations arising under the Contract are general corporate obligations of the Company. The Company may invest its own assets in the Separate Account for other purposes, but not to support contracts other than variable annuity contracts, and may accumulate in the Separate Account proceeds from Contract charges and investment results applicable to those assets.

The Contract provides that the income, gains and losses, whether or not realized, are credited to, or charged against, the assets of each Subaccount without regard to the income, gains or losses in the other Subaccounts. Each Subaccount invests exclusively in shares of a corresponding Underlying Fund. The Company may in the future establish additional Subaccounts of the Separate Account, which may invest in other Underlying Funds or in other securities or investment vehicles. See ”Substitution of Investments.”

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The Separate Account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940 (the “1940 Act”). Registration with the SEC does not involve supervision by the SEC of the administration or investment practices of the Separate Account or of the Company.

Underlying Funds — Each Underlying Fund is an open-end management investment company of the series type and 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 Underlying Funds. Each Subaccount invests in a corresponding Underlying Fund, each of which has different investment objectives and policies.

Shares of the Underlying Funds currently are not publicly traded mutual funds. They are available only as investment options in variable annuity or variable life insurance policies issued by life insurance companies or in some cases, through participation in certain qualified pension or retirement plans. Certain Underlying Funds have similar investment objectives and policies to other mutual funds managed by the same adviser. The investment results of the Underlying Funds, however, may be higher or lower than the results of such other funds. There can be no assurance, and no representation is made, that the investment results of any of the Underlying Funds will be comparable to the investment results of any other fund, even if both the Underlying Fund and the other fund are managed by the same adviser.

Because the Underlying Funds may serve as investment vehicles for both variable life insurance policies and variable annuity contracts (“mixed funding”) and shares of the Underlying Funds also may be sold to separate accounts of other insurance companies (“shared funding”), material conflicts could occur. The Company currently does not foresee any disadvantages to Owners arising from either mixed or shared funding; however, due to differences in tax treatment or other considerations, it is possible that the interests of Owners of various contracts for which the Underlying Funds serve as investment media might at some time be in conflict. However, the Company, each Underlying Fund’s Board of Directors, and any other insurance companies that participate in the Underlying Funds are required to monitor events in order to identify any material conflicts that arise from mixed and/or shared funding. If such a conflict were to occur, the Company would take steps necessary to protect Owners including withdrawal of the Separate Account from participation in the Underlying Fund(s) involved in the conflict. This might force the Underlying Fund to sell securities at disadvantageous prices.

A list of each Underlying Fund, its share class, if applicable, a summary of its investment objective, and its investment adviser is set forth at the end of this Prospectus. We cannot assure that any Underlying fund will achieve its objective. More detailed information is contained in the summary prospectuses or prospectus of each Underlying Fund, including information on the risks associated with its investments and investment techniques.

Summary prospectuses or prospectuses for the Underlying Funds should be carefully read in conjunc­tion with this Prospectus before investing. You may obtain summary prospectuses or prospectuses for the Underlying Funds by contacting the Company.

Certain Payments the Company and its Affiliates Receive With Regard to the Underlying Funds.The Company (and its affiliates) may receive payments from the Underlying Funds, their advisers, sub-advisers, and distributors, or affiliates thereof. The Company negotiates these payments and thus they differ by Underlying Fund (sometimes substantially), and the amounts the Company (or its affiliates) receive may be significant. Making these payments may provide an adviser, sub-adviser, or distributor (or affiliate thereof) with increased access to the Company and its affiliates involved in the distribution of the Contract. Proceeds from these payments may be used for any corporate purpose, including payment of expenses that the Company and its affiliates incur in promoting, marketing, and administering the Contract and, in its role as an intermediary of, the Underlying Funds. The Company and its affiliates may profit from these payments.

12b-1 Fees.The Company and/or its affiliate, SDI, receive 12b-1 fees from certain of the Underlying Funds that are based on a percentage of the average daily net assets of the particular Underlying Fund attributable to the Contract and certain other variable insurance contracts issued or administered by the Company (or its affiliates). Rule 12b-1 fees are paid out of Underlying Fund assets as part of the Underlying Fund’s total annual underlying fund operating expenses. Payments made out of Underlying Fund assets will reduce the amount of assets that would otherwise be available for investment, and will reduce the Underlying Funds’ investment returns. Currently, the Company and SDI receive 12b-1 fees ranging from 0% to 0.25% of the average net assets of the Contract (and certain other variable insurance contracts issued or administered by the Company (or its affiliates)) invested in the Underlying Fund.

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Payments from Underlying Fund Service Providers. The Company (or its affiliates) receives payments from the investment advisers, sub-advisers, or distributors (or affiliates thereof) of certain of the Underlying Funds (including affiliated Underlying Funds). These payments may be derived, in whole or in part, from the investment advisory fee deducted from Underlying Fund assets. Owners, through their indirect investment in the Underlying Funds, bear the costs of these investment advisory fees (see the Underlying Funds’ prospectuses for more information). These pay­ments usually are based on a percentage of the average daily net assets of the particular Underlying Fund attributable to the Contract and to certain other variable insurance contracts issued or administered by the Company (or its affiliates). Currently, the Company and its affiliates receive payments that range from .15% to 0.60% of the average net assets of the Contract (and certain other variable insurance contracts issued or administered by the Company or its affiliates) invested in the Underlying Fund. The Company may also receive payments from certain of the investment advisers, sub-advisers, or distributors (or affiliates thereof) of certain of the Underlying Funds that is a pre-determined fee and not based on the average net assets of the Contract (or other variable insurance contracts issued or administered by the Company or its affiliates) invested in the Underlying Fund.

Other Payments. An Underlying Fund’s adviser, sub-adviser, distributor, or affiliates may provide the Company (or its affiliates) and/or broker-dealers that sell the Contract (“selling firms”) with wholesaling services to assist the Company in the distribution of the Contract, may pay the Company (or its affiliates) and/or selling firms amounts to participate in national and regional sales conferences and meetings with the sales desks, and may provide the Company (or its affiliates) and/or selling firms with occasional gifts, meals, tickets, or other compensation as an incentive to market the Underlying Funds and to cooperate with their promotional efforts.

For details about the compensation payments the Company makes in connection with the sale of the Contract, see “Sale of the Contract.”

Total Payments. Currently, the Company and its affiliates, including SDI, receive payments from the Underlying Funds, their advisers, sub-advisers, and distributors, or affiliates thereof in the form of 12b-1 fees and/or other payments that range in total from 0.15% to a maximum of 0.60% of the average net assets of the Contract (and certain other variable insurance contracts issued or administered by the Company (or its affiliates)) invested in the Underlying Fund. This does not include the arrangements with certain of the investment advisers, sub-advisers, or distributors (or affiliates thereof) of certain of the Underlying Funds in which the payment is not based on the average net assets of the Contract invested in the Underlying Fund.

Selection of Underlying Funds. The Company selects the Underlying Funds offered through the Contract based on several criteria, including asset class coverage, the strength of the investment adviser’s (or sub-adviser’s) reputation and tenure, brand recognition, performance, and the capability and qualification of each investment firm. Another factor the Company considers during the selection process is whether the Underlying Fund, its adviser, its sub-adviser, or an affiliate will make payments to the Company or its affiliates, as described above. The Company also considers whether the Underlying Fund’s adviser is one of its affiliates, and whether the Underlying Fund, its adviser, sub-adviser, or distributor (or an affiliate) can provide marketing and distribution support for sale of the Contract. The Company reviews each Underlying Fund periodically after it is selected. Upon review, the Company may remove an Underlying Fund or restrict allocation of additional purchase payments and/or transfers of Contract Value to an Underlying Fund if it determines the Underlying Fund no longer meets one or more of the criteria and/or if the Underlying Fund has not attracted significant contract owner assets. The Company does not recommend or endorse any particular Underlying Fund, and does not provide investment advice.

Services and Administration — The Company has primary responsibility for all administration of the Contracts and the Separate Account. The Company has entered into an administrative services agreement with se2, LLC (“se2”), 5801 SW 6th Avenue, Topeka, Kansas 66636, whereby se2 provides certain business process outsourcing services with respect to the Contracts. se2 may engage other service providers to provide certain administrative functions. se2 is an affiliate of the Company.

The Contract

General — The Company issues the Contract offered by this Prospectus. It is a group flexible purchase payment deferred variable annuity. To the extent that you allocate all or a portion of your Purchase Payments to the Subac­counts, the Contract is significantly different from a fixed annuity contract in that it is the Participant who assumes the risk of investment gain or loss rather than the Company. When you are ready to begin receiving annuity payments, the Contract provides several Annuity Options under which the Company will pay periodic annuity payments on a

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fixed basis, 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 you have allocated Contract Value and the amount of interest credited on Contract Value that you have allocated to the Fixed Account.

You may purchase the Contract under the terms of the Trust Agreement if you are eligible to be a Participant under its terms.

Important Information About Your Benefits Under the Contract — The benefits under the Contract are paid by us from our General Account assets and/or your Contract Value held in the Separate Account. It is important that you understand that payment of benefits from the Separate Account is not guaranteed and depends upon certain factors discussed below.

Assets in the Separate Account. Your Contract permits you to allocate Purchase Payments and Contract Value to various Subaccounts. You bear all of the investment risk for allocations to the Subaccounts. Your Contract Value in the Subaccounts is part of the assets of the Separate Account. These assets are segregated and cannot be charged with liabilities arising from any other business that we may conduct.

Assets in the General Account. Any guarantees under the contract that exceed your Contract Value (such as those associated with the death benefit), are paid from our General Account. We issue other types of insurance policies and financial products as well, and we pay our obligations under these products from our assets in the General Account.

Any amounts that we are obligated to pay under the Contract from the General Account are subject to our financial strength and claims-paying ability. An insurance company’s financial strength and claims-paying ability may be affected by, among other factors, adverse market developments. Adverse market developments may result in, among other things, realized losses on General Account investments, unrealized losses on such investments (which may or may not result in accounting impairments), increased reserve requirements, and a reduction of capital both absolutely and relative to minimum, regulatory required capital (some of which are cash items and some of which are non-cash items). Adverse market developments are an inherent risk to our, and any insurer’s, General Account.

Financial Statements. We encourage both existing and prospective Contract owners to read and understand our financial statements. We prepare our financial statements on both a statutory basis, as required by our state regulators who oversee our financial strength and/or claims paying ability, and according to Generally Accepted Accounting Principles (GAAP). Our most recently available audited GAAP financial statements are included in the Statement of Additional Information, which is available at no charge by writing us at One Security Benefit Place, Topeka, Kansas 66636, or by calling us at 1-800-888-2461. You also may obtain our most recent annual unaudited statutory financial statements, as well as our most recently available annual audited statutory financial statements, by calling us at 1-800-888-2461. Please note that accounting principles and rules used to prepare statutory financial statements for regulatory filings of life insurance companies differ in certain instances from the principles and rules used to prepare GAAP financial statements, and the resulting differences may be material.

Application to Invest in the Contract — If you wish to invest in the Contract, you may submit a participation enrollment form and an initial Purchase Payment to the Company, as well as any other form or information that the Company may require. The Company reserves the right to reject a participation enrollment form or Purchase Payment for any reason, subject to the Company’s underwriting standards and guidelines and any applicable state or federal law relating to nondiscrimination.

The maximum age for which a participation enrollment form will be accepted is age 90.

Purchase Payments — The minimum initial Purchase Payment is $2,000. Thereafter, you may choose the amount and frequency of Purchase Payments, except that the minimum subsequent Purchase Payment is $100. There is no minimum for subsequent Purchase Payments made pursuant to an Automatic Investment Program. A Purchase Payment exceeding $1 million will not be accepted without prior approval of the Company. The Company has the right to refuse any Purchase Payment.

The Company will apply the initial Purchase Payment not later than the end of the Valuation Period during which it is received by the Company; provided that the Purchase Payment is preceded or accompanied by a participation enrollment form that contains sufficient information to establish an account and properly credit such Purchase Payment. If you submit your participation enrollment form and/or initial Purchase Payment to your registered repre­sentative, the Company will not begin processing the participation enrollment form and initial Purchase Payment until the Company receives them from your representative’s broker-dealer.

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Sometimes the Purchase Payment is not preceded by or accompanied by a complete enrollment form. The enrollment form includes your affirmative consent permitting the Company to hold your initial Purchase Payment beyond five Valuation Dates in its effort to complete your enrollment form.  If your enrollment form is incomplete, and the Company is unable to resolve the problem within five Valuation Dates, the Company will notify you in writing of the reasons for the delay.  If you affirmatively revoke the consent given with your enrollment form to hold your initial Purchase Payment pending resolution of the problem, we will return your Purchase Payment.  Otherwise, the Purchase Payment will be applied no later than the second Valuation Date after the Valuation Date the problem is resolved.

The Company will credit subsequent Purchase Payments as of the end of the Valuation Period in which they are received at the Administrative Office; however, subsequent Purchase Payments received at or after the cut-off time of 3:00 p.m. Central time will be effected at the Accumulation Unit value determined on the following Valuation Date. See “Cut-Off Times.” Purchase Payments after the initial Purchase Payment may be made at any time prior to the Annuity Start Date, so long as the Participant is living. Subsequent Purchase Payments may be paid under an Automatic Investment Program. The initial Purchase Payment must be paid before the Automatic Investment Program will be accepted by the Company. If you submit a subsequent Purchase Payment to your registered representative, the Company will not begin processing the Purchase Payment until the Company receives it from your representative’s broker-dealer.

If mandated under applicable law, the Company may be required to reject a Purchase Payment. The Company also may be required to provide additional information about your account to government regulators. In addition, the Company may be required to block an account and thereby refuse to pay any request for transfers, full or partial withdrawals (including systematic withdrawals), or death benefits until instructions are received from the appropriate regulator.

Allocation of Purchase Payments — In a participation enrollment form, you select the Subaccounts and/or the Fixed Account to which Purchase Payments will be allocated. Purchase payments will be allocated according to your instructions contained in the enrollment form or more recent instructions received, if any. The allocations must be whole percentages and must total 100%. Available allocation alternatives include the fourteen Subaccounts and the Fixed Account.

You may change the Purchase Payment allocation instructions by submitting a proper written request to the Administrative Office. A proper change in allocation instructions will be effective upon receipt by the Company at the Administrative Office and will continue in effect until you submit a change in instructions to the Company. You may make changes in your Purchase Payment allocation and changes to an existing Dollar Cost Averaging or Asset Reallocation Option by telephone provided the proper form is completed, signed, and filed at the Company’s Administrative Office. Changes in the allocation of future Purchase Payments have no effect on existing Contract Value. You may, however, transfer Contract Value among the Subaccounts and the Fixed Account in the manner described in “Transfers of Contract Value.”

Dollar Cost Averaging Option — Prior to the Annuity Start Date, you may dollar cost average your Contract Value by authorizing the Company to make periodic transfers 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 transfer of Contract Value from one Subaccount to one or more of the other Subaccounts. Amounts transferred under this option will be credited at the price of the Subaccount as of the end of the Valuation Dates on which the transfers are effected. Since the price of a Subac­count’s Accumulation Units will vary, the amounts transferred to a Subaccount will result in the crediting of a greater number of units when the price is low and a lesser number of units when the price is high. Similarly, the amounts transferred from a Subaccount will result in a debiting of a greater number of units when the price is low and a lesser number of units when the price is high. Dollar cost averaging does not guarantee profits, nor does it assure that you will not have losses.

A Dollar Cost Averaging form is available upon request. On the form, you must designate whether Contract Value is to be transferred on the basis of a specific dollar amount, fixed period or earnings only, the Subaccount or Subaccounts to and from which the transfers will be made, the desired frequency of the transfers, which may be on a monthly, quarterly, semiannual and annual basis, and the length of time during which the transfers shall continue

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or the total amount to be transferred over time. The minimum amount that may be transferred to any one Subaccount is $25.00. The Company does not require that transfers be continued over any minimum period of time, although typically dollar cost averaging would extend over a period of at least one year.

After the Company has received a Dollar Cost Averaging request in proper form at the Administrative Office, the Company will transfer Contract Value in the amounts you designate from the Subaccount from which transfers are to be made to the Subaccount or Subaccounts you have chosen. The Company will effect each transfer on the date you specify or if no date is specified, on the monthly, quarterly, semiannual or annual anniversary, whichever corresponds to the period selected, of the date of receipt at the Administrative 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.

You may make changes to the option by writing to the Administrative Office or by telephone provided the proper form is completed, signed, and filed at the Administrative Office. You may instruct the Company at any time to terminate the option by written request to the Administrative 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 you instruct us otherwise. If you wish 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 form must be completed and sent to the Administrative Office. The Company requires that you wait at least a month (or one quarter if transfers were made on a quarterly, semiannual or annual basis) before reinstating Dollar Cost Averaging after it has been terminated for any reason. The Company may discontinue, modify, or suspend the Dollar Cost Averaging Option at any time. The Company does not currently charge a fee for this option. If you elect the Dollar Cost Averaging Option, you also may elect the Asset Reallocation Option.

You may also dollar cost average Contract Value to or from the Fixed Account. You may not have in effect at the same time Dollar Cost Averaging and Asset Reallocation Options if the Fixed Account is included in one of these two options.

Asset Reallocation Option — Prior to the Annuity Start Date, you may authorize the Company to automatically transfer Contract Value on a monthly, quarterly, semiannual or annual basis to maintain a particular percentage allocation among the Subaccounts. The Contract Value allocated to each Subaccount will grow or decline in value at different rates during the selected period, and Asset Reallocation automatically reallocates the Contract Value in the Subaccounts to the allocation you selected on a monthly, quarterly, semiannual or annual basis, as you select. 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 you buy low and sell high. This investment method does not guarantee profits, nor does it assure that you will not have losses.

To elect this option, an Asset Reallocation request in proper form must be received by the Company at the Administrative Office. An Asset Reallocation form is available upon request. On the form, you must indicate the applicable Subaccounts, the applicable time period and the percentage of Contract Value to be allocated to each Subaccount.

Upon receipt of the Asset Reallocation form, the Company will effect a transfer or, in the case of a new Participant, will allocate the initial Purchase Payment, among the Subaccounts based upon the percentages that you selected. Thereafter, the Company will transfer Contract Value to maintain that allocation on each monthly, quarterly, semiannual or annual anniversary, as applicable, of the date of the Company’s receipt of the Asset Reallocation request in proper form. The amounts transferred will be credited at the price of the Subaccount as of the end of the Valuation Date on which the transfer is effected.

You may make changes to the option by writing to the Administrative Office or by telephone provided the proper form is completed, signed, and filed at the Administrative Office. You may instruct the Company at any time to terminate this option by written request to the Administrative Office. In that event, the Contract Value in the Subaccounts that has not been transferred will remain in those Subaccounts regardless of the percentage alloca­tion unless you instruct us otherwise. If you wish to continue Asset Reallocation after it has been canceled, a new Asset Reallocation form must be completed and sent to the Administrative Office. The Company may discontinue, modify, or suspend, and reserves the right to charge a fee for the Asset Reallocation Option at any time. The Company does not currently charge a fee for this option. If you elect the Asset Reallocation Option, you also may elect the Dollar Cost Averaging Option.

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Contract Value allocated to the Fixed Account may be included in the Asset Reallocation Option. You may not have in effect at the same time Dollar Cost Averaging and Asset Reallocation Options if the Fixed Account is included in one of these two options.

Transfers of Contract Value — You may transfer Contract Value among the Subaccounts upon proper written request to the Administrative Office both before and after the Annuity Start Date. You may make transfers (other than transfers pursuant to the Dollar Cost Averaging and Asset Reallocation Options) by telephone if the Electronic Transfer Privilege section of the participation enrollment form or the proper form has been properly completed, signed and filed at the Administrative Office. The minimum transfer amount is $100, 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.

You may also transfer Contract Value from the Subaccounts to the Fixed Account and from the Fixed Account to the Subaccounts.

The Company generally effects transfers between Subaccounts at their respective Accumulation Unit values as of the close of the Valuation Period during which the transfer request is received; however, transfer requests received at or after the cut-off time of 3:00 p.m. Central time on any Valuation Date will be effected at the Accumulation Unit value determined on the following Valuation Date. See “Cut-Off Times.”

The Company generally does not limit the frequency of transfers, although the Company reserves the right to limit the number of transfers in a Contract Year. The Company will so limit your transfers if we determine that you are engaging in a pattern of transfers that is disruptive to the Underlying Funds or potentially disadvantageous to other Participants with Contract Value allocated to the applicable Subaccount(s) and we believe that suspension of your electronic transfer privileges, as discussed below, does not adequately address your transfer activity. The Company does not assess a transfer fee on transfers.

Frequent Transfer Restrictions. The Contract is not designed for organizations or individuals engaging in a market timing strategy, or making programmed transfers, frequent transfers or transfers that are large in relation to the total assets of the Underlying Fund. These kinds of strategies and transfer activities may disrupt portfolio manage­ment of the Underlying Funds in which the Subaccounts invest (such as requiring the Underlying Fund to maintain a high level of cash or causing the Underlying Fund to liquidate investments prematurely to pay withdrawals), hurt Underlying Fund performance, and drive Underlying Fund expenses (such as brokerage and administrative expenses) higher. In addition, because other insurance companies and/or retirement plans may invest in the Underlying Funds, the risk exists that the Underlying Funds may suffer harm from programmed, frequent, or large transfers among subaccounts of variable contracts issued by other insurance companies or among investment options available to retirement plan participants. These risks and costs are borne by all shareholders of the affected Underlying Fund and Participants with Contract Value allocated to the corresponding Subaccount (as well as their Designated Beneficiaries and Annuitants) and long-term investors who do not generate these costs.

The Company has in place policies and procedures designed to restrict transfers if we determine that you are engaging in a pattern of transfers that is disruptive to the Underlying Funds or potentially disadvantageous to other Participants with Contract Value allocated to the applicable Subaccount (regardless of the number of previous transfers the Participant has made during the Contract Year). In making this determination, we monitor transfers among the Subaccounts and consider, among other things, the following factors:

·   the total dollar amount being transferred;

·   the number of transfers you made within a period of calendar days;

·   transfers to and from (or from and to) the same Subaccount;

·   whether your transfers appear to follow a pattern designed to take advantage of short-term market fluctuations; and

·   whether your transfers appear to be part of a group of transfers made by a third party on behalf of the individual Participants in the group.

If the Company determines that your transfer patterns among the Subaccounts are disruptive to the Underlying Funds or potentially disadvantageous to Participants, the Company may send you a letter notifying you that it is

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prohibiting you from making telephone transfers or other electronic transfers and instead requiring that you submit transfer requests in writing via regular U.S. mail for a disclosed period that begins on the date of the letter. However, because the Company does not apply this restriction uniformly, there is a risk that some Participants may engage in transfer activity in a manner that is disruptive to the Underlying Funds or potentially disadvantageous to other Participants, which may have a negative impact on such other Participants.

In addition, if you make a transfer from any of the Subaccounts listed below, then you may not make a transfer to that same Subaccount for a period of calendar days equal to the amount listed in the table below in the column titled “Transfer Block Restriction.” The Transfer Block Restriction applies only on Subaccount transfer amounts greater than $5,000 with the exception of the T. Rowe Price Subaccounts, which have no dollar threshold. The calendar day after the date of the transfer out of the particular Subaccount is considered day 1 for the purpose of computing the period before a transfer to the same Subaccount may be made. For example, if you transfer money out of the Guggenheim VIF Mid Cap Value subaccount on April 16, the 30 day restriction begins on April 17, and end on May 16, which means you could transfer back into the Guggenheim VIF Mid Cap Value Subaccount on May 17. This restriction does not apply to transfers made pursuant to the Dollar Cost Averaging and Asset Reallocation Options.

Subaccount	Transfer Block Restriction (# of Calendar Days)
Goldman Sachs VIT Small Cap Equity Insights, Goldman Sachs VIT Strategic Growth	30 days
Guggenheim VIF All Cap Value, Guggenheim VIF Large Cap Value, Guggenheim VIF Mid Cap Value, Guggenheim VIF World Equity Income	30 days
Invesco V.I. Global Real Estate, Invesco V.I. International Growth	30 days
Janus Aspen Janus Portfolio	30 days
Neuberger Berman AMT Socially Responsive	30 days
PIMCO VIT Real Return, PIMCO VIT Total Return	30 days
Rydex VIF Energy Services	Unlimited
T. Rowe Price Mid-Cap Growth	30 days

In addition to the Company’s own frequent transfer procedures, the Underlying Funds may have adopted their own policies and procedures with respect to frequent transfer of their respective shares, and the Company reserves the right to enforce these policies and procedures. The prospectuses for the Underlying Funds describe any such policies and procedures, which may be more or less restrictive than the policies and procedures the Company has adopted. In particular, some of the Underlying Funds have reserved the right to temporarily or permanently refuse payments or transfer requests from the Company if, in the judgment of the Underlying Fund’s manager, the Underlying Fund would be unable to invest effectively in accordance with its investment objective or policies, or would otherwise potentially be adversely affected.

      You should be aware that the Company currently may not have the contractual obligation or the operational capacity to apply the Underlying Funds’ frequent transfer policies and procedures. However, under SEC rules, the Company is required to: (1) enter into a written agreement with each Underlying Fund or its principal underwriter that obligates the Company to provide to the Underlying Fund promptly upon request certain information about the trading activity of individual Owners, and (2) execute instructions from the Underlying Fund to restrict or prohibit further purchases or transfers by specific Owners who violate the frequent transfer policies established by the Underlying Fund.

      Managers of the Underlying Funds may contact the Company if they believe or suspect that there is market timing or other potentially harmful trading, and, if so, the Company will take appropriate action to protect others. In particular, the Company may, and the Company reserves the right to, reverse a potentially harmful transfer. If the Company reverses a potentially harmful transfer, it will effect such reversal not later than the close of business on the second Valuation Date following the Valuation Date in which the original transfer was effected, and the Company will inform the Participant in writing at his or her address of record.

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To the extent permitted by applicable law, the Company also reserves the right to reject a transfer request at any time that the Company is unable to purchase or redeem shares of any of the Underlying Funds because of any refusal or restriction on purchases or redemptions of their shares as a result of the Underlying Fund’s policies and procedures on market timing activities or other potentially abusive transfers. The Company also reserves the right to implement, administer and collect redemption fees imposed by one or more of the Underlying Funds in the future. You should read the prospectuses of the Underlying Funds for more details on their ability to refuse or restrict purchases or redemptions of their shares.

In its sole discretion, the Company may revise its market timing procedures at any time without prior notice as the Company deems necessary or appropriate to better detect and deter programmed, frequent, or large transfers that may adversely affect other Participants or Underlying Fund shareholders, to comply with state or federal regulatory requirements, or to impose additional or alternate restrictions on market timers (such as dollar or percentage limits on transfers). The Company may change its parameters to monitor for factors other than the number of "round trip transfers” into and out of particular Subaccounts. For purposes of applying the parameters used to detect potential market timing and other potentially harmful activity, the Company may aggregate transfers made in two or more Contracts that it believes are connected (for example, two Contracts with the same Participant, or owned by spouses, or owned by different partnerships or corporations that are under common control, etc.).

The Company does not include transfers made pursuant to Dollar Cost Averaging and Asset Reallocation Options in these limitations. The Company may vary its market timing procedures from Subaccount to Subaccount, and may be more restrictive with regard to certain Subaccounts than others. The Company may not always apply these detection methods to Subaccounts investing in Underlying Funds that, in its judgment, would not be particularly attractive to market timers or otherwise susceptible to harm by frequent transfers.

Participants seeking to engage in programmed, frequent, or large transfer activity may deploy a variety of strategies to avoid detection. The Company’s ability to detect and deter such transfer activity is limited by operational systems and technological limitations. In addition, the terms of the Contract may also limit the Company’s ability to restrict or deter harmful transfers. Furthermore, the identification of Participants determined to be engaged in transfer activity that may adversely affect other Participants or Underlying Fund shareholders involves judgments that are inherently subjective. Accordingly, despite its best efforts, the Company cannot guarantee that its market timing procedures will detect every potential market timer, but the Company applies its market timing procedures consistently to all Participants without special arrangement, waiver, or exception. Because other insurance companies and/or retirement plans may invest in the Underlying Funds, the Company cannot guarantee that the Underlying Funds will not suffer harm from programmed, frequent, or large transfers among subaccounts of variable contracts issued by other insurance companies or among investment options available to retirement plan participants.

Because the Company cannot guarantee that it can restrict or deter all harmful transfer activity, Participants bear the risks associated with such activity, including potential disruption of portfolio management of the Underlying Funds and potentially lower Underlying Fund performance and higher Underlying Fund expenses. In addition, there is a risk that the Company will not detect harmful transfer activity on the part of some Participants and, as a result, the Company will inadvertently treat those Participants differently than Participants it does not permit to engage in harmful transfer activity. Moreover, due to the Company’s operational and technological limitations, as well as possible variations in the market timing policies of other insurance companies and/or retirement plans that may also invest in the Underlying Funds, some Participants may be treated differently than others. Consequently, there is a risk that some Participants may be able to engage in market timing while others suffer the adverse effects of such trading activities.

Contract Value — The Contract Value is the sum of the amounts under the Contract held in each Subaccount and the Fixed Account as of any Valuation Date.

On each Valuation Date, the amount of Contract Value allocated to any particular Subaccount will be adjusted to reflect the investment experience of that Subaccount. See “Determination of Contract Value.” No minimum amount of Contract Value is guaranteed. You bear the entire investment risk relating to the investment performance of Contract Value allocated to the Subaccounts.

Determination of Contract Value — Your Contract Value will vary to a degree that depends upon several factors, including

·   Investment performance of the Subaccounts to which you have allocated Contract Value,

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·   Interest credited to the Fixed Account,

·   Payment of Purchase Payments,

·   Partial withdrawals (including systematic withdrawals), and

·   Charges assessed in connection with the Contract.

The amounts allocated to a Subaccount will be invested in shares of the corresponding Underlying Fund. The investment performance of each Subaccount will reflect increases or decreases in the net asset value per share of the corresponding Underlying Fund and any dividends or distributions declared by the Underlying Fund. Any dividends or distributions from any Underlying Fund will be automatically reinvested in shares of the same Underlying Fund, unless the Company, on behalf of the Separate Account, elects otherwise.

Assets in the Subaccounts are divided into Accumulation Units, which are accounting units of measure used to calculate the value of a Participant’s interest in a Subaccount. When you allocate Purchase Payments to a Subac­count, your Contract is credited with Accumulation Units. The number of Accumulation Units to be credited is determined by dividing the dollar amount allocated to the particular Subaccount by the price for the Subaccount’s Accumulation Units as of the end of the Valuation Period in which the Purchase Payment is credited.

In addition to Purchase Payments, other transactions such as full or partial withdrawals (including systematic 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 price of the Accumulation Unit of the affected Subaccount next determined after receipt of the transaction. The price of each Subaccount is determined on each Valuation Date as of the close of the New York Stock Exchange (“NYSE”), normally 3:00 p.m. Central time. Trans­actions received at or after that time on any Valuation Date will be effected at the Accumulation Unit value determined on the following Valuation Date. See “Cut-Off Times.” The price of each Subaccount may be determined earlier if trading on the NYSE is restricted or as permitted by the SEC.

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 price of each Subaccount’s units initially was $10. The price of a Subaccount on any Valuation Date takes into account the following: (1) the investment performance of the Subaccount, which is based upon the investment performance of the corresponding Underlying Fund, (2) any dividends or distributions paid by the corresponding Underlying Fund, (3) the charges, if any, that may be assessed by the Company for taxes attributable to the operation of the Subaccount, (4) the mortality and expense risk charge under the Contract, and (5) the administration and distribution charge under the Contract.

Cut-Off Times — Any written, electronic, or telephonic transactions involving the Contract must be received by us prior to any announced closing of the New York Stock Exchange to be processed on the current Valuation Date. The New York Stock Exchange normally closes at 3:00 p.m. Central time so financial transactions must be received by that time (the “cut-off time”). Financial transactions received at or after 3:00 p.m. Central time will be processed on the following Valuation Date. Financial transactions include transfers, full and partial withdrawals (including systematic withdrawals), death benefit payments, and Purchase Payments.

Full and Partial Withdrawals — A Participant may make a partial withdrawal of Contract Value, or surrender the Contract for its Withdrawal Value. A full or partial withdrawal, including a systematic withdrawal, may be taken from Contract Value at any time while the Participant is living and before the Annuity Start Date, subject to limitations under applicable law. You may not make a full or partial withdrawal after the Annuity Start Date. A full or partial withdrawal request will be effective as of the end of the Valuation Period that a proper Withdrawal Request form is received by the Company at the Administrative Office; however, if a Withdrawal Request form is received on a Valuation Date at or after the cut-off time of 3:00 p.m. Central time, the withdrawal will be effected at the Accumulation Unit value determined on the following Valuation Date. See “Cut-Off Times.” A proper Withdrawal Request form shall include the written consent of any effective assignee, if applicable.

The proceeds received upon a full withdrawal will be the Withdrawal Value. The Withdrawal Value is equal to your Contract Value as of the end of the Valuation Period during which a proper Withdrawal Request form is received by the Company at the Administrative Office, less any uncollected premium taxes. The Company requires the signature of the Participant on any request to withdraw Contract Value.

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A partial withdrawal may be requested for a specified percentage or dollar amount of Contract Value. Each partial withdrawal must be at least $100 including systematic withdrawals as discussed below. A request for a partial withdrawal (including systematic withdrawals) will result in a payment by the Company of the amount specified in the partial withdrawal request provided there is sufficient Contract Value to meet the request. Upon payment, the Contract Value will be reduced by an amount equal to the payment and any applicable premium tax charge. See “Premium Tax Charge.”

If a partial withdrawal (other than a systematic withdrawal) is requested after the first Contract Year that would leave the Withdrawal Value in the Contract less than $5,000, the Company reserves the right to terminate the Contract and pay the Contract Value in one sum to the Owner. However, the Company will first notify the Owner that the Contract is subject to termination, and will only terminate the contract if, after 90 days following the date of the notice, the Owner has not made any Purchase Payments to increase the Withdrawal Value to $5,000.

The Company will deduct the amount of a partial withdrawal from the Contract Value in the Subaccounts and the Fixed Account, according to your instructions to the Company on the Withdrawal Request form. If you do not specify the allocation, the Company will deduct the amount of a partial withdrawal in the same proportion as the Contract Value is allocated among the Subaccounts and the Fixed Account.

A full or partial withdrawal, including a systematic withdrawal, may result in receipt of taxable income to the Participant and, if made prior to the Participant attaining age 59½, may be subject to a 10% penalty tax. You should carefully consider the tax consequences of a withdrawal. See “Federal Tax Matters.”

Systematic Withdrawals — The Company currently offers a feature under which you may select systematic withdrawals. Under this feature, you may elect to receive systematic withdrawals during your lifetime and before the Annuity Start Date by sending a properly completed Scheduled Systematic Withdrawal form to the Company at the Administrative Office. This option may be elected at any time. You 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 based upon your life expectancy. You also may designate the desired frequency of the systematic withdrawals, which may be monthly, quarterly, semiannual or annual. You may stop or modify systematic withdrawals upon proper written request received by the Company at the Adminis­trative 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.

Each systematic withdrawal must be at least $100. Upon payment, your Contract Value will be reduced by an amount equal to the payment proceeds plus any applicable premium tax. In no event will the amount of a systematic withdrawal exceed the Withdrawal Value. The Contract will automatically terminate if a systematic withdrawal causes your Withdrawal Value to equal zero.

If you are enrolled in the Dollar Cost Averaging or Asset Reallocation Options, you may not elect to receive systematic withdrawals from any Subaccount that is part of the Dollar Cost Averaging or Asset Reallocation Options.

The Company will effect each systematic withdrawal as of the end of the Valuation Period during which the withdrawal is scheduled. The deduction caused by the systematic withdrawal will be allocated to your Contract Value in the Subaccounts and the Fixed Account, as you have directed. If you do not specify the allocation, the Company will deduct the systematic withdrawal in the same proportion that Contract Value is allocated among the Subaccounts and the Fixed Account.

The Company may, at any time, discontinue, modify, suspend or charge a fee for systematic withdrawals. You should consider carefully the tax consequences of a systematic withdrawal, including the 10% penalty tax that may be imposed on withdrawals made prior to the Participant attaining age 59½. See “Federal Tax Matters.”

Death Benefit — You should consider the following provisions carefully when choosing the Designated Beneficiary, Annuitant or any Joint Annuitant, as well as before changing any of these parties. Naming different persons as Annuitant(s) and Designated Beneficiary(ies) can have important impacts on whether the death benefit is paid, and on who would receive it.

If you die prior to the Annuity Start Date, the Company will pay the death benefit proceeds to your Designated Beneficiary upon receipt of due proof of your death and instructions regarding payment to the Designated Beneficiary.

If your surviving spouse is your sole Designated Beneficiary, your spouse may elect to continue your account in force, subject to certain limitations. If your spouse so elects, the Contract Date of your account will not change, and any death benefit payable after this election will be calculated using the same Contract Date. See “Distribution

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Requirements” below. If your death occurs on or after the Annuity Start Date, any death benefit will be determined according to the terms of the Annuity Option. See “Annuity Options.”

The death benefit proceeds will be the death benefit reduced by any uncollected premium tax. If you die prior to the Annuity Start Date and you were 75 or younger on the Contract Date, the amount of the death benefit will be the greatest of:

·   The sum of all Purchase Payments, less any reductions caused by previous withdrawals,

·   Your Contract Value on the Valuation Date due proof of death and instructions regarding payment are received by the Company, or

·   The stepped-up death benefit.

The stepped-up death benefit is:

·   The largest death benefit on any Contract anniversary that is both an exact multiple of five and occurs prior to your attaining age 76, plus

·   Any Purchase Payments allocated to your Contract Value since the applicable Contract anniversary, less

·   Any withdrawals since the applicable anniversary.

The stepped-up death benefit does not come into effect if you die prior to the end of the fifth Contract Year.

If you die prior to the Annuity Start Date and your age was 76 or greater on the Contract Date the death benefit will be the Contract Value on the Valuation Date due proof of death and instructions regarding payment are received by the Company at the Administrative Office.

The death benefit proceeds will be paid to the Designated Beneficiary in a single sum or under one of the Annuity Options, as elected by the Designated Beneficiary. However, if you have completed a restricted beneficiary designation form, the death benefit proceeds will be paid to the Designated Beneficiary in the manner specified on the form. If the Company does not receive at its Administrative Office within six months of the date of the Participant’s death instructions regarding the death benefit payment, the death benefit will be the Contract Value on the Valuation Date due proof of death and instructions regarding payment are received by the Company at the Administrative Office. If the Designated Beneficiary is to receive annuity payments under an Annuity Option, there are limits under applicable law on the amount and duration of payments that the Designated Beneficiary may receive, and requirements respecting timing of, payments. Please note that any death benefit the Company may pay that is in excess of Contract Value is subject to the Company’s financial strength and claims-paying ability. A tax adviser should be consulted in considering Annuity Options. See “Federal Tax Matters” and “Distribution Requirements” for a discussion of the tax consequences in the event of death.

Every state has unclaimed property laws which generally declare annuity contracts to be abandoned after a period of inactivity of 3 to 5 years from the Contract’s Annuity Start Date or date the death benefit is due and payable. For example, if the payment of a death benefit has been triggered, but, the Designated Beneficiary does not come forward to claim the death benefit in a timely manner, the death benefit will be paid to the abandoned property division or unclaimed property office of the state in which the Designated Beneficiary or the Owner last resided, as shown on our books and records, or to our state of domicile. This “escheatment” is revocable, however, and the state is obligated to pay the death benefit (without interest) if your Designated Beneficiary steps forward to claim the death benefit with the proper documentation. To prevent such escheatment, it is important that you update your Beneficiary designations, including addresses, if and as they change. Such updates should be communicated in writing or other approved means at our Administrative Office.

Distribution Requirements — If your surviving spouse is the sole Designated Beneficiary, your spouse may elect to continue your account in force until the earliest of the spouse’s death or the Annuity Start Date or receive the death benefit proceeds.

The Contract provides that upon your death, a surviving spouse may have certain continuation rights that he or she may elect to exercise for the Contract’s death benefit. All Contract provisions relating to spousal continuation are available only to a person who meets the definition of “spouse” under federal law. The U.S. Supreme Court has

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held Section 3 of the federal Defense of Marriage Act (which purportedly did not recognize same-sex marriages, even those which are permitted under individual state laws) to be unconstitutional. Therefore, same-sex marriages recognized under state law will be recognized for federal law purposes. The Department of Treasury and the Internal Revenue Service have recently determined that for federal tax purposes, same-sex spouses will be determined based on the law of the state in which the marriage was celebrated irrespective of the law of the state in which the person resides. However, some uncertainty remains regarding the treatment of same-sex spouses. Consult a tax adviser for more information on this subject.

For any Designated Beneficiary other than a surviving spouse, only those options may be chosen that provide for complete distribution of such Participant’s interest in the Contract within five years of the death of the Participant. If the Designated Beneficiary is a natural person, that person alternatively can elect to begin receiving annuity payments within one year of the Participant’s death over a period not extending beyond his or her life or life expectancy.

Charges and Deductions

Mortality and Expense Risk Charge — The Company deducts a daily charge from the assets of each Subaccount for mortality and expense risks assumed by the Company under the Contract. The charge is equal to an annual rate of 0.45% of each Subaccount’s average daily net assets. This amount is intended to compensate the Company for certain mortality and expense risks the Company assumes in offering and administering the Contract and in operating the Subaccounts.

The expense risk is the risk that the Company’s actual expenses in issuing and administering the Contract and operating the Subaccounts will be more than the charges assessed for such expenses. The mortality risk borne by the Company is the risk that Annuitants, as a group, will live longer than the Company’s actuarial tables predict. In this event, the Company guarantees that annuity payments will not be affected by a change in mortality experience that results in the payment of greater annuity income than assumed under the Annuity Options in the Contract. The Company also assumes a mortality risk in connection with the death benefit under the Contract.

The Company may ultimately realize a profit from this charge to the extent it is not needed to cover mortality and administrative expenses, but the Company may realize a loss to the extent the charge is not sufficient. The Company may use any profit derived from this charge for any lawful purpose, including distribution expenses.

Administration and Distribution Charge — The Company may deduct a maximum daily administration and distribution charge equal to an annual rate of 0.94% of each Subaccount’s average daily net assets, except the Guggenheim VIF Large Cap Value, Guggenheim VIF World Equity Income, Guggenheim VIF All Cap Value and Guggenheim VIF Mid Cap Value Subaccounts for which the maximum annual rate is 0.59%. The Company is currently charging an annual rate of 0.91% of each Subaccount’s average daily net assets (0.56% of the average daily net assets of the Guggenheim VIF Large Cap Value, Guggenheim VIF World Equity Income, Guggenheim VIF All Cap Value and Guggenheim VIF Mid Cap Value Subaccounts). The purpose of this charge is to reimburse the Company for the expenses associated with administration and distribution of the Contract and operation of the Subaccounts. The Company expects to profit from this charge, and may use any profit derived from this charge for any lawful purpose, including distribution expenses.

Premium Tax Charge — Whether or not a premium tax is imposed will depend upon, among other things, the Holder’s state of domicile, the Annuitant’s state of residence, and the insurance tax laws and the Company’s status in a particular state. Various states and municipalities impose a tax on premiums on annuity contracts received by insurance companies. Such a tax is typically assessed when annuity payments are to begin, and, accordingly, the Company currently deducts this charge upon the Annuity Start Date. The Company assesses a premium tax charge to reimburse itself for any premium tax that it incurs in connection with the Contract. The Company reserves the right to deduct premium taxes when due or any time thereafter. In Maine and Wyoming, the Company deducts the premium tax from Purchase Payments applied to a Non-Qualified Plan. Those amounts are currently 2.00% and 1.00% respectively. Premium tax rates currently range from 0% to 3.5%, but are subject to change by a governmental entity.

Other Charges — The Company may charge the Separate Account or the Subaccounts for the federal, state, or local taxes incurred by the Company that are attributable to the Separate Account or the Subaccounts, or to the operations of the Company with respect to the Contract, or that are attributable to payment of premiums or acquisition

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costs under the Contract. No such charge is currently assessed. See “Tax Status of the Company and the Separate Account” and “Charge for the Company’s Taxes.”

Variations in Charges — The Company may reduce or waive the amount of the administration and distribution charge for the Contract where the expenses associated with the administration of the Contract are reduced.

Guarantee of Certain Charges — The Company guarantees that the charge for mortality and expense risks will not exceed an annual rate of 0.45% of each Subaccount’s average daily net assets and the charge for adminis­tration and distribution will not exceed an annual rate of 0.94% of each Subaccount’s average daily net assets (0.59% for the Guggenheim VIF Large Cap Value, Guggenheim VIF World Equity Income, Guggenheim VIF All Cap Value and Guggenheim VIF Mid Cap Value Subaccounts).

Underlying Fund Expenses — Each Subaccount of the Separate Account purchases shares at the net asset value of the corresponding Underlying Fund. Each Underlying Fund’s net asset value reflects the investment advisory fee and other expenses that are deducted from the assets of the Underlying Fund. These fees and expenses are not deducted from the Subaccounts, but are paid from the assets of the corresponding Underlying Fund. As a result, the Participant 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 each Underlying Fund’s prospectus, are not specified or fixed under the terms of the Contract, and may vary from year to year.

Annuity Period

General — You select the Annuity Start Date when you complete the participation enrollment form. The Annuity Start Date may not be within 30 days of the Contract Date and may not be deferred beyond your 90th birthday. If you do not select an Annuity Start Date, the Company will use your 90th birthday as the Annuity Start Date.

On the Annuity Start Date, your Contract Value as of that date, less any applicable premium taxes, will be applied to provide an annuity under one of the options described below. Each option is a fixed annuity for which annuity payments will not fluctuate.

The Contract currently provides for five Annuity Options. The Company may make other Annuity Options available upon request. The Company may discontinue the availability of one or more of these options at any time. Annuity payments are based upon annuity rates that vary with the Annuity Option selected. 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 reflect the Annuitant’s life expectancy based upon the Annuitant’s age as of the Annuity Start Date and the Annuitant’s gender, unless unisex rates apply. The annuity rates are based upon the 1983(a) mortality table with mortality improvement using projection scale G and are adjusted to reflect an interest rate of 3%, compounded annually. If no Annuity Option is selected, the Company will make payments under Option 2, a life income, with a 10-year period certain.

Annuity Options 1 through 5 provide for payments to be made during the lifetime of the Annuitant. Annuity payments under such options cease in the event of the Annuitant’s death, unless the option provides for a guaranteed minimum number of payments, for example a life income with guaranteed payments of 5, 10, 15 or 20 years. The level of annuity payments will be greater for shorter guaranteed periods and less for longer guaranteed periods. Similarly, payments will be greater for life annuities than for joint and survivor annuities, because payments for life annuities are expected to be made for a shorter period.

You may elect to receive annuity payments 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, the Company reserves the right to change the frequency.

You may designate or change an Annuity Start Date, Annuity Option, or Annuitant, provided proper written notice is received by the Company at the Administrative 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 the Administrative Office.

Once annuity payments have commenced under one of the Annuity Options, the Participant cannot change the Annuity Option and cannot make partial withdrawals or surrender his or her annuity for the Withdrawal Value. The Contract specifies annuity tables for Annuity Options 1 through 5, described below. The tables contain the guaranteed minimum dollar amount of each annuity payment (per $1,000 of Contract Value, less any premium taxes applied).

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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 due date of the third annuity payment, etc. There is no minimum number of payments guaranteed under this option. Payments will 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 5, 10, 15 or 20 years, as elected by the Participant, annuity payments will be continued during the remainder of such period to the Designated Beneficiary. Upon the Annuitant’s death after the period certain, no further annuity payments will be made.

Option 3 — Life 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. Annuity payments will be made as long as either the Annuitant or a secondary Annuitant is living. Upon the death of one Annuitant, annuity payments continue to the surviving 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 — Joint and Contingent Survivor Option. Periodic annuity payments will be made during the life of the primary Annuitant. Upon the death of the primary Annuitant, payments will be made to the contingent Annuitant during his or her life. If the contingent Annuitant is not living upon the death of the Primary Annuitant, no payments will be made to the contingent 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 Options 1 and 4, there is no minimum number of payments guaranteed under this Option. Payments cease upon the death of the last surviving Annuitant, regardless of the number of payments received.

The Fixed Account

You may allocate all or a portion of your Purchase Payments and transfer Contract Value to the Fixed Account. The Fixed Account is a separate account of the Company established under Kansas law on October 26, 1998. The Company owns the assets of the Fixed Account and maintains them apart from the assets of its General Account and its other separate accounts. The assets held in the Fixed Account equal to the reserves and other Contract liabilities with respect to the Fixed 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 Fixed Account are credited to, or charged against, the Fixed Account without regard to the income, gains or losses from the Company’s General Account or its other separate accounts.

The Fixed Account is subject to regulation and supervision by the Kansas Department of Insurance. In reliance on certain exemptive and exclusionary provisions, interests in the Fixed Account have not been registered as securities under the Securities Act of 1933 (the “1933 Act”) and the Fixed Account has not been registered as an investment company under the Investment Company Act of 1940 (the “1940 Act”). Accordingly, neither the Fixed Account nor any interests therein are generally subject to the provisions of the 1933 Act or the 1940 Act. 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.”

Subject to applicable law, the Company has sole discretion over investment of the assets of its Fixed Account. Please note that any amounts the Company guarantees in connection with the Fixed Account are subject to the Company’s financial strength and claims-paying ability.

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Interest — Contract Value allocated to the Fixed Account earns interest at a fixed rate or rates (the “Current Rate”) that are paid by the Company. Such interest will be paid regardless of the actual investment experience of the Fixed Account. The Company 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 Company bears the investment risk for Contract Value allocated to the Fixed Account and for paying interest at the Current Rate on amounts allocated to the Fixed Account. The Company does not guarantee a minimum Current Rate of interest.

Death Benefit — The death benefit under the Contract will be determined in the same fashion for a Contract that has Contract Value allocated to the Fixed Account as for a Contract that has Contract Value allocated to the Subaccounts. See “Death Benefit.”

Contract Charges — Premium taxes will be the same for Participants who allocate Purchase Payments or transfer Contract Value to the Fixed Account as for those who allocate Purchase Payments or transfer Contract Value to the Subaccounts. The charges for mortality and expense risks and the administration and distribution charge will not be assessed against the Fixed Account, and any amounts that the Company pays for income taxes allocable to the Subaccounts will not be charged against the Fixed Account. In addition, you will not pay directly or indirectly the investment advisory fees and operating expenses of the Underlying Funds to the extent Contract Value is allocated to the Fixed Account; however, you also will not participate in the investment experience of the Subaccounts.

Transfers and Withdrawals from the Fixed Account — You may transfer amounts from the Subac­counts to the Fixed Account and from the Fixed Account to the Subaccounts, subject to the following limitations. Transfers from the Fixed Account are also allowed pursuant to the Dollar Cost Averaging and Asset Reallocation Options.

The minimum amount that you may transfer from the Fixed Account to the Subaccounts is $100. 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 at a future date to limit the number of transfers permitted each Contract Year, to limit the size and frequency of transfers and to discontinue transfers.

You may also make full or partial withdrawals to the same extent as if you had allocated Contract Value to the Subaccounts. See “Full and Partial Withdrawals” and “Systematic Withdrawals.”

Payments from the Fixed Account — Full and partial withdrawals, and transfers from the Fixed Account may be delayed for up to six months after a written request on the Withdrawal Request form, or other designated proper form is received by the Company at the Administrative Office. During the period of deferral, interest at the Current Rate will continue to be credited to the amounts allocated to the Fixed Account.

More About the Contract

Holder — The Contractholder is the IBEW Local Unions Savings and Retirement Plan and Trust (the “Trust”). The Trust holds the Contract for the benefit of Participants. While living, the Participant alone has the right to receive all benefits and exercise all rights that the Contract grants or the Company allows.

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 Participant prior to the Annuity Start Date. The Designated Beneficiary is the first person on the following list who, if a natural person, is alive on the date of death of the Participant: the Primary Beneficiary; the Secondary Beneficiary; or if none of the above are alive, the Participant’s estate. The Primary Beneficiary is the individual named as such in the participation enrollment form or any later change shown in the Company’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 the Participant prior to the Annuity Start Date. The Participant may change the Primary Beneficiary at any time while the Contract is in force by written request on forms provided by the Company and received by the Company at the Administrative Office. The change will not be binding on the Company until it is received and recorded at the Administrative Office. The change will be effective as of the date this form is signed subject to any payments made or other actions taken by the Company before the change is received and recorded. A Secondary Beneficiary may be designated.

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Reference should be made to the terms of the Trust Agreement and any applicable law for any restrictions or limitations on the designation of a Beneficiary.

Dividends — The Contract may share in the surplus earnings of the Company. However, the current dividend scale is zero and the Company does not anticipate that dividends will be paid.

Payments from the Separate Account — The Company generally will pay any full or partial withdrawal (including systematic withdrawals) or death benefit proceeds from Contract Value allocated to the Subaccounts, and will transfer Contract Value between Subaccounts or from a Subaccount to the Fixed Account, within seven days after a proper request is received at the Administrative Office. However, the Company can postpone the 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:

·   During which the NYSE is closed other than customary weekend and holiday closings,

·   During which trading on the NYSE is restricted as determined by the SEC,

·   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

·   For such other periods as the SEC may by order permit for the protection of investors.

The Company reserves the right to delay payments of any full or partial withdrawal until all of your Purchase Payment checks have been honored by your bank.

Proof of Age and Survival — The Company may require proof of age or survival of any person on whose life annuity payments depend.

Misstatements — If you misstate the age or sex of an Annuitant or age of the Participant, the correct amount paid or payable by the Company under the Contract shall be such as the Contract Value would have provided for the correct age or sex (unless unisex rates apply).

Cyber Security — Our variable product business is highly dependent upon the effective operation of our computer systems and those of our business partners, so that our business is potentially susceptible to operational and information security risks resulting from a cyber-attack. These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or digitally, denial of service attacks on websites and other operational disruption and unauthorized release of confidential customer information. Cyber-attacks affecting us, the Underlying Funds, intermediaries and other affiliated or third-party service providers may adversely affect us and your Contract Value. For instance, cyber-attacks may interfere with our processing of contract transactions, including the processing orders from our website or with the Underlying Funds, impact our ability to calculate AUVs, cause the release and possible destruction of confidential customer or business information, impede order processing, subject us and/or our service providers and intermediaries to regulatory fines and financial losses and/or cause reputational damage. Cyber security risks may also impact the issuers of securities in which the Underlying Funds invest, which may cause the funds underlying your Contract to lose value. There can be no assurance that we or the Underlying Funds or our service providers will avoid losses affecting your Contract due to cyber-attacks or information security breaches in the future.

Federal Tax Matters

Introduction — The Contract described in this Prospectus is designed for use in connection with a retirement plan that is not a “qualified” plan for federal tax purposes. The discussion contained herein is general in nature and is not intended to be an exhaustive discussion of all questions that might arise in connection with a Contract. It is based upon the Company’s understanding of the present federal income tax laws as currently interpreted by the Internal Revenue Service (“IRS”) as of the date of this prospectus, 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

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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, 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. The Company doesnot make any guarantee regarding the tax status of, or tax consequences arising from, any Contract or any transaction involving the Contract. In addition, as provided in IRS regulations, we inform you that thismaterial is not intended and cannot be referred to or used to avoid tax penalties or to promote, sell or recommend any tax plan or arrangement.

Tax Status of the Company and the Separate Account —

General. The Company intends to be taxed as a life insurance company under Part I, Subchapter L of the Code. Because the operations of the Separate Account form a part of the Company, the Company will be responsible for any federal income taxes that become payable with respect to the income of the Separate Account and its Subaccounts.

Charge for the Company’s Taxes. A charge may be made for any federal taxes incurred by the Company that are attributable to the Separate Account, the Subaccounts or to the operations of the Company with respect to the Contracts or attributable to payments, premiums, or acquisition costs under the Contracts. The Company will review the question of a charge to the Separate Account, the Subaccounts or the Contracts for the Company’s federal taxes periodically. Charges may become necessary if, among other reasons, the tax treatment of the Company or of income and expenses under the Contracts is ultimately determined to be other than what the Company currently believes it to be, if there are changes made in the federal income tax treatment of variable annuities at the insurance company level, or if there is a change in the Company’s tax status.

Under current laws, the Company may incur state and local taxes (in addition to premium taxes) in several states. At present, these taxes are not significant. If there is a material change in applicable state or local tax laws, the Company reserves the right to charge the Separate Account or the Subaccounts for such taxes, if any, attributable to the Separate Account or Subaccounts.

Diversification Standards. Each Underlying 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% of the total assets of an Underlying Fund may be represented by any one investment, no more than 70% may be represented by any two investments, no more than 80% may be represented by any three investments, and no more than 90% may be represented by any four investments. For purposes of Section 817(h), securities of a single issuer generally are treated as one investment but obligations of the U.S. Treasury and each U.S. Govern­mental agency or instrumentality generally are treated as securities of separate issuers. The Separate Account, through the Underlying Funds, intends to comply with the diversification requirements of Section 817(h).

Owner Control. 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 contract owner’s gross income.

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 Participant has additional flexibility in allocating Purchase Payments and Contract Values. While the Company does not think that will be the case, these differences could result in a Participant being treated as the owner of a pro rata portion of the assets of the Separate Account. The Company nonetheless reserves the right to modify the Contract, as it deems appropriate, to attempt to prevent a Participant from being considered the owner of a pro rata share of the assets of the Separate Account. Moreover, in the event that regulations are adopted or rulings are issued, there can be no assurance that the Underlying Funds will be able to operate as currently described in the Prospectus, or that the Underlying Funds will not have to change their 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 contract owner 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

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under certain circumstances. See “Contracts Owned by Non-Natural Persons” and “Diversification Standards.” Withholding of federal income taxes on all distributions may be required unless a recipient who is eligible elects not to have any amounts withheld and properly notifies the Company of that election.

Surrenders or Withdrawals Prior to the Annuity Start Date. Code Section 72 provides generally that amounts received upon a total or partial withdrawal (including systematic withdrawals) from a contract prior to the annuity start date generally will be treated as gross income to the extent that the cash value of the contract immediately before the withdrawal 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.

Distributions on or after the Annuity Start Date. For fixed annuity payments, the taxable portion of each payment generally is determined by using a formula known as the “exclusion ratio,” which establishes the ratio that the investment in the contract bears to the total expected amount of annuity payments for the term of the contract. That ratio is then applied to each payment to determine the non-taxable portion of the payment. The remaining portion of each payment is taxed at ordinary income rates. For variable annuity payments, the taxable portion of each payment is determined by using a formula known as the “excludable amount,” which establishes the non-taxable portion of each payment. The non-taxable portion is a fixed dollar amount for each payment, determined by dividing the investment in the contract by the number of payments to be made. The remainder of each variable annuity payment is taxable. Once the excludable portion of annuity payments to date equals the investment in the contract, the balance of the annuity payments will be fully taxable.

Penalty Tax on Certain Surrenders and Withdrawals. With respect to amounts withdrawn or distributed before the taxpayer reaches age 59½, a penalty tax is imposed equal to 10% 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 59½, or (b) before the taxpayer reaches age 59½.

Partial Annuitization. Under a new tax provision enacted in 2010, if part of an annuity contract’s value is applied to an annuity option that provides payments for one or more lives and for a period of at least ten years, those pay­ments may be taxed as annuity payments instead of withdrawals. None of the payment options under the Contract is intended to qualify for this “partial annuitization” treatment and, if you apply only part of the value of the Contract to a payment option, we will treat those payments as withdrawals for tax purposes.

Additional Considerations —

Distribution-at-Death Rules. In order to be treated as an annuity contract, a contract must provide the following two distribution rules: (a) if any owner dies on or after the Annuity 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

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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.

The right of a spouse to continue the account, and all Contract provisions relating to spousal continuation, are available only to a person who meets the definition of “spouse” under Federal law. See “Distribution Requirements”.

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 Designated Beneficiary is the deceased owner’s spouse.

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% penalty tax and gift tax also may be applicable. This provision does not apply to transfers between spouses or incident to a divorce.

Contracts Owned by Non-Natural Persons. If the contract is held by a non-natural person (for example, a corporation) the income on that contract (generally the increase in net surrender value less the Purchase Payments) is 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 (such as the Contract held by the Trust on behalf of the Participants) is considered held by a natural person.

Multiple Contract Rule. For purposes of determining the amount of any distribution under Code Section 72(e) (amounts not received as annuities) that is includable in gross income, all Non-Qualified deferred annuity contracts issued by the same insurer to the same contract owner 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% 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% 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.

Transfers, Assignments or Exchanges of a Contract. A transfer of ownership of your Contract Value, the designation of an Annuitant, payee or beneficiary, the selection of certain Annuity Start Dates or the exchange of your Contract Value may result in certain tax consequences to the Participant that are not discussed herein. A Participant contemplating any such transfer, assignment, selection or exchange should contact a competent tax adviser with respect to the potential effects of such a transaction.

Withholding. Annuity distributions are generally subject to withholding for the recipient’s federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions.

Other Tax Considerations —

Federal Estate, Gift and Generation-Skipping Transfer Taxes. While no attempt is being made to discuss the Federal estate tax implications of the Contract, a Participant should keep in mind that the value of an annuity contract owned by a decedent and payable to a beneficiary by virtue of surviving the decedent is included in the decedent’s gross estate. Depending on the terms of the annuity contract, the value of the annuity included in the gross estate may be the value of the lump sum payment payable to the designated beneficiary or the actuarial value of the payments to be received by the beneficiary. Consult an estate planning advisor for more information.

Under certain circumstances, the Code may impose a “generation skipping transfer tax” (“GST”) when all or part of an annuity contract is transferred to, or a death benefit is paid to, an individual two or more generations younger

29

than the Participant. Regulations issued under the Code may require the Company to deduct the tax from your Contract, or from any applicable payment, and pay it directly to the IRS.

For 2015, the federal estate tax, gift tax and GST tax exemptions and maximum rates are $5,430,000 and 40%, respectively.

The potential application of these taxes underscores the importance of seeking guidance from a qualified adviser to help ensure that your estate plan adequately addresses your needs and those of your beneficiaries under all possible scenarios.

Annuity Purchases by Nonresident Aliens and Foreign Corporations. The discussion above provides general information regarding U.S. federal income tax consequences to annuity purchasers that are U.S. citizens or residents. Purchasers that are not U.S. citizens or residents will generally be subject to U.S. federal withholding tax on taxable distributions from annuity contracts at a 30% rate, unless a lower treaty rate applies. In addition, such purchasers may be subject to state and/or municipal taxes and taxes that may be imposed by the purchaser’s country of citizenship or residence. Additional withholding may occur with respect to entity purchasers (including foreign corporations, partnership, and trusts) that are not U.S. residents. Prospective purchasers are advised to consult with a qualified tax adviser regarding U.S., state, and foreign taxation with respect to an annuity contract purchase.

Foreign Tax Credits. We may benefit from any foreign tax credits attributable to taxes paid by certain Funds to foreign jurisdictions to the extent permitted under Federal tax law.

Medicare Tax. Distributions from non-qualified annuity contracts are considered ”invest­ment income” for purposes of the Medicare tax on investment income. Thus, in certain circumstances, a 3.8% tax may be applied to some or all of the taxable portion of distributions (e.g. earnings) to individuals whose income exceeds certain threshold amounts ($200,000 for filing single, $250,000 for married filing jointly and $125,000 for married filing separately). Please consult a tax advisor for more information.

Annuity Purchases by Residents of Puerto Rico. The IRS has announced that income received by residents of Puerto Rico under life insurance or annuity contracts issued by a Puerto Rico branch of a United States life insurance company is U.S.-source income that is generally subject to United States federal income tax.

Possible Tax Law Changes. From time to time, legislation has been proposed that would have adversely modified the federal taxation of certain annuities. There is always the possibility that the tax treatment of annuities could change by legislation or other means (such as IRS regulations, revenue rulings, and judicial decisions). More­over, although unlikely, it is also possible that any legislative change could be retroactive (that is, effective prior to the date of such change). Consult a tax adviser with respect to legislative developments and their effect on the Contract. We have the right to modify the Contract in response to legislative changes that could otherwise diminish the favorable tax treatment that annuity contract owners currently receive. We make no guarantee regarding the tax status of any contract and do not intend the above discussion to be tax advice.

Other Information

Voting of Underlying Fund Shares — The Company is the legal owner of the shares of Underlying Funds held by the Subaccounts. The Company will exercise voting rights attributable to the shares of each Underlying Fund held in the Subaccounts at any regular and special meetings of the shareholders of the Underlying Funds on matters requiring shareholder voting under the 1940 Act. In accordance with its view of presently applicable law, the Company will exercise its voting rights based on instructions received from persons having the voting interest in corresponding Subaccounts. However, if the 1940 Act or any regulations thereunder should be amended, or if the present interpretation thereof should change, and as a result the Company determines that it is permitted to vote the shares of the Underlying Funds in its own right, it may elect to do so.

The person having the voting interest under a Contract is the Participant. Unless otherwise required by applicable law, the number of shares of a particular Underlying Fund as to which voting instructions may be given to the Company is determined by dividing your Contract Value in the corresponding Subaccount on a particular date by the net asset value per share of the Underlying Fund 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 same date established by the Underlying Fund for determining shareholders eligible to vote at the meeting of the Underlying Fund. If required by the SEC, the Company reserves the right to determine in a different fashion the voting rights attributable to the shares of the Underlying Funds. Voting instructions may be cast in person or by proxy.

30

It is important that each Participant provide voting instructions to the Company because we vote all Underlying Fund shares proportionately in accordance with instructions received from those who do vote. This means that the Company will vote shares for which no timely instructions are received in the same proportion as those shares for which we do receive voting instructions. As a result, a small number of persons may control the outcome of a vote. The Company will also exercise the voting rights from assets in each Subaccount that are not otherwise attributable to Participants, if any, in the same proportion as the voting instructions that are received in a timely manner for all Contracts participating in that Subaccount.

Changes to Investments — The Company reserves the right, subject to compliance with the law as then in effect, to make additions to, deletions from, substitutions for, or combinations of the securities that are held by the Separate Account or any Subaccount or that the Separate Account or any Subaccount may purchase. If shares of any or all of the Underlying Funds should no longer be available for investment, or if the Company’s management believes further investment in shares of any or all of the Underlying Funds should become inappropriate in view of the purposes of the Contract, the Company may substitute shares of another Underlying Fund or of a different fund for shares already purchased, or to be purchased in the future under the Contract. Substituted fund shares may have higher fees and expenses. The Company 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 Participants. The Company further reserves the right to close any Subaccount to future allocations.

In connection with a substitution of any shares attributable to a Participant’s interest in a Subaccount or the Separate Account, the Company will, to the extent required under applicable law, provide notice, seek Participant approval, seek prior approval of the SEC, and comply with the filing or other procedures established by applicable state insurance regulators.

The Company also reserves the right to establish additional Subaccounts of the Separate Account that would invest in a new Underlying Fund or in shares of another investment company, a series thereof, or other suitable investment vehicle. The Company may establish new Subaccounts in its sole discretion, and will determine whether to make any new Subaccount available to existing Participants. The Company may also eliminate or combine one or more Subaccounts to all or only certain classes of Participants if, in its sole discretion, marketing, tax, or investment conditions so warrant.

Subject to compliance with applicable law, the Company may transfer assets to the General Account. The Company also reserves the right, subject to any required regulatory approvals, to transfer assets of the Separate Account or any Subaccount to another separate account or Subaccount.

In the event of any such substitution or change, the Company may, by appropriate endorsement, make such changes in these and other contracts as may be necessary or appropriate to reflect such substitution or change. If the Company believes it to be in the best interests of persons having voting rights under the Contract, the Separate Account may be operated as a management investment company under the 1940 Act or any other form permitted by law. The Separate Account may be deregistered under that Act in the event such registration is no longer required, or it may be combined with other separate accounts of the Company or an affiliate thereof. Subject to compliance with applicable law, the Company also may establish a committee, board, or other group to manage one or more aspects of the operation of the Separate Account.

Changes to Comply with Law and Amendments — The Company reserves the right, without the consent of the Holder or Participants, to make any change to the provisions of the Contract to comply with, or give Participants the benefit of, any federal or state statute, rule, or regulation, including but not limited to requirements for annuity contracts and retirement plans under the Internal Revenue Code and regulations thereunder or any state statute or regulation.

Reports to Participants — The Company will send you quarterly a statement setting forth a summary of the transactions that occurred during the quarter, and indicating the Contract Value as of the end of the quarter. 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. The Company will also send confirmations upon Purchase Payments, transfers, and full and partial withdrawals. The Company may confirm certain transactions 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.

31

You will also receive annual and semiannual reports containing financial statements for those Underlying Funds corresponding to the Subaccounts to which you have allocated your Contract Value. Such reports will include a list of the portfolio securities of the Underlying Fund, as required by the 1940 Act, and/or such other reports the federal securities laws may require.

Electronic Privileges — If the Electronic Privileges section of the participation enrollment form or other proper form has been completed, signed, and filed at the Company's Administrative Office,you may: (1) request a transfer of Contract Value and make changes in your Purchase Payment allocation and to an existing Dollar Cost Averaging or Asset Reallocation Option by telephone; (2) request a transfer of Contract Value electronically via facsimile; and (3) request a transfer of Contract Value through the Company’s Internet web site. If you elect Electronic Privileges, you automatically authorize your financial representative to make transfers of Contract Value and changes in your purchase payment allocation or Dollar Cost Averaging or Asset Reallocation option, on your behalf.

Any telephone or electronic device, whether it is the Company’s, yours, your service provider’s, or your registered representative’s, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent the Company’s processing of your transfer request. Although we have taken precautions to limit these problems, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your transfer request by writing to the Administrative Office.

The Company has established procedures to confirm that instructions communicated by telephone are genuine and will not be liable for any losses due to fraudulent or unauthorized instructions provided it complies with its procedures. The Company’s procedures require that any person requesting a transfer by telephone provide the account number and the Participant’s tax identification number and such instructions must be received on a recorded line. The Company 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) or are otherwise unavailable, you may not be able to request transfers by telephone and would have to submit written requests.

By authorizing telephone transfers, you authorize the Company to accept and act upon telephonic instructions for transfers involving your Contract. There are risks associated with telephone transactions that do not occur if a written request is submitted. Anyone authorizing or making telephone requests bears those risks. You agree that neither the Company, any of its affiliates, nor any Underlying Fund, will be liable for any loss, damages, cost, or expense (including attorneys’ fees) arising out of any telephone requests; provided that the Company effects such request in accordance with its procedures. As a result of this policy on telephone requests, you bear the risk of loss arising from the telephone transfer privilege. The Company may discontinue, modify, or suspend the telephone transfer privilege at any time.

Legal Proceedings — The Company and its subsidiaries, like other life insurance companies, may be involved in lawsuits, including class action lawsuits. In some class action and other lawsuits involving insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any litigation cannot be predicted with certainty, the Company believes that at the present time there are no legal proceedings pending or threatened to which the Company, the Separate Account, or Security Distributors, Inc. is a party that are reasonably likely to materially affect the Separate Account, the Company’s ability to meet its obligations under the Contract, or Security Distributors, Inc.’s ability to perform its contract with the Separate Account.

Legal Matters — Chris Swickard, Esq., Associate General Counsel of the Company, has passed upon legal matters in connection with the issue and sale of the Contract described in this Prospectus, the Company’s authority to issue the Contract under Kansas law, and the validity of the form of the Contract under Kansas law.

Sale of the Contract — The Company currently offers the Contract on a continuous basis. The Company anticipates continuing to offer the Contract but reserves the right to discontinue the offering.

The Company has entered into a principal underwriting agreement with its affiliate, Security Distributors, Inc. (“SDI”), for the distribution and sale of the Contract. SDI’s home office is located at One Security Benefit Place, Topeka, Kansas 66636-0001. SDI, a wholly-owned subsidiary of the Company, is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority (FINRA), formerly known as NASD, Inc.

SDI does not sell the Contract directly to purchasers. The Contract is offered to the public through registered representatives of PlanMember Securities Corporation/Scarborough Alliance Group, a member of FINRA that has

32

entered into a selling agreement with the Company and SDI for the sale of the Contract (“PlanMember”). Registered representatives must be licensed as insurance agents by applicable state insurance authorities and appointed agents of the Company in order to sell the Contract. The Company pays commissions to PlanMember through SDI. During fiscal years 2014, 2013 and 2012, the amounts paid to SDI in connection with all Contracts sold through the Separate Account were $773,885.38, $794,863.97 and $832,622.01, respectively.

SDI passes through commissions it receives to PlanMember and does not retain any portion of commissions in return for its services as principal underwriter for the Contract. However, the Company may pay some or all of SDI’s operating and other expenses, including the following sales expenses: compensation and bonuses for SDI’s manage­ment team, advertising expenses, and other expenses of distributing the Contract. In addition, the Company pays SDI an annual payment of 0.75% of all Purchase Payments received under variable annuity contracts issued by the Companyto support SDI’s ongoing operations.

The Company pays commissions to PlanMember in connection with the promotion and sale of the Contract. A portion of any payments made to PlanMember may be passed on to its registered representatives in accordance with its internal compensation program. The Company may use any of its corporate assets to pay commissions and other costs of distributing the Contract, including any profit from the mortality and expense risk charge or other fees and charges imposed under the Contract. Commissions and other incentives or payments described below are not charged directly to Participants or the Separate Account. The Company intends to recoup commissions and other sales expenses through fees and charges deducted under the Contract or from its General Account.

The Company pays commissions as a percentage of Contract Value on an ongoing basis. The Company does not expect commissions paid to PlanMember to exceed 0.75% annually of average Contract Value. The Company also may pay non-cash compensation in connection with the sale of the Contract, including conferences, seminars and trips (including travel, lodging and meals in connection therewith), entertainment, merchandise and other similar items.

The registered representative who sells you the Contract typically receives a portion of the compensation the Company pays to PlanMember, depending on the agreement between PlanMember and your registered representa­tive and PlanMember’s internal compensation program. This program may include other types of cash and non-cash compensation and other benefits. Ask your registered representative for further information about what he or she and PlanMember may receive in connection with your purchase of a Contract.

Performance Information

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

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 mortality and expense risk charge and the administration and distribution charge, and may simultaneously be shown for other periods.

Although the Contract was not available for purchase until October 1999, certain of the Underlying Funds were in existence prior to that date. Performance information for the Subaccounts may also include quotations of total return for periods beginning prior to the availability of the Contracts that incorporate the performance of the Underlying Funds.

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 Underlying 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. For a description of the methods used to determine yield and total return for the Subaccounts, see the Statement of Additional Information.

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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 and may also be obtained from the SEC’s web site (http://www.sec.gov).

Financial Statements — The consolidated financial statements of Security Benefit Life Insurance Company and Subsidiaries at December 31, 2014 and 2013, and for each of the three years in the period ended December 31, 2014, and the financial statements of Variable Annuity Account XI at December 31, 2014, and for each of the specified periods ended December 31, 2014 and 2013, or for portions of such periods as disclosed in the financial statements, are included in the Statement of Additional Information.

Table of Contents for Statement of Additional Information

The Statement of Additional Information for Scarborough Advantage Variable Annuity contains more specific information and financial statements relating to Security Benefit Life Insurance Company and Subsidiaries and the Separate Account. The Statement of Additional Information is available without charge by calling the Company’s toll-free telephone number at 1-800-888-2461 or by detaching this page from the prospectus and mailing your request to Company at P.O. Box 750497, Topeka, Kansas 66675-0497. Be sure to include your name and address when requesting the Statement of Additional Information. The table of contents of the Statement of Additional Information is set forth below:

GENERAL INFORMATION AND HISTORY

Safekeeping of Assets

PERFORMANCE INFORMATION

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

FINANCIAL STATEMENTS

Objectives for Underlying Funds

There is no guarantee that any Underlying Fund will meet its investment objective.

More detailed information regarding the investment objectives, strategies, restrictions and risks, expenses paid by the Underlying Funds, and other relevant information may be found in the respective Underlying Fund summary prospectuses or prospectuses. Summary prospectuses or prospectuses for the Underlying Funds should be read carefully in conjunction with this Prospectus.

NOTE:  If you received a summary prospectus for an Underlying Fund listed below, please follow the directions on the first page of the summary prospectus to obtain a copy of the full Underlying Fund prospectus.

Underlying Fund	Share Class (if applicable)	Investment Objective	Investment Adviser
Invesco V.I. Global Real Estate Fund	Series I	Seeks total return through growth of capital and current income.	Invesco Advisors, Inc. (Investment Adviser)

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Underlying Fund Share Class (if applicable) Investment Objective Investment Adviser

Invesco V.I. International Growth Fund	Series I	Seeks long-term growth of capital.	Invesco Advisors, Inc.
Goldman Sachs VIT Small Cap Equity Insights Fund	Institutional	Seeks long-term growth of capital.	Goldman Sachs Asset Management, L.P.
Goldman Sachs VIT Strategic Growth Fund		Seeks long-term growth of capital.	Goldman Sachs Asset Management, L.P.
Janus Aspen Janus Portfolio	Service	Seeks long-term growth of capital.	Janus Capital Management LLC
Neuberger Berman AMT Socially Responsive	Class S	Seeks long-term growth of capital by investing primarily in securities of companies that meet the Fund’s financial criteria and social policy.	Neuberger Berman Management LLC (Investment Adviser) Neuberger Berman, LLC (Sub-Adviser)
PIMCO VIT Real Return Portfolio	Administrative	Seeks maximum real return, consistent with preservation of real capital and prudent investment management.	Pacific Investment Management Company LLC
PIMCO VIT Total Return Portfolio	Administrative	Seeks maximum total return, consistent with preservation of capital and prudent investment management.	Pacific Investment Management Company LLC
Rydex VIF Energy Services Fund		Seeks capital appreciation by investing in companies that are involved in the energy services field, including those that provide services and equipment in the areas of oil, coal, and gas exploration and production.	Guggenheim Investments
Guggenheim VIF All Cap Value		Seeks long-term growth of capital.	Guggenheim Investments
Guggenheim VIF Large Cap Value		Seeks long-term growth of capital.	Guggenheim Investments
Guggenheim VIF Mid Cap Value		Seeks long-term growth of capital.	Guggenheim Investments
Guggenheim VIF World Equity Income		Seeks to provide total return, comprised of capital appreciation and income.	Guggenheim Investments
T. Rowe Price Mid Cap Growth		Seeks long-term capital appreciation by investing in mid-cap stocks with potential for above-average earnings growth.	T. Rowe Price Associates, Inc.

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APPENDIX A

Condensed Financial Information

The following condensed financial information presents accumulation unit values and ending accumulation units outstanding for each Subaccount for each of the following periods ended December 31.

Subaccount	Year	Accumulation Unit Value ($)		Accumulation Units Outstanding at End of Period
		Beginning of Period	End of Period
Goldman Sachs VIT Small Cap Equity Insights	2014	22.03	23.24	12,766
	2013	16.47	22.03	14,461
	2012	14.80	16.47	13,145
	2011	14.90	14.80	18,198
	2010	11.61	14.90	18,155
	2009	9.22	11.61	18,460
	2008	14.16	9.22	20,091
	2007	17.20	14.16	25,878
	2006	15.53	17.20	31,639
	2005	14.84	15.53	43,461
Goldman Sachs VIT Strategic Growth	2014	16.91	18.96	38,032
	2013	12.95	16.91	32,629
	2012	10.95	12.95	34,743
	2011	11.40	10.95	33,526
	2010	10.44	11.40	36,552
	2009	7.16	10.44	38,683
	2008	12.46	7.16	40,404
	2007	11.47	12.46	46,606
	2006	10.71	11.47	51,867
	2005	10.55	10.71	61,816
Guggenheim VIF All Cap Value	2014	38.76	41.29	28,302
	2013	29.39	38.76	28,047
	2012	25.71	29.39	34,456
	2011	27.15	25.71	44,716
	2010	23.52	27.15	48,378
	2009	17.86	23.52	51,172
	2008	29.30	17.86	52,608
	2007	28.79	29.30	64,287
	2006	24.48	28.79	61,519
	2005	23.84	24.48	57,907

A-1

Subaccount	Year	Accumulation Unit Value ($)		Accumulation Units Outstanding at End of Period
		Beginning of Period	End of Period

Guggenheim VIF Large Cap Value	2014	20.72	22.45	12,820
	2013	15.86	20.72	3,692
	2012	13.86	15.86	2,163
	2011	14.56	13.86	2,501
	2010	12.66	14.56	1,697
	2009	10.11	12.66	730
	20081	10.00	10.11	0
Guggenheim VIF Mid Cap Value	2014	25.44	25.42	10,008
	2013	19.28	25.44	7,740
	2012	16.63	19.28	6,739
	2011	18.16	16.63	10,292
	2010	15.57	18.16	13,739
	2009	10.93	15.57	29,599
	20081	10.00	10.93	790
Guggenheim VIF World Equity Income	2014	18.45	19.18	23,092
	2013	15.62	18.45	23,393
	2012	13.54	15.62	27,796
	2011	16.25	13.54	31,350
	2010	14.19	16.25	35,159
	2009	11.97	14.19	38,250
	2008	19.62	11.97	42,542
	2007	18.18	19.62	83,632
	2006	15.56	18.18	56,509
	2005	13.77	15.56	40,773
Invesco V.I. Global Real Estate	2014	18.59	21.02	3,985
	2013	18.35	18.59	1,835
	2012	14.52	18.35	1,550
	2011	15.74	14.52	2,201
	2010	13.58	15.74	2,126
	2009	10.47	13.58	661
	20081	10.00	10.47	414
Invesco V.I. International Growth	2014	20.40	20.19	5,963
	2013	17.38	20.40	2,580
	2012	15.25	17.38	2,732
	2011	16.57	15.25	2,273
	2010	14.89	16.57	2,361
	2009	11.16	14.89	1,093
	20081	10.00	11.16	482

A-2

Subaccount	Year	Accumulation Unit Value ($)		Accumulation Units Outstanding at End of Period
		Beginning of Period	End of Period

Janus Aspen Janus Portfolio	2014	21.81	24.25	2,127
	2013	17.01	21.81	2,639
	2012	14.58	17.01	2,150
	2011	15.64	14.58	758
	2010	13.88	15.64	2,371
	2009	10.35	13.88	115
	20081	10.00	10.35	0
Neuberger Berman AMT Socially Responsive	2014	23.03	25.02	4,903
	2013	16.99	23.03	3,349
	2012	15.56	16.99	2,359
	2011	16.28	15.56	2,848
	2010	13.45	16.28	2,730
	2009	10.38	13.45	1,407
	20081	10.00	10.38	999
PIMCO VIT Real Return	2014	13.39	13.62	5,210
	2013	14.96	13.39	4,770
	2012	13.94	14.96	9,696
	2011	12.66	13.94	5,188
	2010	11.87	12.66	6,724
	2009	10.17	11.87	5,379
	20081	10.00	10.17	485
PIMCO VIT Total Return	2014	13.37	13.76	29,619
	2013	13.83	13.37	24,479
	2012	12.79	13.83	25,419
	2011	12.52	12.79	16,564
	2010	11.74	12.52	15,314
	2009	10.44	11.74	13,524
	20081	10.00	10.44	0
Rydex VIF Energy Services	2014	20.08	13.99	2,038
	2013	16.43	20.08	1,474
	2012	16.59	16.43	2,048
	2011	18.54	16.59	3,380
	2010	14.91	18.54	1,112
	2009	9.31	14.91	741
	20081	10.00	9.31	0

A-3

Subaccount	Year	Accumulation Unit Value ($)		Accumulation Units Outstanding at End of Period
		Beginning of Period	End of Period

T. Rowe Price Mid-Cap Growth	2014	49.54	55.27	46,154
	2013	36.74	49.54	47,219
	2012	32.70	36.74	48,302
	2011	33.58	32.70	51,938
	2010	26.57	33.58	53,833
	2009	18.49	26.57	55,650
	2008	31.12	18.49	60,879
	2007	26.85	31.12	70,728
	2006	25.53	26.85	88,405
	2005	22.55	25.53	96,767
1      For the period of October 24, 2008 (the date operations commenced) to December 31, 2008.

A-4

SCARBOROUGH ADVANTAGE VARIABLE ANNUITY

Variable Annuity Account XI

STATEMENT OF ADDITIONAL INFORMATION

Date:  May 1, 2015

Group Flexible Purchase Payment Deferred Variable

Annuity Contract

Issued by

Security Benefit Life Insurance Company

One Security Benefit Place

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 Scarborough Advantage Variable Annuity dated May 1, 2015, as it may be supplemented from time to time. A copy of the Prospectus may be obtained from Security Benefit (the “Company”) by calling 1-800-888-2461 or by writing P.O. Box 750497, Topeka, Kansas 66675-0497. The Scarborough Advantage Variable Annuity is funded by a separate account of the Company called the Variable Annuity Account XI.

Table of Contents

	Page
GENERAL INFORMATION AND HISTORY	3
Safekeeping of Assets	3
PERFORMANCE INFORMATION	3
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	4
FINANCIAL STATEMENTS	4

2

General Information and History

For a description of the Scarborough Advantage Variable Annuity, a group flexible purchase payment deferred variable annuity contract (the “Contract”), Security Benefit Life Insurance Company (the “Company”), and the Variable Annuity Account XI (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 — The Company is responsible for the safekeeping of the assets of the Subaccounts. These assets, which consist of shares of the Underlying Funds in non-certificated form, are held separate and apart from the assets of the Company’s General Account and its other separate accounts.

Performance Information

Performance information for the Subaccounts, including the yield, average annual total return and total return, may appear in advertisements, reports, and promotional literature provided to current or prospective Participants.

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 the 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).

Average annual total return figures (referred to as “Standardized Total Return”) are calculated from the inception date of the subaccounts under the Contract, and reflect the deduction of the mortality and expense risk charge of 0.45% and the maximum annual administration and distribution charge of 0.94% for all Subaccounts except the Guggenheim VIF Large Cap Value, Guggenheim VIF World Equity Income, Guggenheim VIF All Cap Value and Guggenheim VIF Mid Cap Value Subaccounts for which the maximum annual administration and distribution charge is 0.59%.

Other total return figures (referred to as “Non-Standardized Total Return”) may be quoted that do not assume the maximum annual administration and distribution charge. The maximum annual administration and distribution charge if reflected would lower the Non-Standardized Total Return. Total return figures that do not reflect deduction of all charges will be accompanied by Standardized Total Return figures that reflect such charges and which date from the Separate Account inception date.

Total return figures may also be shown for periods beginning prior to the availability of the Contract. Such total return figures are based upon the performance of the Underlying Funds, adjusted to reflect the maximum charges imposed under the Contract. Any quotation of performance that pre-dates the date of inception of the Separate Account (or a Subaccount thereof as applicable) will be accompanied by Standardized Total Return figures that reflect the deduction of the maximum annual administration and distribution charge and other fees and charges since the date of inception of the Separate Account or Subaccount.

Quotations of total return for any Subaccount will be based on a hypothetical investment in the Subaccount 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.

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

3

and quality of the Underlying Funds in which the Subaccount invests, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future.

Independent Registered Public Accounting Firm

The consolidated financial statements of Security Benefit Life Insurance Company and Subsidiaries at December 31, 2014 and 2013 and for each of the three years in the period ended December 31, 2014, and the financial statements of Variable Annuity Account XI at December 31, 2014, and for each of the specified periods ended December 31, 2014 and 2013, or for portions of such periods as disclosed in the financial statements, appearing in this Statement of Additional Information have been audited by Ernst & Young LLP, 1200 Main Street, Suite 2500, Kansas City, Missouri, 64105-2143, independent registered public accounting firm, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

Financial Statements

The consolidated financial statements of Security Benefit Life Insurance Company and Subsidiaries at December 31, 2014 and 2013 and for each of the three years in the period ended December 31, 2014, and the financial statements of Variable Annuity Account XI at December 31, 2014 and for each of the specified periods ended December 31, 2014 and 2013, or for portions of such periods as disclosed in the financial statements are set forth herein, following this section.

The consolidated financial statements of Security Benefit Life Insurance Company and Subsidiaries, which are included in this Statement of Additional Information, should be considered only as bearing on the ability of Security Benefit to meet its obligations under the Contract. They should not be considered as bearing on the investment performance of the assets held in the Separate Account.

4

Consolidated Financial Statements

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Years Ended December 31, 2014, 2013, and 2012

With Report of Independent Auditors

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Consolidated Financial Statements

Years Ended December 31, 2014, 2013, and 2012

Contents

Report of Independent Auditors	1
Consolidated Financial Statements
Consolidated Balance Sheets	3
Consolidated Statements of Operations	5
Consolidated Statements of Comprehensive Income	6
Consolidated Statements of Changes in Stockholder’s Equity	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	10

Report of Independent Auditors

The Board of Directors

Security Benefit Life Insurance Company

We have audited the accompanying consolidated financial statements of Security Benefit Life Insurance Company and subsidiaries (the Company), a wholly owned subsidiary of Security Benefit Corporation, which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in stockholder’s equity and cash flows for each of the three years in the period ended December 31, 2014, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

1

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Security Benefit Life Insurance Company and subsidiaries at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

ERNST & YOUNG LLP

April 30, 2015

2

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Consolidated Balance Sheets

	December 31
	2014		2013
	(In Thousands)
Assets
Investments:
Securities available for sale:
Fixed maturities (includes $1,226.9 million and $123.2 million
related to consolidated variable interest entities for 2014
and 2013, respectively)	$	13,251,101	$	8,449,726
Equities		112,130		148,390
Securities fair value option:
Fixed maturities		184,415		235,507
Equities		1,026		943
Mortgage loans		15,810		40,020
Synthetic bonds		9,703		8,463
Notes receivable from related parties		1,540,658		739,946
Mortgage loans		538,551		485,791
Policy loans		413,188		475,577
Cash and cash equivalents		1,639,775		2,549,596
Short-term investments		704,794		848,359
Call options		660,424		403,621
Other invested assets		299,068		337,204
Total investments		19,370,643		14,723,143
Accrued investment income ( includes $17.0 million and $376
thousand related to consolidated variable interest entities for
2014 and 2013, respectively)		212,400		114,872
Accounts receivable		287,602		103,945
Reinsurance recoverable		2,669,811		2,767,794
Deferred tax asset		–		19,458
Property and equipment, net		45,208		46,634
Deferred policy acquisition costs		629,962		323,673
Deferred sales inducement costs		823,007		626,719
Value of business acquired		32,102		35,588
Other assets		77,674		118,559
Separate account assets		5,692,529		5,536,191
Total assets	$	29,840,938	$	24,416,576

3

	December 31
	2014		2013
	(In Thousands)
Liabilities and stockholder’s equity
Liabilities:
Policy reserves and annuity account values	$	21,342,887	$	17,033,740
Funds withheld		234,857		345,695
Accounts payable and accrued expenses		119,591		147,623
Deferred income tax liability		62,861		–
Surplus notes payable		127,467		125,628
Notes payable related to commission assignments		106,550		33,500
Mortgage debt		26,911		29,581
Debt from consolidated variable interest entities		361,428		–
Long-term debt - SAILES 2-0, LLC		90,742		97,279
Other liabilities		319,679		256,861
Repurchase agreements		241,195		127,535
Separate account liabilities		5,692,529		5,536,191
Total liabilities		28,726,697		23,733,633
Stockholder’s equity:
Common stock, $10 par value, 1,000,000 shares
authorized, 700,000 issued and outstanding		7,000		7,000
Additional paid-in capital		848,492		523,492
Accumulated other comprehensive income		116,357		20,011
Retained earnings		142,392		132,440
Total stockholder’s equity		1,114,241		682,943
Total liabilities and stockholder’s equity	$	29,840,938	$	24,416,576

See accompanying notes.

4

Security Benefit Life Insurance Company and Subsidiaries
(A Wholly Owned Subsidiary of Security Benefit Corporation)
Consolidated Statements of Operations
	Year Ended December 31
	2014			2013			2012
	(In Thousands)
Revenues:
Net investment income	$	724,572		$	470,069		$	357,892
Asset-based fees		75,501			71,971			68,612
Other product charges		110,237			49,533			56,840
Net realized/unrealized gains, excluding impairment
losses on available-for-sale securities		189,208			196,825			39,323
Total other-than-temporary impairment losses on
available-for-sale securities		(6,361	)		(2,414	)		(5,982	)
Portion of impairment losses on available-for-sale
securities recognized in other comprehensive income		1,083			3			32
Other revenues		46,987			37,304			18,812
Total revenues		1,141,227			823,291			535,529
Benefits and expenses:
Interest credited to account balances		341,736			218,816			164,756
Other benefits		229,995			148,192			20,731
Total benefits		571,731			367,008			185,487
Commissions and other operating expenses		165,364			146,565			138,258
Amortization of deferred policy acquisition
costs, deferred sales inducement costs, and
value of business acquired		195,867			106,014			45,384
Interest expense		30,957			24,395			15,951
Total benefits and expenses		963,919			643,982			385,080
Income before income tax expense		177,308			179,309			150,449
Income tax expense		48,956			55,024			35,845
Net income	$	128,352		$	124,285		$	114,604
See accompanying notes.

5

Security Benefit Life Insurance Company and Subsidiaries
(A Wholly Owned Subsidiary of Security Benefit Corporation)
Consolidated Statements of Comprehensive Income
	Year Ended December 31
	2014			2013			2012
	(In Thousands)
Net income	$	128,352		$	124,285		$	114,604
Other comprehensive income (loss), net of income taxes:
Net unrealized and realized gains (losses) on
available-for-sale securities		208,494			(181,490	)		133,909
Net effect of unrealized gains and losses on:
Deferred policy acquisition costs, value of business
acquired and deferred sales inducement costs		(62,697	)		43,083			(28,762	)
Policy reserves and annuity account values		(49,451	)		25,927			(14,671	)
Other comprehensive income (loss)		96,346			(112,480	)		90,476
Comprehensive income	$	224,698		$	11,805		$	205,080
See accompanying notes.

6

Security Benefit Life Insurance Company and Subsidiaries
(A Wholly Owned Subsidiary of Security Benefit Corporation)
Consolidated Statements of Changes in Stockholder’s Equity
					Accumulated
			Additional		Other
	Common		Paid-In		Comprehensive			Retained
	Stock		Capital		Income (Loss)			Earnings			Total
	(In Thousands)
Balance at January 1, 2012	$	7,000	$	463,492	$	42,015		$	94,022		$	606,529
Net income		–		–		–			114,604			114,604
Other comprehensive income		–		–		90,476			–			90,476
Dividends paid		–		–		–			(45,606	)		(45,606	)
Balance at December 31, 2012		7,000		463,492		132,491			163,020			766,003
Capital contribution from parent		–		60,000		–			–			60,000
Net income		–		–		–			124,285			124,285
Other comprehensive loss		–		–		(112,480	)		–			(112,480	)
Dividends paid		–		–		–			(154,865	)		(154,865	)
Balance at December 31, 2013		7,000		523,492		20,011			132,440			682,943
Capital contribution from parent		–		325,000		–			–			325,000
Net income		–		–		–			128,352			128,352
Other comprehensive income		–		–		96,346			–			96,346
Dividends paid		–		–		–			(118,400	)		(118,400	)
Balance at December 31, 2014	$	7,000	$	848,492	$	116,357		$	142,392		$	1,114,241
See accompanying notes.

7

Security Benefit Life Insurance Company and Subsidiaries
(A Wholly Owned Subsidiary of Security Benefit Corporation)
Consolidated Statements of Cash Flows
	Year Ended December 31
	2014			2013			2012
	(In Thousands)
Operating activities
Net income	$	128,352		$	124,285		$	114,604
Adjustments to reconcile net income to net cash and
cash equivalents (used in) provided by operating activities:
Net realized/unrealized gains		(182,166	)		(194,884	)		(33,376	)
Amortization of investment premiums and discounts		(47,834	)		(12,891	)		(25,715	)
Annuity and interest-sensitive life products –
interest credited to account balances		341,736			218,816			164,756
Depreciation and amortization		7,260			6,550			2,348
Policy acquisition costs deferred		(507,325	)		(275,938	)		(74,512	)
Amortization of deferred policy acquisition costs,
deferred sales inducement costs, and
value of business acquired		195,867			106,014			45,384
Net sales (purchases) of bonds, fair value option		59,285			(6,806	)		(11,066	)
Net purchases of equities, fair value option		–			(1,000	)		–
Net sales of mortgage loans, at fair value		24,124			43,135			11,117
Change in funds withheld		(110,838	)		(643,728	)		59,240
Deferred income taxes		40,385			26,781			(55,490	)
Change in accounts payable and other liabilities		34,786			234,445			113,013
Other changes in operating assets and liabilities		(12,624	)		32,497			13,075
Net cash and cash equivalents provided by (used in) operating
activities		(28,992	)		(342,724	)		323,378
Investing activities
Sales, maturities, or repayments of investments:
Fixed maturities available for sale		2,805,558			1,519,097			1,980,634
Equity securities available for sale		98,955			30,603			40,191
Synthetic bonds		–			4,833			39,667
Notes receivable from related parties		732,820			2,039,626			2,262,662
Mortgage loans		16,623			5,087			975
Call options		218,463			120,075			22,229
Other invested assets		168,966			21,898			192,506
		4,041,385			3,741,219			4,538,864
Acquisitions of investments:
Fixed maturities available for sale		(7,232,784	)		(5,202,498	)		(2,802,050	)
Equity securities available for sale		(59,749	)		(61,816	)		(46,526	)
Synthetic bonds		–			–			(21,066	)
Bonds held to maturity		–			–			(531,890	)
Notes receivable from related parties		(1,540,495	)		(2,060,630	)		(2,373,823	)
Mortgage loans		(69,383	)		(299,499	)		(184,950	)
Call options		(290,930	)		(276,388	)		(139,999	)
Other invested assets		(101,942	)		(157,001	)		(88,800	)
		(9,295,283	)		(8,057,832	)		(6,189,104	)
Net (purchases) sales of short-term investments		115,181			(844,473	)		203
Net decrease (increase) in policy loans		62,389			18,584			(372,592	)
Net cash and cash equivalents used in investing activities		(5,076,328	)		(5,142,502	)		(2,022,629	)

8

Security Benefit Life Insurance Company and Subsidiaries
(A Wholly Owned Subsidiary of Security Benefit Corporation)
Consolidated Statements of Cash Flows (continued)
	Year Ended December 31
	2014			2013			2012
	(In Thousands)
Financing activities
Payments on mortgage debt and long-term debt	$	(187,189	)	$	(7,093	)	$	(2,335	)
Issuance of notes payable related to commission assignments and consolidated VIEs		612,460			127,512			8,000
Capital contribution from parent		325,000			60,000			–
Dividends paid to parent		(118,400	)		(154,865	)		(45,606	)
Net change in repurchase agreements		113,660			(177,035	)		237,795
Deposits to annuity account balances		4,747,434			6,493,144			3,697,891
Withdrawals from annuity account balances		(1,297,466	)		(300,199	)		(840,366	)
Net cash and cash equivalents provided by financing activities		4,195,499			6,041,464			3,055,379
Increase (decrease) in cash and cash equivalents		(909,821	)		556,238			1,356,128
Cash and cash equivalents at beginning of year		2,549,596			1,993,358			637,230
Cash and cash equivalents at end of year	$	1,639,775		$	2,549,596		$	1,993,358
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	$	26,280		$	20,747		$	14,363
Income taxes	$	28,818		$	99,507		$	66,851
Supplemental disclosures of noncash information
The following are noncash assets and liabilities transferred in and out related to reinsurance agreements (see Note 10) and exchanges for new intercompany
promissory notes (see Note 16).
Assets (liabilities) transferred out:
Securities available for sale:
Bonds	$	–		$	1,089,375		$	–
Mortgage loans, at fair value		–			110,794			–
Other invested assets		–			22,493			–
Notes receivable from related parties		–			–			246,137
Deferred policy acquisition costs		–			–			33,379
Deferred sales inducement costs		–			–			1,276
Policy reserves		–			–			(1,725,610	)
Funds withheld		–			(1,222,662	)		–
Total assets (liabilities) transferred out	$	–		$	–		$	(1,444,818	)
Assets (liabilities) transferred in:
Securities available for sale:
Equities	$	–		$	–		$	36,137
Bonds, fair value option		–			–			231,754
Mortgage loans, at fair value		–			–			207,189
Policy loans		–			–			22,947
Other invested assets		–			–			210,000
Funds withheld		–			–			(2,152,845	)
Total assets (liabilities) transferred in	$	–		$	–		$	(1,444,818	)
See accompanying notes.

9

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements

December 31, 2014

1. Nature of Operations and Significant Accounting Policies

Nature of Operations

Security Benefit Life Insurance Company (SBL), together with its subsidiaries and consolidated variable interest entities (VIEs) (see Note 3) (referred to herein, collectively, as the Company), a wholly owned subsidiary of Security Benefit Corporation (SBC), is an industry leader in the retirement savings market.  The Company offers a diversified portfolio of individual and group annuities and mutual fund products through a multi-channel distribution structure throughout the United States.

Basis of Presentation

The consolidated financial statements for the years ended December 31, 2014 and 2013 include the operations and accounts of SBL and its subsidiaries, Security Distributors, Inc. (SDI); Gennessee Insurance Agency, LLC (Gennessee); Dunbarre Insurance Agency, LLC (Dunbarre); which was formed in August 2013; SAILES 2-0, LLC, which was formed in February 2013; and the consolidated VIEs. The consolidated financial statements for the year ended December 31, 2012 include the operations and accounts of SBL and its subsidiaries, SDI and Gennessee.

SDI is registered as a broker-dealer with the Securities and Exchange Commission (SEC) and is a member of the Financial Industry Regulatory Authority.

Significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect amounts reported and disclosed.  Significant estimates and assumptions include the valuation of investments; valuation of derivative financial instruments; determination of other-than-temporary impairments of investments; amortization of deferred policy acquisition costs (DAC), deferred sales inducement costs (DSI), and value of business acquired (VOBA); calculation of liabilities for future policy benefits; and the calculation of income taxes and the recognition of deferred income tax assets and liabilities. Management believes that the estimates used in preparing its consolidated financial statements are reasonable.

10

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. This authoritative guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, and supersedes most current revenue recognition guidance, including industry-specific guidance.  The core principle of the revenue standard is that an entity recognize revenue to reflect the transfer of a promised good or service to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the good or service.  The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract.  Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard, which becomes effective for fiscal years beginning after December 15, 2016; early adoption is not permitted.  Therefore, ASU 2014-09 will be effective for the Company’s fiscal year beginning January 1, 2017.  The Company is currently evaluating the impacts of this new guidance on the consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (ASC 860), Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. This amendment requires that repurchase-to-maturity transactions be accounted for as secured borrowings and requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty which will result in secured borrowing accounting for the repurchase agreement. This amendment also requires additional disclosures for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted for as secured borrowings.  This amendment is effective for fiscal years beginning after December 15, 2014 and will become effective for the Company on January 1, 2015.  Adoption of ASU 2014-11 is not expected to have a material impact on the consolidated financial statements.

Investments

Fixed maturities include bonds, asset-backed securities and redeemable preferred stock.  Fixed maturities are classified as available for sale and carried at fair value, with related unrealized

11

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)

gains and losses reflected as a component of accumulated other comprehensive income or loss (AOCI) in the statement of comprehensive income, net of adjustments related to DAC, DSI, VOBA, policy reserves and annuity account values and applicable income taxes. The adjustment related to DAC, DSI, VOBA and policy reserves and annuity account values represents the impact from treating the unrealized gains or losses as if they were realized.

Equity securities include common stocks and non-redeemable preferred stocks. Equity securities are classified as available for sale and are carried at fair value, with related unrealized gains and losses reflected as a component of AOCI, net of applicable income taxes.

The Company utilizes the fair value option for certain fixed maturities and commercial mortgage loans segregated to support the funds withheld reinsurance liability (see Note 10) and certain fixed maturity securities that have embedded derivative features. The change in fair value of these financial instruments is recognized through net realized/unrealized gains (losses) in the consolidated statements of operations.

Realized capital gains and losses on sales of investments are determined using the average cost method. Unrealized capital gains and losses related to fair value option securities are reported as a component of net realized/unrealized gains (losses) in the consolidated statements of operations. Other-than-temporary impairments (OTTIs) are reported separately in the consolidated statements of operations.

Commercial and residential mortgage loans are generally reported at cost adjusted for amortization of premiums and accrual of discounts, computed using the interest method, net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Interest income, as well as prepayment of fees and the amortization of the related premium or discount, is reported in net investment income.

Cash and cash equivalents include operating cash, other investments with original maturities of 90 days or less, and money market funds principally supported with cash and cash equivalent funds. Short-term investments are carried at market value and represent fixed maturity securities with initial maturities of greater than 90 days but less than one year.

12

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)

Restricted cash consists of cash pledged by the Company as collateral, cash restricted for distribution to former policyholders, and cash held in accordance with SEC regulations for exclusive benefit of the Company’s clients. All restricted cash has been segregated from the Company’s operating cash accounts.  At December 31, 2014 and 2013, the Company held restricted cash of $11.9 million and $10.9 million, respectively.

The Company has agreed to provide a short-term loan facility through bridge or revolver loans to borrowers until permanent financing can be secured or an existing obligation or project is completed. The Company receives a commitment fee and interest on the amounts funded.  Open commitments on bridge loans and revolvers are disclosed in Note 14.

Policy loans are reported at unpaid principal.

Asset and Liability Derivatives

The Company hedges certain exposures to interest rate risk and equity market risk by entering into derivative financial instruments. All of the derivative financial instruments are recognized as an asset or liability in the consolidated balance sheets at estimated fair value. For derivative instruments not receiving hedge accounting but that are economic hedges, the gain or loss is recognized in net income during the period of change.

The Company issues certain products that contain a derivative that is embedded in the product and must be accounted for under ASC 815, Derivatives and Hedging. Under ASC 815, the Company assesses whether the embedded derivative is clearly and closely related to the hostcontract.  The Company bifurcates embedded derivatives from the host instrument for measurement purposes when the embedded derivative possesses economic characteristics that are not clearly or closely related to the economic characteristics of the host contract and a separate instrument with the same terms would qualify as a derivative instrument. Embedded derivatives, which are reported with the host instrument in the consolidated balance sheets in policy reserves and annuity account values, are reported at fair value with changes in fair value recognized in the consolidated statements of operations.

The Company is party to agreements with certain derivatives counterparties which require the posting of collateral when the market value of the derivative instruments exceeds the costs of the

13

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)

instruments, subject to certain thresholds agreed upon with the counterparties. Collateral posted by counterparties is reported in the consolidated balance sheets in cash and cash equivalents with a corresponding liability reported in other liabilities.

Deferred Policy Acquisition Costs, Deferred Sales Inducement Costs and Value of Business Acquired

To the extent recoverable from future policy revenues and gross profits, incremental direct costs of the contract acquisition (commissions) as well as certain costs directly related to acquisition activities (underwriting, other policy issuance and processing, and selling costs) for the successful acquisition or renewal of deferred annuity business have been deferred. DAC is amortized in proportion to the present value, discounted at the crediting rate, of actual and expected gross profits from investments (gross blended separate account return assumption of 7.7% for all years), withdrawal, mortality, and expense margins. Amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised. DAC is adjusted for the impact on estimated gross profits of net unrealized gains and losses on assets, with the adjustment reflected in stockholder’s equity as a component of AOCI, net of applicable income taxes.

For insurance and annuity contracts, policyholders can elect to modify product benefits, features, rights, or coverages by exchanging a contract for a new contract or by an amendment, an endorsement, or a rider to a contract or by the election of a feature or coverage within a contract. These transactions are known as internal replacements. The Company accounts for internal replacements as a termination of the original contract and an issuance of the new contract. Consistent with this, the Company anticipates these transactions in establishing amortization periods and other valuation assumptions.

DSI consists of bonus interest credits and premium credits added to certain annuity contract values. It is subject to vesting requirements and is capitalized to the extent it is incremental to amounts that would be credited on similar contracts without the applicable feature. DSI is amortized using the same methodology and assumptions used to amortize DAC.

The Company recorded VOBA that is being amortized in a similar manner to the deferred policy acquisition costs.

14

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)

Property and Equipment

Property and equipment, including home office real estate, furniture and fixtures, and data processing equipment and certain 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, which is 3 to 39 years.

The following is a summary of property and equipment at cost less accumulated depreciation as of December 31:

	2014		2013
	(In Thousands)
Land	$	5,630	$	5,630
Land improvements		367		367
Building		45,636		45,410
Furniture		1,997		1,997
Data processing equipment		365		352
Computer software		2,298		1,965
Other		541		561
		56,834		56,282
Less accumulated depreciation		11,626		9,648
	$	45,208	$	46,634

The Company leases a portion of its office facility to the Federal Home Loan Bank of Topeka (FHLB) under an operating lease that expires May 31, 2022, with related early settlements available after May 31, 2017, with written notice at least three years in advance by either party. Certain operating expenses of the premises are the responsibility of FHLB, while others are reimbursed to the Company (see Note 14).

15

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)

Business-Owned Life Insurance

The Company has invested in business-owned life insurance. The investment is carried in other assets in the consolidated balance sheets at net policy value of $20.3 million and $20.2 million at December 31, 2014 and 2013, respectively, with the change in net policy value recorded in other revenue of $92,000, $305,000, and $580,000 for the years ended December 31, 2014, 2013, and 2012, respectively.

Company-Owned Life Insurance

The Company has invested in company-owned life insurance.  The investment is carried in other assets at net policy value of $23.6 million and $22.0 million at December 31, 2014 and 2013, respectively, with the change in net policy value recorded as a reduction in other benefits of $1.3 million, $4.0 million, and $2.0 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Separate Accounts

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

The Company has variable annuity contracts through separate accounts that include various types of guaranteed minimum death benefit (GMDB), guaranteed minimum accumulation benefit (GMAB), guaranteed minimum withdrawal benefit (GMWB), and guaranteed minimum income benefit (GMIB) features. As discussed in Note 4, certain features of these guarantees are accounted for as embedded derivatives, whereas other guarantees are accounted for as benefit

16

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)

reserves. Other guarantees contain characteristics of both and are accounted for under an approach that calculates the value of the embedded derivative and the benefit reserve based on the specific characteristics of each guaranteed living benefit (GLB) feature.

The Company issued to certain related parties funding agreements through separate accounts whereby the contract holders elect to invest in various investment options offered under the policy. Contract holders have the ability to take policy loans, which are secured by the policy, up to an amount specified in the policy. As of December 31, 2014 and 2013, separate account investments funded through these agreements were held in the amount of $1,464.3 million and $1,115.6 million, respectively, and are reported in separate account assets and liabilities on the consolidated balance sheets. Policy loans related to these separate accounts totaled $305.6 million and $366.0 million as of December 31, 2014 and 2013, respectively, and were reported in policy loans on the consolidated balance sheets. Investment income and gains or losses arising from the investments in the separate account funding agreements accrue directly to the contract holders and, therefore, are not included in investment earnings in the accompanying consolidated statements of operations. Revenues to the Company from the separate account funding agreements consist primarily of administrative fees and interest on the policy loans issued to the contract holders.

Policy Reserves and Annuity Account Values

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

Liabilities for future policy benefits for interest-sensitive life and deferred annuity products represent contract values accumulated at interest without reduction for potential surrender charges. Interest on accumulated contract values is credited to contracts as earned. Crediting rates ranged from 1.0% to 4.5% during 2014, from 1.0% to 4.5% during 2013, and from 1.0% to 10% during 2012. Policy reserves are adjusted for the impact on estimated gross profits of net unrealized gains and losses on bonds, with the adjustment reflected in stockholder’s equity as a component of accumulated other comprehensive income or loss, net of applicable income taxes.

Policy reserves and annuity account values also include funding agreements of $726.1 million and $1,426.2 million at December 31, 2014 and 2013, respectively, which are classified as

17

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)

investment-type contracts. These liabilities consist of floating interest rate and fixed interest rate contracts. These agreements have call provisions that allow the holder of the funding agreements the right to require the funding agreement be redeemed by the Company if certain adverse conditions occur.

The Company offers fixed index annuity products with returns linked to the performance of certain indices. The fixed index annuity products also offer a guaranteed lifetime withdrawal benefit (GLWB) and GMDB. The GLWB and GMDB guarantees are accounted for as benefit reserves. Policy reserves for index annuities are equal to the sum of the fair value of the embedded index options, the host (or guaranteed) components of the index account, and the fixed account accumulated with interest and without reduction for potential surrender charges, plus the benefit reserves for the GLWB and GMDB benefits. The host value is established at inception of the contract and is accreted over the policy’s life at a constant rate of interest. Fair value of the embedded index options is calculated using discounted cash flow valuation techniques based on current interest rates adjusted to reflect the Company’s credit risk and an additional provision for adverse deviation.

Reinsurance Agreements

The Company utilizes reinsurance agreements to manage certain risks associated with the annuity operations and to reduce exposure to large losses. In the accompanying consolidated financial statements, premiums, benefits and settlement expenses are reported net of reinsurance ceded; policy liabilities and accruals are reported gross of reinsurance ceded. Reinsurance premiums and benefits are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. The Company remains liable to policyholders if the reinsurers are unable to meet their contractual obligations under the applicable reinsurance agreements. To minimize its exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers, monitors concentrations of credit risk arising from similar activities or economic characteristics of reinsurers, and requires collateralization of liabilities ceded where allowable by contract.

Deferred Income Taxes

Deferred income tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of assets and liabilities and are measured using the

18

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)

enacted tax rates and laws. Deferred income tax expense or benefit, reflected in the Company’s consolidated statements of operations as a component of income tax expense, is based on the changes in deferred income tax assets or liabilities from period to period (excluding unrealized capital gains and losses on securities available for sale). Deferred income tax assets are subject to ongoing evaluation of whether such assets will be realized. The ultimate realization of deferred income tax assets depends on generating future taxable income during the periods in which temporary differences become deductible. The Company records a valuation allowance to reduce its deferred income tax assets to an amount that represents management’s best estimate of the amount of such deferred income tax assets that will more likely than not be realized using the enacted tax rates and laws.

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 deferred annuities consist of policy charges for the mortality and expense risk charges, policy administration charges, and surrender charges assessed against contract holder account balances during the period and are recognized as earned.

Commissions include point-of-sale fees for mutual fund and variable annuity transactions and are recognized when earned.  Revenue-sharing fees represent amounts earned under agreements with the investment advisors and/or underwriters of both affiliated and unaffiliated mutual funds that are in the underlying variable annuities.  These fees are accrued and paid on a monthly basis based on contractual agreements.

The Company evaluates the need for an allowance for accounts receivable that it believes will not be collected in full. There was no allowance for doubtful accounts at December 31, 2014 or 2013.

Reclassifications

In the prior year’s consolidated balance sheets, the presentation of long-term debt was modified  and the impact of unrealized gains and losses on DSI was reclassified out of DAC to DSI to conform to the current year’s presentation.

19

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)

In the prior year’s consolidated statements of operations, rider charge fee income was reclassified out of asset-based fees into other product charges and the change in the embedded derivatives related to the fixed index annuity liabilities was reclassified out of index credits and interest credited to account balances into other benefits to conform with the current year’s presentation.

2. Investments

Fixed Maturities and Equity Securities

Information as to the amortized cost, gross unrealized gains and losses, fair values and OTTIs in OCI, of the Company’s portfolio of fixed maturities and equity securities available for sale, is as follows:

	December 31, 2014
			Gross	Gross
	Amortized		Unrealized	Unrealized	Fair	OTTIs
	Cost		Gains	Losses	Value	in OCI
		(In Thousands)
Fixed maturities:
U.S. Treasury securities and other U.S. government corporations and agencies	$752,485		$   18,039	$      9,441	$761,083	$              –
Obligations of government-sponsored enterprises	613,681		28,864	5,537	637,008	–
Corporate	5,736,730		213,242	22,780	5,927,192	1,096
Obligations of foreign governments	14,371		1,196	–	15,567	–
Municipal obligations	467,774		46,253	804	513,223	–
Commercial mortgage-backed	641,911		25,880	933	666,858	–
Residential mortgage-backed	236,837		6,391	2,045	241,183	–
Collateralized debt obligations	50,196		3,115	2	53,309	–
Other debt obligations(1)	4,439,253		73,203	76,778	4,435,678	–
Total fixed maturities	$12,953,238		$416,183	$118,320	$13,251,101	$      1,096
Equity securities:
Financial	$   90,050		$      2,790	$      1,324	$   91,516	$              –
Mutual fund	7,916		–	1,136	6,780	–
Government	13,813		–	–	13,813	–
Warrants	–		21	–	21	(13)
Total equity securities	$111,779		$      2,811	$      2,460	$112,130	$        (13)

(1) Other debt obligations consist of other asset-backed securities and redeemable preferred stock.

20

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

	December 31, 2013
			Gross	Gross
	Amortized		Unrealized	Unrealized	Fair	OTTIs
	Cost		Gains	Losses	Value	in OCI
		(In Thousands)
Fixed maturities:
U.S. Treasury securities and other U.S. government corporations and agencies	$610,228		$         196	$   51,923	$558,501	$              –
Obligations of government-sponsored enterprises	600,633		9,575	24,557	585,651	–
Corporate	3,532,923		87,228	39,756	3,580,395	3
Obligations of foreign governments	2,627		164	–	2,791	–
Municipal obligations	330,290		11,155	8,126	333,319	–
Commercial mortgage-backed	595,116		12,437	28,290	579,263	–
Residential mortgage-backed	225,389		3,461	5,436	223,414	–
Collateralized debt obligations	47,425		2,366	470	49,321	–
Other debt obligations(1)	2,517,768		39,948	20,645	2,537,071	–
Total fixed maturities	$8,462,399		$166,530	$179,203	$8,449,726	$              3
Equity securities:
Financial	$   50,776		$      2,335	$      3,072	$   50,039	$              –
Mutual fund	45,992		–	671	45,321	–
Government	51,210		–	–	51,210	–
Technology	1,689		8	158	1,539	–
Warrants	273		8	–	281	–
Total equity securities	$149,940		$      2,351	$      3,901	$148,390	$              –

(1) Other debt obligations consist of other asset-backed securities and redeemable preferred stock.

21

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

The amortized cost and fair value of fixed maturities at December 31, 2014, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

	Available for Sale
	Amortized		Fair
	Cost		Value
	(In thousands)
Due in one year or less	$	86,821	$	86,863
Due after one year through five years		822,926		851,545
Due after five years through ten years		2,974,970		3,050,412
Due after ten years		3,086,643		3,228,245
Mortgage-backed securities and other asset-backed securities		5,981,878		6,034,036
	$	12,953,238	$	13,251,101

22

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

For fixed maturities and equity securities with unrealized losses as of December 31, 2014 and 2013, the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized as follows:

	December 31, 2014
	Less Than 12 Months					Greater Than or Equal to 12 Months					Total
	Carrying Amount		Gross Unrealized Losses			Carrying Amount		Gross Unrealized Losses			Carrying Amount		Gross Unrealized Losses
	(In Thousands)
Fixed maturities, available for sale:
U.S. Treasury securities and other U.S. government corporations and agencies	$	24,199	$	45		$	321,357	$	9,396		$	345,556	$	9,441
Obligations of government-sponsored enterprises		27,939		112			108,816		5,425			136,755		5,537
Corporate		822,975		15,288			251,880		7,492			1,074,855		22,780
Municipal obligations		34,091		664			18,537		140			52,628		804
Commercial mortgage-backed		4,450		69			97,014		864			101,464		933
Residential mortgage-backed		23,067		185			49,426		1,860			72,493		2,045
Collateralized debt obligations		1,498		2			–		–			1,498		2
Other debt obligations		1,451,072		63,237			353,218		13,541			1,804,290		76,778
Total fixed maturities, available for sale	$	2,389,291	$	79,602		$	1,200,248	$	38,718		$	3,589,539	$	118,320
Number of securities with unrealized losses				291					216					507
Percent investment grade (AAA through BBB-)				80	%				95	%				85	%
Total equity securities available for sale	$	27,443	$	1,301		$	27,645	$	1,159		$	55,088	$	2,460

23

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

	December 31, 2013
	Less Than 12 Months					Greater Than or Equal to 12 Months					Total
	Carrying Amount		Gross Unrealized Losses			Carrying Amount		Gross Unrealized Losses			Carrying Amount		Gross Unrealized Losses
	(In Thousands)
Fixed maturities, available for sale:
U.S. Treasury securities and other U.S. government corporations and agencies	$	537,626	$	51,923		$	–	$	–		$	537,626	$	51,923
Obligations of government-sponsored enterprises		260,085		24,554			132		3			260,217		24,557
Corporate		1,118,910		39,614			4,875		142			1,123,785		39,756
Municipal obligations		132,969		8,126			–		–			132,969		8,126
Commercial mortgage-backed		310,023		28,290			–		–			310,023		28,290
Residential mortgage-backed		124,346		5,426			1,145		10			125,491		5,436
Collateralized debt obligations		30,152		470			–		–			30,152		470
Other debt obligations		537,008		8,338			205,112		12,307			742,120		20,645
Total fixed maturities, available for sale	$	3,051,119	$	166,741		$	211,264	$	12,462		$	3,262,383	$	179,203
Number of securities with unrealized losses				720					34					754
Percent investment grade (AAA through BBB-)				92	%				98	%				93	%
Total equity securities available for sale	$	48,267	$	3,350		$	6,755	$	551		$	55,022	$	3,901

The unrealized losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the securities were acquired.

The Company closely monitors those securities where impairment concerns may exist by considering relevant facts and circumstances to evaluate whether the impairment of a security is other than temporary. Relevant facts and circumstances considered include (1) the length of time the fair value has been below cost; (2) the financial position and access to capital of the issuer, including the current and future impact of any specific events; (3) for fixed maturity securities,  the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost basis, and (4) for equity securities, the Company’s ability and intent to hold the security until it recovers in value.  For asset-backed securities, several additional factors are taken into account, including cash flow, collateral sufficiency, liquidity, and economic conditions. Based upon this evaluation, the Company determined it has the ability and intent to hold these investments until a recovery of fair value occurs.

24

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

To the extent the Company determines that an equity security is deemed other-than-temporarily impaired, the difference between carrying value and fair value is charged to earnings. For debt securities if the Company intends to sell the security or it is more likely than not the Company will be required to sell the security before the recovery of the amortized cost basis, the Company recognizes an OTTI equal to the difference between the amortized cost and fair value in net income. For debt securities the Company does not expect to recover the amortized cost basis, does not plan to sell, or it is not more likely than not that the Company would be required to sell the security before recovery of the amortized cost basis, the Company bifurcates the OTTI and reports the credit portion of the loss recognized in net income, and the noncredit portion is recognized in OCI.

The credit loss component of a debt security impairment is estimated as the difference between amortized cost and the present value of the expected cash flows of the security. The methodology and assumptions for establishing the best estimate cash flows vary depending on the type of security. For fixed rate securities, the present value is determined using the best estimate cash flows discounted at the effective interest rate implicit to the security just prior to impairment. For variable rate securities, the present value is determined using the best estimate cash flows discounted at the variable rate that exists as of the date the cash flow estimate is made. The asset-backed securities cash flow estimates are based on bond-specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity, prepayment speeds, and structural support, including subordination and guarantees.

25

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

The following table provides a rollforward of accumulated credit losses for fixed maturity securities with bifurcated credit losses. The purpose of the table is to provide detail of (1) additions to bifurcated credit loss amounts recognized in net realized gains (losses) during the period and (2) decrements for previously recognized bifurcated credit losses where the loss is no longer bifurcated and/or there has been a positive change in expected cash flows or accretion of the bifurcated credit loss amount for the years ended December 31:

	2014			2013			2012
	(In Thousands)
Balance at beginning of year	$	(3,574	)	$	(1,163	)	$	(497	)
Credit losses for which an other-than-temporary impairment was not previously recognized		(5,278	)		(2,374	)		(666	)
Reduction for securities sold during the year or intended to be sold		2,676			–			–
Additional credit loss impairments on securities previously impaired		–			(37	)		–
Balance at end of year	$	(6,176	)	$	(3,574	)	$	(1,163	)

Major categories of net investment income are summarized as follows for the years ended December 31:

	2014		2013		2012
	(In Thousands)
Interest on fixed maturities, available for sale	$	548,060	$	336,979	$	283,426
Interest on fixed maturities, fair value option		8,505		7,547		2,545
Interest on intercompany notes		40,648		43,508		32,388
Dividends on equity securities		2,466		2,615		3,373
Dividends on equities, fair value option		51		33		–
Dividends on mutual funds		–		–		82
Interest on mortgage loans		23,915		15,816		2,774
Interest on mortgage loans, fair value option		1,315		7,117		3,831
Interest on policy loans		27,605		50,309		23,162
Interest on short-term investments		72,281		35,221		9,769
Other		41,882		7,723		18,707
Total investment income		766,728		506,868		380,057
Less:
Investment expenses		30,474		21,162		15,254
Ceded to reinsurer		11,682		15,637		6,911
Net investment income	$	724,572	$	470,069	$	357,892

26

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

Proceeds from sales of fixed maturities and equity securities available for sale and realized gains and losses are as follows for the years ended December 31:

	2014		2013		2012
	(In Thousands)
Proceeds from sales	$	2,607,038	$	434,043	$	982,599
Gross realized gains		26,954		82,132		35,637
Gross realized losses		20,098		5,715		3,835

During the year ended December 31, 2013, the Company sold held-to-maturity securities with a net carrying amount of $113.8 million, resulting in a gain of $76,000. This transaction impaired the Company’s ability to hold other held-to-maturity securities. As a result, all of the other held-to-maturity securities have been classified as available for sale, which caused the Company to recognize the unrealized gain/loss on the securities through OCI.

27

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

Net realized/unrealized gains (losses), net of ceded reinsurance gains and associated amortization of DAC, DSI, and VOBA, consist of the following for the years ended December 31:

	2014			2013			2012
	(In Thousands)
Realized gains (losses), available for sale:
Fixed maturities	$	5,704		$	78,168		$	32,135
Equity securities		1,152			(1,751	)		(333	)
Other invested assets		12,047			8,225			1,354
Total net realized gains		18,903			84,642			33,156
Realized gains (losses), fair value option:
Fixed maturities		(1,764	)		469			3
Impairments:
OTTI of available-for-sale fixed maturities		(6,361	)		(2,414	)		(5,982	)
Portion of OTTIs recognized in OCI		1,083			3			32
Total impairments		(5,278	)		(2,411	)		(5,950	)
Other gains (losses):
Synthetic bonds		1,240			1,919			5,631
Call options		184,336			112,147			5,259
Mutual funds		–			–			(62	)
Fixed maturities, fair value option		11,490			(12,968	)		1,630
Mortgage loans, fair value option		64			602			(759	)
Equity securities, fair value option		83			(57	)		–
Embedded derivative on reinsurance contracts		(11,637	)		12,423			(706	)
Total other gains (losses)		185,576			114,066			10,993
		197,437			196,766			38,202
Net ceded reinsurance (gains) losses		1,764			(469	)		(3	)
Related impact on DAC, DSI and VOBA		(15,271	)		(1,883	)		(4,826	)
Net realized/unrealized gains	$	183,930		$	194,414		$	33,373

There were no outstanding agreements to sell securities at December 31, 2014.

During the year ended December 31, 2013, the Company recognized a gain of $64 million related to the transfer of assets to a related party in settlement of a funds withheld reinsurance liability (see Note 10).

28

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

At December 31, 2014 and 2013, the Company pledged securities and cash with a market value of approximately $642.8 million and $1,016.4 million, respectively, as collateral in relation to its structured institutional products, for the line of credit with FHLB and the home office building mortgage (see Note 15).

At December 31, 2014 and 2013, the Company pledged securities and cash with a market value of approximately $279.6 million and $361.0 million, respectively, as collateral in relation to its reinsurance agreements (see Note 10).

At December 31, 2014 and 2013, available-for-sale bonds with a carrying value of $4.4 million were held in joint custody with the various state insurance departments to comply with statutory regulations.

Mortgage Loans

Mortgage loans consist of commercial and residential mortgage loans. The Company evaluates risks inherent in the brick and mortar commercial mortgage loans based on the property’s operational results supporting the loan. The Company also evaluates the risks inherent in its residential mortgage loan portfolio. The carrying amount of the Company’s mortgage loan portfolio was as follows at December 31:

	2014		2013
	(In Thousands)
Commercial mortgage loans	$	530,878	$	478,008
Commercial mortgage loans, at fair value (amortized cost of $15,903 and $40,177 as of December 31, 2014 and 2013, respectively)		15,810		40,020
Residential mortgage loans		7,673		7,783
Total carrying cost		554,361		525,811
Valuation allowance		–		–
Net carrying value	$	554,361	$	525,811

29

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

The Company periodically purchases and sells mortgage loans it has originated. The Company purchased $68.0 million and sold no commercial mortgage loans during the year ended December 31, 2014. The Company purchased $298.1 million and sold $110.8 million commercial mortgage loans during the year ended December 31, 2013. The Company issued $1.1 million and sold no residential mortgage loans during the year ended December 31, 2014. The Company issued $1.4 million and sold no residential mortgage loans during the year ended December 31, 2013.

The commercial mortgage loan portfolio consists primarily of nonrecourse, fixed rate mortgages.

The commercial mortgage loan portfolio is diversified by geographic region and specific collateral property type as follows at December 31:

	2014					2013
	Carrying Amount		Percent of Total			Carrying Amount		Percent of Total
	(Dollars In Thousands)
Geographic distribution
Pacific	$	113,019		21	%	$	117,228		23	%
South Atlantic		106,854		20			85,785		16
East North Central		101,393		19			98,520		19
West South Central		92,077		17			82,250		16
West North Central		62,645		11			41,416		8
Mountain		28,105		5			44,721		9
New England		24,576		4			25,228		5
East South Central		10,323		2			15,045		3
Middle Atlantic		7,696		1			7,835		1
Total	$	546,688		100	%	$	518,028		100	%
Property type distribution
Retail	$	183,553		34	%	$	180,788		35	%
Apartments		135,135		25			160,860		31
Office		109,255		20			73,375		14
Industrial		88,540		16			72,505		14
Hotel		22,705		4			23,000		5
Mixed use/other		7,500		1			7,500		1
Total	$	546,688		100	%	$	518,028		100	%

30

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

The residential mortgages are concentrated in the United States.

The Company actively monitors and manages its commercial mortgage loan portfolio. All commercial mortgage loans are analyzed regularly and substantially all are internally rated, based on a proprietary risk rating model. The Company’s internal rating analysis presents expected losses in terms of a Standard & Poor’s (S&P) bond equivalent rating. As the credit risk for commercial mortgage loans increases, the Company adjusts the internal ratings downwards with loans in the category “B+ and below” having the highest risk for credit loss. Internal ratings on commercial mortgage loans are updated at least annually and potentially more often for certain loans with material changes in collateral value or occupancy and for loans on an internal “watch list”.

Commercial mortgage loans that require more frequent and detailed attention than other loans in the portfolio are identified and placed on an internal “watch list”. Among the criteria that would indicate a potential problem are imbalances in ratios of loan to value or contract rents to debt service, major tenant vacancies or bankruptcies, borrower sponsorship problems, late payments, delinquent taxes and loan relief/restructuring requests.

The Company’s commercial mortgage loan portfolio, consisting of brick and mortar loans, by credit risk was as follows at December 31:

	2014		2013
	(In Thousands)
A– and above	$	490,502	$	441,364
BBB + thru BBB –		48,038		58,136
BB + thru BB –		8,148		18,528
Total carrying value	$	546,688	$	518,028

The residential mortgage loan portfolio is monitored based on performance of the loans. The Company defines nonperforming residential mortgage loans as loans which are 90 days or greater delinquent or on nonaccrual status. All of the residential mortgage loans were performing as of December 31, 2014 and 2013.

31

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

2. Investments (continued)

Commercial and residential mortgage loans are placed on nonaccrual status if the Company has concerns regarding the collectability of future payments or if a loan has matured without being paid off or extended. Factors considered may include conversations with the borrower, loss of major tenant, bankruptcy of borrower or major tenant, decreased property cash flow for commercial mortgage loans or number of days past due for residential mortgage loans. Based on an assessment as to the collectability of the principal, a determination is made to apply any payments received either against the principal or according to the contractual terms of the loan. When a loan is placed on nonaccrual status, the accrued unpaid interest receivable is reversed against interest income. Accrual of interest resumes after factors resulting in doubts about collectability have improved. There were no commercial or residential mortgage loans on nonaccrual status at December 31, 2014 and 2013.

The Company reviews the commercial and residential mortgage loan portfolio and analyzes the need for a valuation allowance. The Company did not have a valuation allowance as of December 31, 2014 and 2013 on the commercial or residential mortgage portfolios.

Repurchase Agreements

The Company also enters into repurchase agreements, whereby the Company borrows cash from a counterparty at an agreed-upon interest rate for an agreed-upon time frame and pledges collateral in the form of securities. At the end of the agreement, the Company repays the loan amount along with the additional agreed-upon interest, and the securities pledged are released from collateral. The Company’s policy requires that, at all times during the term of the repurchase agreement, cash or other collateral types provided is sufficient to fund substantially all of the cost of purchasing replacement assets. The carrying value of the securities pledged for the repurchase agreements was $267.9 million and $141.8 million as of December 31, 2014 and 2013, respectively. The repurchase obligation was $241.2 million and $127.5 million as of December 31, 2014 and 2013, respectively, and is included in repurchase agreements in the consolidated balance sheets.

32

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

3. Variable Interest Entities

The Company has a variable interest in various types of special purpose entities.  When the Company is determined to be the primary beneficiary, the Company consolidates the entity into the financial statements.  The primary beneficiary of a VIE is defined as the enterprise with (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE.  On an ongoing basis, the Company assesses whether it is the primary beneficiary of VIEs in which it has a relationship.  Following is a discussion of the Company’s interest in entities that meet the definition of a VIE.

Consolidated Variable Interest Entities

Collateralized Private Investment Vehicle – Combo Notes

During 2013 and 2014, the Company invested in a variety of combination notes (combo notes) for which it was determined to be the primary beneficiary in accordance with ASC 810, Consolidation.  A combo note is an asset-backed note created when certain fixed maturities are packaged in a Special Purpose Vehicle (SPV).  The owner of the SPV issues the combo notes which are backed by the SPV’s assets and their associated cash flows.  As each combo note purchase represents a proportional interest in the SPV’s underlying assets, each noteholder is entitled to receive payments to the extent that payments are made on the underlying assets.

In consolidating the SPVs, the combo notes were eliminated as an investment while the underlying assets and liabilities of the SPVs were recorded on the consolidated balance sheets.  In addition, all transactions between the Company and the SPVs were eliminated.  The underlying fixed maturities are classified as available for sale and are marked to fair value.  For certain combo notes, the Company recognizes a liability that offsets the value of the underlying assets in an amount representing the other noteholders’ interests in those assets. This debt is carried at amortized cost.  The assets of each of the consolidated combo notes are held solely as collateral to satisfy the obligations of the combo note.  If the Company were to liquidate, the assets of the combo notes would not be available to its general creditors, and as a result, the Company does not consider them assets available for the benefit of its investors.  Additionally, the investors in the combo notes have no recourse to the Company’s general assets for the debt issued by the combo notes.  Therefore this debt is not the Company’s obligation.

33

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

3. Variable Interest Entities (continued)

Collateralized Private Investment Vehicle –PPNs

During 2014, the Company invested in Principal Protected Notes (PPNs). A PPN is a loan-backed note created when fixed maturity securities are paired with other investments in a SPV.  The owner of the SPV then issues the PPNs, which are backed by the SPV’s assets and entitle the investor to 100% of the cash flows (less fees) of those underlying assets.  The Company holds the greatest share of the PPNs and is therefore considered to be the primary beneficiary and as such, has consolidated the SPVs that issued the PPNs.

In consolidating the SPVs, the PPNs are eliminated and the Company has recorded the underlying assets of the SPVs on the Company’s consolidated balance sheets.  In addition, all transactions between the Company and the SPVs have been eliminated.  The underlying fixed maturity securities are classified as available for sale and have been marked to fair value.

The carrying amounts of the consolidated VIE assets, which can only be used to settle obligations of consolidated VIEs, and liabilities of consolidated VIEs for which creditors of the Company do not have recourse are as follows as of December 31:

	2014
	Combo Notes		PPNs		Total
	(In Thousands)
Fixed maturities, available for sale	$	867,724	$	359,186	$	1,226,910
Accrued investment income		6,443		10,536		16,979
Total Assets		874,167		369,722		1,243,889
Debt from consolidated VIE		361,428		–		361,428
Total Liabilities	$	361,428	$	–	$	361,428

34

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

3. Variable Interest Entities (continued)

	2013
	Combo Notes		PPNs		Total
	(In Thousands)
Fixed maturities, available for sale	$	123,175	$	–	$	123,175
Accrued investment income		376		–		376
Total Assets	$	123,551	$	–	$	123,551

Unconsolidated Variable Interest Entities

The Company has a variable interest in a number of limited liability partnerships, which were primarily formed for the purpose of purchasing private equity and fixed income securities, for which the Company is not the primary beneficiary. The determination was based on the conclusion that the Company does not have the power to direct the activities that most significantly affect the VIE’s economic performance. Furthermore, the Company neither absorbs any significant losses nor has rights to a significant portion of any expected benefits of the VIEs. Except for amounts contractually required, the Company did not provide any further financial or other support to the VIEs.

Investments in joint ventures and partnerships are reported in other invested assets and are generally accounted for using the equity method. In applying the equity method, the Company records its share of income or loss reported by equity investees. Total assets of these unconsolidated entities amounted to $102.0 million and $186.7 million at December 31, 2014 and 2013, respectively. The Company’s share of current period net income of the unconsolidated entities included in net investment income is $26.7 million, $3.3 million, and $9.5 million for the years ended December 31, 2014, 2013, and 2012, respectively.

The Company’s maximum exposure to loss of these VIEs is based on existing investments in and additional commitments made to limited partnerships. The Company’s carrying amount of its investment in VIEs reported in other invested assets on the consolidated balance sheets was $46.0 million and $128.4 million at December 31, 2014 and 2013, respectively, compared to its maximum exposure to loss of $48.2 million and $131.1 million at December 31, 2014 and 2013, respectively.

35

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

4. Derivative Instruments

The Company’s overall risk management strategy includes the use of derivative financial instruments to minimize certain significant unplanned fluctuations in earnings that are caused by interest rate risk and equity market risk associated with assets held and liabilities incurred or expected to be incurred. The Company’s risk of loss exposure is typically limited to the fair value of the derivative financial instruments and not the notional or contractual amounts of the derivatives.

The Company recognizes all derivative financial instruments, such as forwards, call options and embedded derivatives in the consolidated financial statements at fair value, with appropriate adjustments to fair value for counterparty nonperformance risk, regardless of the purpose or intent for holding the instrument.

The Company sells fixed indexed deferred annuity contracts, which guarantee the return of principal to the policyholder and credit interest based on a percentage of the gain in a specified market index. This indexed crediting feature is an embedded derivative. Most of the premium received is invested in investment grade fixed income securities, and a portion is used to purchase derivatives consisting of one-year, two-year, or five-year call options on the applicable markets to fund the index credits due to the index annuity policyholders. On the respective anniversary dates of the indexed annuity contracts, the market index used to compute the index credits is reset and new call options are purchased to fund the next index credit. Although the call options are designed to be effective hedges from an economic standpoint, they do not meet the requirements for hedge accounting under ASC 815.

The call options are measured at fair value with the mark-to-market generally offsetting the change in the value of the embedded derivative within the product. These call options are highly correlated to the portfolio allocations of the policyholders, such that the Company is economically hedged with respect to index returns for the current reset period.

The Company has certain variable annuity GLB products with GMWB and GMAB features that are embedded derivatives. Certain features of these guarantees have elements of both insurance benefits accounted for under ASC 944-40, Financial Services – Insurance – Claim Costs and Liabilities for Future Policy Benefits, and embedded derivatives accounted for under ASC 815 Derivatives and Hedging and ASC 820, Fair Value Measurements. The value of the embedded derivative reserve and the benefit reserve are calculated based on the specific characteristics of each GLB feature.  The determination of GLWB and GMDB guarantees on fixed index annuities

36

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

4. Derivative Instruments (continued)

is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience.

In addition, the Company is party to a coinsurance with funds withheld reinsurance arrangement with Guggenheim Life and Annuity Company (GLAC), a related party, (see Note 10) and a coinsurance agreement with an unrelated party.  Under ASC 815, the Company’s reinsurance agreements contain an embedded derivative that requires bifurcation due to credit risks the reinsurer is assuming that are not clearly and closely related to the creditworthiness of the Company. The embedded derivative in the funds withheld reinsurance arrangement has characteristics similar to a total return swap, as the Company cedes the total return on a designated investment portfolio to the reinsurer. The reinsurer then assumes the interest credited to the policyholders on the policies covered by the agreements, which is relatively fixed. The value of the embedded derivative in the funds withheld reinsurance arrangement is equal to the value of the unrealized gain or loss on the segregated assets. The value of the embedded derivative in the coinsurance agreement is equal to the value of the embedded derivative in the variable annuity product.

The Company has entered into currency forwards that are contracts in which the Company agrees with other parties to deliver or receive a specified amount on an identified currency at a specified future date.  Typically, the price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date.  The Company uses currency forwards to reduce market risks related to fluctuations in currency exchange rates with respect to investments or liabilities held and denominated in foreign currencies.

The fair value of the call options is included in call options in the consolidated balance sheets. The fair value of the embedded derivative financial instruments is included in policy reserves and annuity account values in the consolidated balance sheets. The fair value of the embedded derivative within the coinsurance funds withheld arrangement and coinsurance agreement is included in other assets in the consolidated balance sheets.  The fair value of the forwards is included in other invested assets in the consolidated balance sheets.

Notional amounts are used to express the extent of the Company’s involvement in derivative financial instruments and represent a standard measurement of the volume of the derivative activity. Notional amounts represent those amounts used to calculate contractual flows to be exchanged and are not paid or received. Credit exposure represents the gross amount owed to the Company under the derivative contracts as of the valuation date.

37

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

4. Derivative Instruments (continued)

The notional amounts and maximum amount of loss due to credit risk (fair value) that the Company would incur if parties to the call options and forwards failed completely to perform according to the terms of the contracts as of December 31 are as follows:

			2014
Counterparty	Credit Rating (S&P)	Credit Rating (Moody’s)	Notional Amount	Fair Value
			(In Thousands)
Barclays Bank Plc	A	A2	$   419,173	$      11,276
Bank of America, NA	A	A2	1,141,500	21,619
Citibank, NA	A	A2	474,640	10,279
JP Morgan Chase Bank NA	A+	Aa3	1,312,700	50,165
Morgan Stanley & Co International Plc	A	A3	3,781,350	158,346
The Royal Bank of Scotland Plc	A-	Baa1	3,046,350	317,355
Societe Generale	A	A2	1,677,000	92,641
UBS AG	A	A2	61,600	489
			$11,914,313	$   662,170
			2013
Counterparty	Credit Rating (S&P)	Credit Rating (Moody’s)	Notional Amount	Fair Value
			(In Thousands)
Barclays Bank Plc	A	A2	$   371,700	$      12,213
Bank of America, NA	A	A2	759,200	20,390
JP Morgan Chase Bank NA	A+	Aa3	970,600	39,821
Morgan Stanley & Co International Plc	A	A3	1,434,800	71,820
The Royal Bank of Scotland Plc	A-	A3	2,491,300	185,040
Societe Generale	A	A2	1,569,000	74,337
			$7,596,600	$   403,621

38

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

4. Derivative Instruments (continued)

Collateral posted by counterparties at December 31, 2014 and 2013, applicable to derivative instruments, was $284.3 million and $195.1 million, respectively, and is reflected in the consolidated balance sheets in cash and cash equivalents. This collateral is restricted as to its use. The obligation to repay the collateral is reflected in the consolidated balance sheets in other liabilities. In addition, the Company has entered into tri-party arrangements with counterparties, whereby collateral is posted to and held by a third party. At December 31, 2014 and 2013, collateral posted by the counterparties under the tri-party arrangements was $417.4 million and $184.3 million, respectively, which is not reflected in the consolidated financial statements.

The fair value of the Company’s derivative financial instruments classified as assets and liabilities in the consolidated balance sheets as of December 31 is as follows:

	Derivative Asset				Derivative Liability
	2014		2013		2014		2013
	(In Thousands)
Interest rate swaps	$	–	$	125	$	–	$	–
Call options		660,424		403,621		–		–
Forwards		1,746		–		–		–
Embedded derivatives:
GMWB and GMAB reserves		–		–		12,035		9,077
Fixed index annuity contracts		–		–		1,059,965		678,552
Reinsurance contract		3,689		15,203		–		–
Total derivative financial instruments	$	665,859	$	418,949	$	1,072,000	$	687,629

The Company’s derivative financial instruments are effective from an economic standpoint, but they have not been designated as hedges for financial reporting purposes. The changes in the market value of the interest rate swaps are included in net investment income on the consolidated statements of operations. The changes in the market value of the call options are included in net realized/unrealized gains (losses) in the consolidated statements of operations. The changes in the market value of the forwards are included in net realized/unrealized gains (losses) in the 

39

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

4. Derivative Instruments (continued)

consolidated statements of operations. The changes in the market value of the embedded derivatives for the GMWB and GMAB reserves and fixed index annuity contracts are included in other benefits in the consolidated statements of operations. The change in the fair value of the embedded derivative within the coinsurance funds withheld arrangement is included in net realized/unrealized gains (losses) in the consolidated statements of operations. The change in the fair value of the embedded derivative within the coinsurance arrangement is included in net realized/unrealized gains (losses) in the consolidated statements of operations.

The following table shows the change in the fair value of the derivative financial instruments in the consolidated statements of operations for the years ended December 31:

	2014			2013			2012
	(In Thousands)
Interest rate swaps	$	(41	)	$	(1,431	)	$	460
Call options		184,336			112,147			5,259
Forwards		1,746			–			–
Embedded derivatives:
GMWB and GMAB reserves		(2,958	)		8,240			855
Fixed index annuity contracts		(41,981	)		(85,130	)		42,398
Reinsurance contract		(11,514	)		10,766			(753	)
Total change in derivative financial instruments	$	129,588		$	44,592		$	48,219

40

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

5. Deferred Policy Acquisition Costs

An analysis of the deferred policy acquisition cost asset balance is presented below for the years ended December 31:

	2014			2013			2012
	(In Thousands)
Balance at beginning of year	$	323,673		$	89,472		$	92,162
Cost deferred		507,325			275,939			74,512
Imputed interest		15,376			6,862			3,346
Amortized to expense		(164,328	)		(68,924	)		(30,508	)
Effect of realized gains		(6,719	)		(1,611	)		(4,750	)
Effect of unrealized (gains) losses		(45,365	)		21,935			(11,912	)
Effects of reinsurance agreement     (see Note 10)		–			–			(33,378	)
Balance at end of year	$	629,962		$	323,673		$	89,472

6. Deferred Sales Inducements

An analysis of the deferred sales inducement costs asset balance is presented below for the years ended December 31:

	2014			2013			2012
	(In Thousands)
Balance at beginning of year	$	626,719		$	280,580		$	86,828
Costs deferred		299,361			348,382			229,657
Imputed interest		17,093			11,917			6,375
Amortized to expense		(62,142	)		(51,916	)		(18,385	)
Effect of realized gains		(7,469	)		–			–
Effect of unrealized (gains) losses		(50,555	)		37,756			(22,619	)
Effects of reinsurance agreement     (see Note 10)		–			–			(1,276	)
Balance at end of year	$	823,007		$	626,719		$	280,580

41

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

7. Value of Business Acquired

The Company recorded VOBA that is being amortized in a similar manner to the deferred policy acquisition costs. An analysis of VOBA and associated amortization is presented below for the years ended December 31:

	2014			2013			2012
	(In Thousands)
Balance at beginning of year	$	35,588		$	33,224		$	44,405
Interest imputed		1,803			1,995			2,642
Amortized to expense		(3,669	)		(5,949	)		(7,477	)
Effect of realized gains		(1,083	)		(272	)		(1,453	)
Effect of unrealized (gains) losses		(537	)		6,590			(4,893	)
Balance at end of year	$	32,102		$	35,588		$	33,224

The weighted average amortization period is 20 years for VOBA.

The estimated future amortization schedule for the next five years based on current assumptions is expected to be as follows (in thousands) for the year ending December 31:

2015	$        2,585
2016	2,367
2017	2,224
2018	2,108
2019	1,803

42

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

8. Other Comprehensive Income (Loss)

The components of other comprehensive income (loss) are as follows (in thousands):

	Pre-Tax			Tax			After-Tax
Other comprehensive income for the year ended December 31, 2012:
Unrealized gains on available-for-sale securities	$	218,570		$	(69,868	)	$	148,702
Reclassification adjustment for gains included in net income		(28,330	)		9,670			(18,660	)
OTTI losses recognized in earnings		5,982			(2,094	)		3,888
OTTI losses recognized in other comprehensive income		(32	)		11			(21	)
Net effect of unrealized gains and losses on:
DAC, DSI and VOBA		(44,249	)		15,487			(28,762	)
Policy reserves and annuity account values		(22,571	)		7,900			(14,671	)
Total other comprehensive income for the year ended December 31, 2012	$	129,370		$	(38,894	)	$	90,476
Other comprehensive loss for the year ended December 31, 2013:
Unrealized losses on available-for-sale securities	$	(192,860	)	$	63,603		$	(129,257	)
Unrealized gains on securities transferred from held to maturity to available-for-sale		2,565			(898	)		1,667
Reclassification adjustment for gains included in net income		(84,643	)		29,176			(55,467	)
OTTI losses recognized in earnings		2,414			(845	)		1,569
OTTI losses recognized in other comprehensive income		(3	)		1			(2	)
Net effect of unrealized gains and losses on:
DAC, DSI and VOBA		66,281			(23,198	)		43,083
Policy reserves and annuity account values		39,888			(13,961	)		25,927
Total other comprehensive loss for the year ended December 31, 2013	$	(166,358	)	$	53,878		$	(112,480	)
Other comprehensive income for the year ended December 31, 2014:
Unrealized gains on available-for-sale securities	$	324,461		$	(106,664	)	$	217,797
Reclassification adjustment for gains included in net income		(18,903	)		6,169			(12,734	)
OTTI losses recognized in earnings		6,361			(2,226	)		4,135
OTTI losses recognized in other comprehensive income		(1,083	)		379			(704	)
Net effect of unrealized gains and losses on:
DAC, DSI and VOBA		(96,457	)		33,760			(62,697	)
Policy reserves and annuity account values		(76,079	)		26,628			(49,451	)
Total other comprehensive income for the year ended December 31, 2014	$	138,300		$	(41,954	)	$	96,346

43

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

8. Other Comprehensive Income (Loss) (continued)

Accumulated Other Comprehensive Income

	Unrealized Gains (Losses) on Available-for-Sale Securities
	(In Thousands)
Accumulated other comprehensive income at January 1, 2012	$	42,015
Other comprehensive income before reclassifications		105,248
Amounts reclassified from accumulated other comprehensive income(1)		(14,772	)
Accumulated other comprehensive income at December 31, 2012		132,491
Other comprehensive loss before reclassifications		(58,582	)
Amounts reclassified from accumulated other comprehensive income(1)		(53,898	)
Accumulated other comprehensive income at December 31, 2013		20,011
Other comprehensive income before reclassifications		104,945
Amounts reclassified from accumulated other comprehensive income(1)		(8,599	)
Accumulated other comprehensive income at December 31, 2014	$	116,357

(1) The amounts reclassified from accumulated other comprehensive income (loss) are included in net realized/unrealized (losses) gains and income tax expense in the consolidated statements of operations.

44

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

9. Employee Benefit Plans

The Company participates in a profit-sharing and savings plan for which substantially all employees are eligible. Company contributions to the profit-sharing and savings plan charged to operations were $881,000, $801,000, and $810,000 for the years ended December 31, 2014, 2013, and 2012, respectively, and are included in the consolidated statements of operations in commissions and other operating expenses.

Incentive compensation expense amounted to $5.9 million, $7.1 million, and $6.6 million for the years ended December 31, 2014, 2013, and 2012, respectively, and are included in the consolidated statements of operations in commissions and other operating expenses.

10. Reinsurance

Principal reinsurance assumed transactions are summarized as follows for the years ended December 31:

	2014		2013		2012
	(In Thousands)
Reinsurance assumed:
Premiums received	$	23,493	$	38,253	$	41,812
Commissions paid	$	2,521	$	3,294	$	16,075
Claims paid	$	8,221	$	9,129	$	6,003
Surrenders paid	$	96,606	$	102,582	$	93,176

Principal reinsurance ceded transactions are summarized as follows for the years ended December 31:

	2014		2013		2012
	(In Thousands)
Reinsurance ceded:
Premiums paid	$	95,500	$	136,722	$	54,912
Commissions received	$	5,138	$	7,431	$	17,093
Claim recoveries	$	71,058	$	74,221	$	23,390
Surrenders recovered	$	280,804	$	250,754	$	126,279

45

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

10. Reinsurance (continued)

Effective August 1, 2012, the Company entered into a coinsurance agreement with an unrelated party for certain individual fixed annuity contracts. At the same time, the Company entered into an indemnity retrocession agreement through a coinsurance funds withheld reinsurance agreement with GLAC, whereby the Company ceded and GLAC assumed the same individual fixed annuity contracts that the Company had coinsured.

In addition, on August 1, 2012, the Company entered into an assumption agreement to assume the previously mentioned fixed annuity contracts. The fixed annuity contracts will continue to be covered under the indemnity retrocession agreement with GLAC once the contracts are assumed under the assumption agreement.  Fixed annuity contracts having reserves of $334.4 million  and $263.8 million have been assumed under the assumption agreement as of December 31, 2014 and 2013, respectively.

The Company has ceded reserves with GLAC of $522.8 million and $533.4 million as of December 31, 2014 and 2013, respectively. These are recorded in policy reserve liability in the consolidated balance sheets.

Effective December 31, 2012, the Company ceded, through a 100% coinsurance agreement, a block of approximately 31,000 individual fixed annuity contracts having reserves of $1,725.6 million with Heritage Life Insurance Company (Heritage), a related party.  Under this coinsurance agreement, the Company established a funds withheld liability of $1,691.0 million until certain assets, having total fair value equal to the statutory reserves, were transferred to the reinsurer.  The segregated assets associated with this coinsurance agreement were subsequently transferred to the reinsurer in February 2013 in satisfaction of the funds withheld liability.

The Company has ceded reserves with Heritage of $1,591.9 million and $1,688.9 million as of December 31, 2014 and 2013, respectively. These are recorded in policy reserve liability in the consolidated balance sheets.

As of December 31, 2014 and 2013, the value of the Company’s funds withheld liability under all its reinsurance agreements was $234.9 million and $345.7 million, respectively.

At December 31, 2014 and 2013, the Company had receivables totaling $2,669.8 million and $2,767.8 million, respectively, for reserve credits, reinsurance claims, and other receivables from its reinsurers. Life insurance in force ceded at December 31, 2014 and 2013 was $2,664.5 million and $2,795.8 million, respectively.

46

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

10. Reinsurance (continued)

As of December 31, 2014 and 2013, the Company had $1,880.0 million and $1,888.5 million, respectively, of reserves that were uncollateralized by the reinsurer.

11. Insurance Liabilities

The major components of policy reserves and annuity account values in the consolidated balance sheets are summarized as follows as of December 31:

	2014		2013
	(In Thousands)
Liabilities for investment-type insurance contracts:
Liabilities for individual annuities	$	20,404,404	$	15,383,920
Funding agreements		726,139		1,429,238
Other investment-type insurance contracts		3,633		4,299
Total liabilities for investment-type insurance contracts		21,134,176		16,817,457
Life and other reserves		208,711		216,283
Total policy reserves and annuity account values	$	21,342,887	$	17,033,740

The following is a summary of the account values and net amount at risk, net of reinsurance, for fixed indexed annuity contracts with GMDB invested in the general account at December 31:

	2014						2013
	Account Value		Net Amount at Risk		Weighted-Average Attained Age		Account Value		Net Amount at Risk		Weighted-Average Attained Age
	(Dollars in Millions)
Rollup GMDB	$	661	$	38		71	$	538	$	11		70

The determination of GLWB and GMDB guarantees on fixed index annuities is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience. The Company holds reserves for the GLWB and GMDB guarantees on the fixed index annuity contract holders.

47

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

11. Insurance Liabilities (continued)

As of December 31, 2014 and 2013, the reserve liability for the GLWB guarantee was $439.9 million and $122.4 million, respectively, and the reserve liability for the GMDB guarantee was $18.1 million and $2.9 million, respectively. These reserve liabilities are included in policy reserves and annuity account values.

The following is a summary of the account values and net amount at risk, net of reinsurance, for variable annuity contracts with GMDB invested in both general and separate accounts as of December 31:

	2014						2013
	Account Value		Net Amount at Risk		Weighted-Average Attained Age		Account Value		Net Amount at Risk		Weighted-Average Attained Age
	(Dollars in Millions)
Return of premium	$	1,717	$	23		64	$	1,832	$	25		64
Reset		138		1		57		138		1		56
Roll-up		162		54		68		187		53		67
Step-up		3,929		52		65		3,910		62		65
Combo		126		23		71		138		24		70
Subtotal		6,072		153		65		6,205		165		64
Enhanced		7		–		69		9		–		68
Total GMDB	$	6,079	$	153		65	$	6,214	$	165		64

The determination of the GMDB and GMIB guarantees on variable annuities is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience. The Company holds reserves and embedded derivatives for GMDB, GMIB, GMAB and GMWB guarantees it provides for the benefit of variable annuity contract holders.  The liability for GMDBs on variable annuity contracts reflected in the consolidated balance sheets as of December 31, 2014 and 2013 was $20.2 million and $20.7 million, respectively.  The liability for GMIBs on variable annuity contracts reflected in the consolidated balance sheets as of December 31, 2014 and 2013 was $14.5 million and $10.3 million, respectively.  The embedded derivative for GMWBs and

48

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

11. Insurance Liabilities (continued)

GMABs on variable annuity contracts reflected in the consolidated balance sheets as of December 31, 2014 and 2013 was $8.4 million and $5.6 million, respectively.  These liabilities are included in policy reserves and annuity account values.

12. Income Taxes

For the years ended December 31, 2014, 2013, and 2012, the Company filed separate federal income tax returns from SBC. The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2011. The Internal Revenue Service is not currently examining any of the Company’s federal tax returns.

The provision for income taxes includes current federal and state 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 deferred income taxes relate principally to reserves, DAC, DSI, VOBA, and unrealized capital gains and losses on fixed maturities available for sale.

As of December 31, 2014 and 2013, the Company has $0 and $14.0 million, respectively, of gross unrecognized tax benefits. The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense as a component of operating expenses. The Company recorded no interest expense for unrecognized tax benefits in 2014 and 2013, and recorded $269,000 of interest expense for the year ended December 31, 2012. The Company recorded a liability of $0 and $364,000 at December 31, 2014 and 2013, respectively, which is included in the gross unrecognized tax benefits.

Income tax expense consists of the following for the years ended December 31:

	2014		2013		2012
	(In Thousands)
Current tax expense	$	8,571	$	28,243	$	91,335
Deferred tax expense (benefit)		40,385		26,781		(55,490	)
Income tax expense	$	48,956	$	55,024	$	35,845

49

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

12. Income Taxes (continued)

From a tax return perspective, the Company has $233.8 million of operating loss carryforwards. Based on the Internal Revenue Code (IRC) Section 382 limitation calculation, the Company’s use of these net operating carryforwards is limited to $12.0 million per year. The Company believes it will be able to utilize the tax benefits associated with the net operating loss carryforwards.

The Company also has net operating loss carryforwards in multiple states of approximately $5.0 million that will expire between 2015 and 2031. Due to unitary filing requirements, the Company does not expect to recognize carryforwards expiring in the next five years.

The differences between reported income tax expense and the results from applying the statutory federal rate to income before income tax expense are as follows for the years ended December 31:

	2014			2013			2012
	(In Thousands)
Federal income tax expense computed at statutory rate	$	62,058		$	62,758		$	52,657
Increases (decreases) in taxes resulting from:
Valuation allowance		(28,228	)		(28,529	)		(16,644	)
Dividends received deduction		(3,628	)		(4,163	)		(3,317	)
Credits		(582	)		(554	)		(473	)
Change in uncertain tax positions		12,504			25,587			3,900
Prior period adjustments		6,260			(1,384	)		226
Other		572			1,309			(504	)
Income tax expense	$	48,956		$	55,024		$	35,845

“Credits” in the above table primarily result from foreign tax credits. “Other” in the table above includes tax-exempt interest and other tax-exempt earnings, nondeductible meals and entertainment, nondeductible dues and penalties, and other miscellaneous differences and adjustments.

50

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

12. Income Taxes (continued)

Net deferred income tax assets and liabilities consist of the following as of December 31:

	2014			2013
	(In Thousands)
Deferred income tax assets:
Future policy benefits	$	704,000		$	436,084
Net operating loss		361			396
Loss carryforward		57,469			69,133
Deferred loss on investments		–			13,404
Credit carryover		6,819			6,818
Net unrealized capital loss on investments		–			11,751
Rider fee		20,943			12,974
Other		2,853			1,398
Total deferred income tax assets		792,445			551,958
Valuation allowance		(72,032	)		(100,260	)
Net deferred income tax assets		720,413			451,698
Deferred income tax liabilities:
Deferred policy acquisition costs and deferred sales inducement costs		479,409			310,268
Value of business acquired		11,236			12,456
Net unrealized capital gain on investments		8,839			–
Net unrealized gain on call options		75,234			27,560
Depreciation		39,358			35,168
Unrealized deferred gain on investments		104,361			7,687
Commission accrual		35,589			11,703
Other		29,248			27,398
Total deferred income tax liabilities		783,274			432,240
Net deferred income tax assets (liabilities)	$	(62,861	)	$	19,458

The oldest carryover will expire in 2022 and relates to low-income housing tax credits.

51

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

12. Income Taxes (continued)

The Company assesses the available positive and negative evidence surrounding the recoverability of the deferred income tax assets and applies its judgment in estimating the amount of valuation allowance necessary under the circumstances. As of December 31, 2014 and 2013, the Company recorded a $57.5 million and $69.1 million valuation allowance, respectively, on capital losses that management believes will not be realizable in the foreseeable future, as capital losses must be used against capital gains within five years. In addition, as of December 31, 2014 and 2013, the Company recorded a valuation allowance of $2.5 million and $4.3 million, respectively, against a deferred tax loss that it does not expect will be recovered. Further, as of December 31, 2014 and 2013, the Company established a valuation allowance of $12.0 million and $26.8 million, respectively, against unrealized built-in losses that are limited under IRC Section 382.  The overall decrease in the valuation allowance of $28.2 million was primarily related to the decrease in the valuation allowance related to the sale of securities with unrealized built-in-losses that were limited under IRC Section 382, and the sale of securities which resulted in losses being realized during the year.

13. Fair Value Measurements

Fair Value Hierarchy

In accordance with ASC 820, the Company groups its financial assets and liabilities measured at fair value in three levels based on the inputs and assumptions used to determine the fair value. The levels are as follows:

Level 1 – Valuations are based upon unadjusted quoted prices for identical instruments traded in active markets. Level 1 assets include cash equivalents, certain equity securities and certain separate account assets.

Level 2 – Valuations are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, model-based valuation techniques for which significant assumptions are observable in the market, and option pricing models using inputs observable in the market. Level 2 assets include U.S. Treasury notes and bonds, other U.S. government securities, debt securities, certain asset-backed and mortgage-backed securities, certain options, certain equity securities, certain short-term investments and forwards that are model-priced by vendors using inputs that are observable or derived principally from or corroborated by observable market data.

52

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

Level 3 – Valuations are generated from techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models using inputs unobservable in the market, discounted cash flow models, spread-based models, and similar techniques, using the best information available in the circumstances. Level 3 assets include call options that are model-priced by brokers using inputs that are not observable, private placements, structured products, synthetic bonds, certain equity securities, certain short-term investments, certain debt securities and asset-backed securities priced using broker quotes or other methods that used unobservable inputs, reinsurance derivative assets, and certain separate account assets. Level 3 liabilities include embedded derivative instruments.

Determination of Fair Value

Under ASC 820, the Company bases fair values on the price that would be received to sell an asset (exit price) or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in ASC 820.

Cash equivalents

Cash equivalents include securities with an original maturity of 90 days or less and money market accounts. The cash equivalents based on quoted market prices are included in Level 1 assets. When quoted prices are not available, the Company utilizes an independent pricing service, and the reviews are consistent with the fixed maturities process.

Fixed Maturities

Fixed maturities include bonds, synthetic securities, and asset-backed securities. For fixed maturities not actively traded, the Company’s top priority is to obtain fair values from independent pricing services. The Company has regular interactions with its investment advisor, Guggenheim Partners Investment Management, LLC (GPIM), a related party, to understand the pricing methodologies used and to confirm the prices are utilizing observable inputs. The pricing

53

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

methodologies will vary based on the asset class and include inputs such as estimated cash flows, reported trades, broker quotes, credit quality, industry and economic events. Fixed maturities with fair values obtained from pricing services, applicable market indices, or internal models with substantially all observable inputs are included in Level 2.

The Company will obtain a broker quote or utilize an internal pricing model specific to the asset utilizing relevant market information if the Company is not able to utilize Level 1 or 2 sources. These assets are included in Level 3 and can include fixed maturities across all categories.

Equity securities

Equity securities include common stock and nonredeemable preferred stock. Fair values of equity securities are determined using quoted prices in active markets for identical assets when available, which are included in Level 1. When quoted prices are not available, the Company utilizes internal valuation methodologies appropriate for the specific asset that use observable inputs such as underlying share prices; therefore, the assets are included in Level 2. Fair values might also be determined using broker quotes or through the use of internal models or analysis that incorporates significant assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such securities. These assets are included in Level 3.

Mortgage loans

Mortgage loans include commercial mortgage loans for which the Company elected the fair value option. The fair value of the mortgage loans is determined through the use of internal models or analysis that incorporates significant assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such securities. These assets are included in Level 3.

Short-term investments

Short-term investments include short-term notes with related and unrelated parties. Fair values of short-term investments are determined using broker quotes or through the use of internal models or analysis that incorporate significant assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such securities. These assets are included in Levels 2 and 3.

54

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

Call options and forwards

Certain fair values of options are valued with models that use market observable inputs, which are included in Level 2. Certain fair values of the call options are valued using broker quotes or through the use of internal option pricing models utilizing significant unobservable market assumptions, which are included in Level 3.  Fair values of forwards are valued using market observable inputs and are included in Level 2.

Separate account assets

Separate account assets include equity securities and investments in partnerships. The fair value of the equity securities within the separate accounts is determined using quoted prices in active markets for identical assets and is reflected in Level 1. The fair value of the investments in private notes within the separate accounts was determined using internal pricing models using inputs unobservable in the market. The fair value for partnerships within the separate accounts was determined through the use of an external third party pricing specialist through the use of the market approach, income approach, and trade data and through the manager’s representation of the fair value of underlying assets all unobservable in the market. The investments in private notes and partnerships are reflected in Level 3.

Reinsurance derivative asset/liability

The fair value of the reinsurance derivative is estimated based on the fair value of the assets supporting the funds withheld reinsurance liability under the coinsurance funds withheld arrangement or based on the fair value of the investment contract guarantee embedded derivative. These assets/liabilities are included in Level 3.

55

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

Embedded derivatives – investment contract guarantees

The Company records guarantees for annuity contracts containing guaranteed riders for GMABs and GMWBs as derivative instruments. The fair value of the obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the anticipated life of the related contracts. The cash flow estimates are produced using stochastic techniques under a variety of market returns scenarios and other best estimate assumptions. These liabilities are included in Level 3.

Embedded derivatives – fixed index annuity contracts

Fair values of the Company’s embedded derivative component of the fixed index annuity policy liabilities are determined by (i) projecting policy contract values and minimum guaranteed contract values over the expected lives of the contracts and (ii) discounting the excess of the projected contract value amounts at the applicable risk-free interest rates adjusted for the nonperformance risk related to those liabilities. The projections of policy contract values are based on the Company’s best estimate assumptions for future policy growth and future policy decrements. The Company’s best estimate assumptions for future policy growth include assumptions for the expected index credit on the next policy anniversary date derived from the fair values of the underlying call options purchased to fund such index credits and the expected costs of call options the Company will purchase in the future to fund index credits beyond the next policy anniversary. The projections of minimum guaranteed contract values include the same best estimate assumptions for policy decrements as were used to project policy contract values. These liabilities are included in Level 3.

56

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

Assets and Liabilities Measured and Reported at Fair Value

The following tables present categories reported at fair value as follows:

	December 31, 2014
			Fair Value Hierarchy Level
	Fair Value		Level 1		Level 2		Level 3
	(In Thousands)
Assets:
Cash equivalents	$	1,295,123	$	1,281,168	$	13,955	$	–
Fixed maturities:
U.S. Treasury securities and other U.S. government corporations and agencies		765,090		–		765,090		–
Obligations of government-sponsored enterprises		641,368		–		626,465		14,903
Corporate		6,042,905		–		3,738,526		2,304,379
Obligations of foreign governments		15,567		–		15,567		–
Municipal obligations		515,184		–		515,184		–
Commercial mortgage-backed		679,179		–		620,356		58,823
Residential mortgage-backed		245,257		–		243,816		1,441
Collateralized debt obligations		55,600		–		50,424		5,176
Other debt obligations		4,475,366		–		1,806,256		2,669,110
Synthetic bonds		9,703		–		–		9,703
Total fixed maturities		13,445,219		–		8,381,684		5,063,535
Equity securities:
Financial		92,542		–		90,017		2,525
Mutual fund		6,780		6,780		–		–
Government		13,813		–		13,813		–
Warrants		21		–		–		21
Total equity securities		113,156		6,780		103,830		2,546
Mortgage loans, at fair value		15,810		–		–		15,810
Short-term investments		704,794		–		347,579		357,215
Call options		660,424		–		607,692		52,732
Forwards		1,746		–		1,746		–
Reinsurance derivative asset		3,689		–		–		3,689
Separate account assets		5,692,529		4,228,209		–		1,464,320
Total assets	$	21,932,490	$	5,516,157	$	9,456,486	$	6,959,847
Liabilities:
Embedded derivatives:
GMWB and GMAB reserves	$	12,035	$	–	$	–	$	12,035
Fixed index annuity contracts		1,059,965		–		–		1,059,965
Total liabilities	$	1,072,000	$	–	$	–	$	1,072,000

57

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

	December 31, 2013
			Fair Value Hierarchy Level
	Fair Value		Level 1		Level 2		Level 3
	(In Thousands)
Assets:
Cash equivalents	$	2,157,159	$	1,856,945	$	300,214	$	–
Fixed maturities:
U.S. Treasury securities and other U.S. government corporations and agencies		560,385		–		560,385		–
Obligations of government-sponsored enterprises		587,928		–		580,378		7,550
Corporate		3,783,787		–		2,759,641		1,024,146
Obligations of foreign governments		2,791		–		2,791		–
Municipal obligations		335,157		–		335,157		–
Commercial mortgage-backed		585,111		–		444,521		140,590
Residential mortgage-backed		228,142		–		226,739		1,403
Collateralized debt obligations		50,544		–		13,009		37,535
Other debt obligations		2,551,388		–		898,808		1,652,580
Synthetic bonds		8,463		–		–		8,463
Total fixed maturities		8,693,696		–		5,821,429		2,872,267
Equity securities:
Financial		50,982		–		48,432		2,550
Mutual fund		45,321		45,321		–		–
Government		51,210		–		50,250		960
Technology		1,539		–		9		1,530
Warrants		281		–		–		281
Total equity securities		149,333		45,321		98,691		5,321
Mortgage loans, at fair value		40,020		–		–		40,020
Short-term investments		848,359		–		505,297		343,062
Call options		403,621		–		173,546		230,075
Interest rate swaps		125		–		–		125
Reinsurance derivative asset		15,203		–		–		15,203
Separate account assets		5,536,191		4,505,347		–		1,030,844
Total assets	$	17,843,707	$	6,407,613	$	6,899,177	$	4,536,917
Liabilities:
Embedded derivatives:
GMWB and GMAB reserves	$	9,077	$	–	$	–	$	9,077
Fixed index annuity contracts		678,552		–		–		678,552
Total liabilities	$	687,629	$	–	$	–	$	687,629

58

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

Changes in Level 3 Fair Value Measurements

The reconciliation for all Level 3 assets and liabilities measured at fair value using significant unobservable inputs for the year ended December 31, 2014 is as follows:

			Total Realized/Unrealized Gains and Losses														Change in Unrealized Gains
	Balance at January 1, 2014		Included in Net Income(1)			Included in Other Comprehensive Income			Purchases, Issuances, Sales, and Settlements			Transfers			Balance at December 31, 2014		(Losses) in Net Income for Positions Still Held
	(In Thousands)
Assets:
Fixed maturities:
Obligations of government-sponsored enterprises	$	7,550	$	(48	)	$	3,152		$	4,249		$	–		$	14,903	$	–
Corporate		1,024,146		(2,887	)		38,788			1,240,171			4,161			2,304,379		(5,216	)
Commercial mortgage-backed		140,590		171			14,071			19,857			(115,866	)		58,823		17
Residential mortgage-backed		1,403		168			94			(224	)		–			1,441		–
Collateralized debt obligations		37,535		1,708			444			(16,611	)		(17,900	)		5,176		27
Other debt obligations		1,652,580		3,060			(18,562	)		1,149,292			(117,260	)		2,669,110		38
Synthetic bonds		8,463		1,240			–			–			–			9,703		1,240
Total fixed maturities		2,872,267		3,412			37,987			2,396,734			(246,865	)		5,063,535		(3,894	)
Equities:
Financial		2,550		167			(25	)		(167	)		–			2,525		–
Government		960		–			–			(960	)		–			–		–
Technology		1,530		–			158			(1,688	)		–			–		–
Warrants		281		(271	)		11			–			–			21		–
Total equities		5,321		(104	)		144			(2,815	)		–			2,546		–
Mortgage loans, at fair value		40,020		(86	)		–			(24,124	)		–			15,810		64
Short-term investments		343,062		(720	)		(494	)		15,367			–			357,215		–
Call options		230,075		98,108			–			(68,234	)		(207,217	)		52,732		19,097
Interest rate swap		125		(125	)		–			–			–			–		–
Reinsurance derivative asset		15,203		(11,514	)		–			–			–			3,689		(11,514	)
Separate account assets(2)		1,030,844		493,825			–			(60,349	)		–			1,464,320		–
Total assets	$	4,536,917	$	582,796		$	37,637		$	2,256,579		$	(454,082	)	$	6,959,847	$	3,753

59

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

			Total Realized/Unrealized Gains and Losses										Change in Unrealized Gains
	Balance at January 1, 2014		Included in Net Income(1)		Included in Other Comprehensive Income		Purchases, Issuances, Sales, and Settlements		Transfers		Balance at December 31, 2014		(Losses) in Net Income for Positions Still Held
	(In Thousands)
Liabilities:
Embedded derivatives:
GMWB and GMAB reserves		9,077		2,958		–		–		–		12,035		–
Fixed index annuity contracts		678,552		41,981		–		339,432		–		1,059,965		–
Total liabilities	$	687,629	$	44,939	$	–	$	339,432	$	–	$	1,072,000	$	–

(1) Both realized gains (losses) and mark-to-market unrealized gains (losses) are generally reported in net realized capital gains (losses) within the consolidated statements of operations.

(2) Gains and losses for separate account assets do not impact net income as the change in value of separate account assets is offset by a change in value of separate account liabilities.

60

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

The details of the Level 3 purchases, issuances, sales, and settlements for the year ended December 31, 2014 is as follows:

	Purchases		Issuances		Sales		Settlements		Net
	(In Thousands)
Assets:
Fixed maturities:
Obligations of government-sponsored enterprises	$	11,831	$	–	$	7,582	$	–	$	4,249
Corporate		2,005,393		–		765,222		–		1,240,171
Commercial mortgage-backed		45,695		–		25,838		–		19,857
Residential mortgage-backed		584		–		808		–		(224	)
Collateralized debt obligations		673		–		17,284		–		(16,611	)
Other debt obligations		2,562,006		–		1,412,714		–		1,149,292
Total fixed maturities		4,626,182		–		2,229,448		–		2,396,734
Equities:
Financial		481		–		648		–		(167	)
Government		5,675		–		6,635		–		(960	)
Technology		–		–		1,688		–		(1,688	)
Industrial		1		–		1		–		–
Warrants		271		–		271		–		–
Total equities		6,428		–		9,243		–		(2,815	)
Mortgage loans, at fair value		–		–		24,124		–		(24,124	)
Short-term investments		327,866		–		312,499		–		15,367
Call options		42,895		–		111,129		–		(68,234	)
Separate account assets		–		93,101		–		153,450		(60,349	)
Total assets	$	5,003,371	$	93,101	$	2,686,443	$	153,450	$	2,256,579
Liabilities:
Embedded derivatives:
Fixed index annuity contracts	$	–	$	347,812	$	–	$	8,380	$	339,432
Total liabilities	$	–	$	347,812	$	–	$	8,380	$	339,432

61

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

The reconciliation for all Level 3 assets and liabilities measured at fair value using significant unobservable inputs for the year ended December 31, 2013 is as follows:

			Total Realized/Unrealized Gains and Losses														Change in Unrealized Gains
	Balance at January 1, 2013		Included in Net Income(1)			Included in Other Comprehensive Income			Purchases, Issuances, Sales, and Settlements			Transfers			Balance at December 31, 2013		(Losses) in Net Income for Positions Still Held
	(In Thousands)
Assets:
Fixed maturities:
Obligations of government-sponsored enterprises	$	–	$	(112	)	$	(64	)	$	7,726		$	–		$	7,550	$	–
Corporate		805,521		1,374			(1,948	)		217,051			2,148			1,024,146		(532	)
Commercial mortgage-backed		97,637		1,137			(11,618	)		55,196			(1,762	)		140,590		22
Residential mortgage-backed		4,788		76			60			(3,524	)		3			1,403		–
Other mortgage-backed		4,290		–			68			(4,358	)		–			–		–
Collateralized debt obligations		30,563		3,403			(8,953	)		11,754			768			37,535		(116	)
Other debt obligations		921,633		3,950			6,450			103,786			616,761			1,652,580		(58	)
Synthetic bonds		11,377		1,017			–			(3,931	)		–			8,463		1,017
Total fixed maturities		1,875,809		10,845			(16,005	)		383,700			617,918			2,872,267		333
Equities:
Financial		459		(340	)		2,031			400			–			2,550		–
Government		38,778		–			–			12,432			(50,250	)		960		–
Technology		–		–			(147	)		1,677			–			1,530		–
Industrial		2,930		(671	)		(181	)		(2,078	)		–			–		(1,011	)
Warrants		267		–			14			–			–			281		–
Total equities		42,434		(1,011	)		1,717			12,431			(50,250	)		5,321		(1,011	)
Mortgage loans, at fair value		194,719		(770	)		–			(153,929	)		–			40,020		602
Short-term investments		5,071		(1,256	)		37			339,210			–			343,062		(1,869	)
Call options		110,103		56,093			–			63,879			–			230,075		4,474
Interest rate swap		–		(113	)		–			238			–			125		(113	)
Reinsurance derivative asset		4,437		10,766			–			–			–			15,203		–
Separate account assets(2)		925,220		38,874			–			66,750			–			1,030,844		–
Total assets	$	3,157,793	$	113,428		$	(14,251	)	$	712,279		$	567,668		$	4,536,917	$	2,416

62

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

			Total Realized/Unrealized Gains and Losses											Change in Unrealized Gains
	Balance at January 1, 2013		Included in Net Income(1)			Included in Other Comprehensive Income		Purchases, Issuances, Sales, and Settlements		Transfers		Balance at December 31, 2013		(Losses) in Net Income for Positions Still Held
	(In Thousands)
Liabilities:
Interest rate swaps	$	349	$	(349	)	$	–	$	–	$	–	$	–	$	–
Embedded derivatives:
GMWB and GMAB reserves		17,317		(8,240	)		–		–		–		9,077		–
Fixed index annuity contracts		265,635		85,130			–		327,787		–		678,552		–
Total liabilities	$	283,301	$	76,541		$	–	$	327,787	$	–	$	687,629	$	–

(1) Both realized gains (losses) and mark-to-market unrealized gains (losses) are generally reported in net realized capital gains (losses) within the consolidated statements of operations.

(2) Gains and losses for separate account assets do not impact net income as the change in value of separate account assets is offset by a change in value of separate account liabilities.

63

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

The details of the Level 3 purchases, issuances, sales, and settlements for the year ended December 31, 2013 is as follows:

	Purchases		Issuances		Sales		Settlements		Net
	(In Thousands)
Assets:
Fixed maturities:
Obligations of government-sponsored enterprises	$	9,372	$	–	$	1,646	$	–	$	7,726
Corporate		975,646		–		758,595		–		217,051
Commercial mortgage-backed		124,758		–		69,562		–		55,196
Residential mortgage-backed		–		–		3,524		–		(3,524	)
Other mortgage-backed		–		–		4,358		–		(4,358	)
Collateralized debt obligations		49,782		–		38,028		–		11,754
Other debt obligations		856,412		–		752,626		–		103,786
Synthetic bonds		–		–		3,931		–		(3,931	)
Total fixed maturities		2,015,970		–		1,632,270		–		383,700
Equities:
Financial		400		–		–		–		400
Government		13,567		–		1,135		–		12,432
Technology		1,677		–		–		–		1,677
Industrial		271		–		2,349		–		(2,078	)
Warrants		331		–		331		–		–
Total equities		16,246		–		3,815		–		12,431
Mortgage loans, at fair value		–		–		153,929		–		(153,929	)
Short-term investments		574,144		–		234,934		–		339,210
Call options		140,295		–		3,988		72,428		63,879
Interest rate swap		238		–		–		–		238
Separate account assets		–		347,895		–		281,145		66,750
Total assets	$	2,746,893	$	347,895	$	2,028,936	$	353,573	$	712,279
Liabilities:
Embedded derivatives:
Fixed index annuity contracts	$	–	$	331,737	$	–	$	3,950	$	327,787
Total liabilities	$	–	$	331,737	$	–	$	3,950	$	327,787

64

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

Transfers

Transfers of assets and liabilities measured at fair value between hierarchy levels for the year ended December 31, 2014 are as follows:

Transfers Out

Transfers Out

Transfers Out

Transfers Out

Transfers Out

Transfers Out

of Level 1

of Level 1

of Level 2

of Level 2

of Level 3

of Level 3

Into Level 2

Into Level 3

Into Level 1

Into Level 3

Into Level 1

Into Level 2

(In Thousands)

Assets:

Fixed maturities:

Corporate

$

–

$

–

$

–

$

94,116

$

–

$

89,955

Commercial mortgage-backed

–

–

–

497

–

116,363

Collateralized debt obligations

–

–

–

5,002

–

22,902

Other debt obligations

–

–

–

67,012

–

184,272

Total fixed maturities

–

–

–

166,627

–

413,492

Call options

–

–

–

–

–

207,217

Total assets

$

–

$

–

$

–

$

166,627

$

–

$

620,709

Transfers of assets and liabilities measured at fair value between hierarchy levels for the year ended December 31, 2013 are as follows:

Transfers Out

Transfers Out

Transfers Out

Transfers Out

Transfers Out

Transfers Out

of Level 1

of Level 1

of Level 2

of Level 2

of Level 3

of Level 3

Into Level 2

Into Level 3

Into Level 1

Into Level 3

Into Level 1

Into Level 2

(In Thousands)

Assets:

Fixed maturities:

Corporate

$

–

$

–

$

–

$

16,999

$

–

$

14,851

Commercial mortgage-backed

–

–

–

–

–

1,762

Residential mortgage-backed

–

–

–

3

–

–

Collateralized debt obligations

–

–

–

768

–

–

Other debt obligations

–

–

–

644,539

–

27,778

Total fixed maturities

–

–

–

662,309

–

44,391

Equities:

Government

–

–

–

–

–

50,250

Total assets

$

–

$

–

$

–

$

662,309

$

–

$

94,641

65

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

During 2014 and 2013, the majority of assets transferred into and out of Level 3 included those assets that the Company was or was not subsequently able to obtain a price from a recognized third-party pricing vendor, or incurred changes to the observability of inputs or valuation techniques.

The transfers between levels are determined as of the end of the period for which the transfer is completed.

Quantitative Information About Level 3 Fair Value Measurements

The following table provides quantitative information about the significant unobservable inputs used for fair value measurements categorized within Level 3, excluding assets and liabilities for which significant unobservable inputs are not developed internally, which primarily consist of those valued using broker quotes.

		As of December 31, 2014
		Assets / Liabilities Measured at Fair Value	Valuation Technique(s)	Unobservable Input Description	Input/Range of Inputs [Weighted Average]
		(In Thousands)
Assets:
Fixed maturities:
Corporate	$	1,684,025	Discounted cash flow	Credit spread	106-665 [360] basis points (bps)
		20,201		Discount rate	7.0% – 10.0% [8.8%]
		30,493	Market comparables	Earnings before interest, taxes, depreciation and amortization multiple (EBITDA)	7.0x –14.2x [10.9x]
		2,774		Liquidity adjustment	100 bps
		61,827	Stale price	Trade price / vendor price	100
		261	Recovery analysis	Expected recovery price	3.00-9.00 [7.00]
Commercial mortgage-backed		5,005	Discounted cash flow	Credit spread	275 – 485  [472] bps
Residential mortgage-backed		1,441	Odd lot discount	Discount rate	5.0%
Other debt obligations		1,361,557	Discounted cash flow	Credit spread	218 – 665 [398] bps
		299,395		Yield	6.45% - 9.00% [8.67%]
		136,000	Stale price	Trade price	100
Total fixed maturities		3,602,979
Mortgage loans, at fair value		15,810	Discounted cash flow	Credit spread	190 – 450 [369] bps
Short-term investments		294,842	Stale price	Par
		60,000	Short term loan	Pat
		2,374	Market comparables	EBITDA	8x
Reinsurance derivative asset		3,689	See Note (1)
Separate account assets		1,464,320	Revenue multiples	Projected revenues	4.5x – 5.50x [5.0x]
			Discounted cash flow	Discount rate	370 – 780 [414] bps
			Market comparables	Price per square foot	$21.84 - $295.00 [$216.38]
			Stale price	Par
			See Note (4)
Total assets	$	5,444,014	See Note (2)

66

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

		As of December 31, 2014
		Assets/Liabilities Measured at Fair Value	Valuation Technique(s)	Unobservable Input Description	Input/Range of Inputs [Weighted Average]
		(In Thousands)
Liabilities:
Embedded derivatives:
GMWB and GMAB reserves	$	12,035	Discounted cash flow	Credit spread	1.19%
				Long-term equity market volatility	Market Consistent
				Risk margin	5.00%
Fixed index annuity contracts		1,059,965	Discounted cash flow	Credit spread	1.19%
				Risk margin	0.13% – 0.17%
Total liabilities	$	1,072,000

		As of December 31, 2013
		Assets / Liabilities Measured at Fair Value	Valuation Technique(s)	Unobservable Input Description	Input/Range of Inputs [Weighted Average]
		(In Thousands)
Assets:
Fixed maturities:
Corporate	$	701,600	Discounted cash flow	Credit spread	74 – 1,409 [415] bps
		7,039		Discount rate	0.0% – 22.75% [10.05%]
		2,410		EBITDA	3.5x – 17.3x [12.0x]
		45	Recovery analysis	Trade price / vendor price	.0001 – 2.50 [2.50]
		5,000	See Note (5)		100 bps
Commercial mortgage-backed		5,252	Discounted cash flow	Credit spread	495 – 1,407 [627] bps
Residential mortgage-backed		1,403	Odd lot discount	Discount rate	0.067% – 5.0% [4.80%]
Collateralized debt obligations		768	Discounted cash flow	Credit spread	148 [148] bps
Other debt obligations		945,637	Discounted cash flow	Credit spread	184 – 1483 [330] bps
		135,995	Modified discounted cash flow	Credit spread	300 – 750 [396] bps
Synthetic bonds		8,463	Discounted cash flow	Credit spread	228 bps
Total fixed maturities		1,813,612
Equity securities:
Government		960	See Note (3)
Warrants		281	Discounted cash flow	Earnings before interest, taxes, depreciation and amortization multiple	7.5x – 11.5x [7.5x]
Total equity securities		1,241
Mortgage loans, at fair value		40,020	Discounted cash flow	Credit spread	290 – 640 [444] bps
Short-term investments		8,562	Discounted cash flow	Discount rate	4.34% – 7.3% [5.58%]
		312,500	Recovery analysis	Par
Reinsurance derivative asset		15,203	See Note (1)
Separate account assets		1,030,844	Revenue multiples	Projected revenues	3.5 – 4.0x
			Discounted cash flow	Discount rate	386 – 850bps
			Recovery analysis	Par
			See Note (4)
Total assets	$	3,221,982	See Note (2)

67

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

		As of December 31, 2013
		Assets/Liabilities Measured at Fair Value	Valuation Technique(s)	Unobservable Input Description	Input/Range of Inputs [Weighted Average]
		(In Thousands)
Liabilities:
Embedded derivatives:
GMWB and GMAB reserves	$	9,077	Discounted cash flow	Own credit spread	1.44%
				Long-term equity market volatility	Market Consistent
				Risk margin	5.00%
Fixed index annuity contracts		678,552	Discounted cash flow	Own credit spread	1.44%
				Risk margin	0.12% – 0.16%
Total liabilities	$	687,629

(1)   Equal to the net unrealized gains or losses on the underlying assets held in trust to support the funds withheld liability and the fair value of the investment guarantee embedded derivative (see Note 4).

(2)   The table above excludes certain securities for which the fair value of $1,515.8 million and $1,314.8 million as of December 31, 2014 and 2013, respectively, was based on non-binding broker quotes.

(3)   FHLB of Topeka common stock positions are valued at par as a proxy for fair value, as the stock can only be redeemed by the bank.

(4)   Separate account investments in partnerships for which the fair value as of December 31, 2014 and 2013 was determined through the manager’s representation of the fair value of the underlying investments.

(5)   Credit tenant lease position is valued at par due to the unique nature of the deal.

Market comparable discount rates are used as the base rate in the discounted cash flows used to determine the fair value of certain assets. Increases or decreases in the credit spreads on the comparable assets could cause the fair value of assets to significantly decrease or increase, respectively. Additionally, the Company may adjust the base discount rate or the modeled price by applying an illiquidity premium given the highly structured nature of certain assets. Increases or decreases in this illiquidity premium could cause significant decreases or increases, respectively, in the fair value of the asset.

Increases or decreases in market volatilities could cause significant increases or decreases, respectively, in the fair value of embedded derivatives. Long duration interest rates are used as the mean return when projecting the growth in the value of associated account value. The amount of claims will increase if account value is not sufficient to cover guaranteed withdrawals.

68

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

Increases or decreases in risk free rates could cause the fair value of the embedded derivative to significantly decrease or increase, respectively. Increases or decreases in the Company’s credit risk, which impacts the rates used to discount future cash flows, could significantly decrease or increase, respectively, the fair value of the embedded derivative. All of these changes in fair value would impact net income.

Decreases or increases in the mortality rate assumption could cause the fair value of the embedded derivative to decrease or increase, respectively. Decreases or increases in the overall lapse rate assumption could cause the fair value of the embedded derivative to decrease or increase, respectively. The lapse rate assumption varies dynamically based on the relationship of the guarantee and associated account value. A stronger or weaker dynamic lapse rate assumption could cause the fair value of the embedded derivative to decrease or increase, respectively. The utilization rate assumption includes how many contract holders will take withdrawals, when they will take them and how much of their benefit they will take. Increases or decreases in the assumption of the number of contract holders taking withdrawals could cause the fair value of the embedded derivative to decrease or increase, respectively. Assuming contract holders take withdrawals earlier or later could cause the fair value of the embedded derivative to decrease or increase, respectively. Assuming contract holders take more or less of their benefit could cause the fair value of the embedded derivative to decrease or increase, respectively.

Increases or decreases in market volatilities of the underlying assets supporting the funds withheld liability could cause significant increases or decreases, respectively, in the fair value of the embedded derivatives.

69

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

Financial Instruments Not Reported at Fair Value

The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis but required to be disclosed at fair value are as follows:

	December 31, 2014
							Fair Value Hierarchy Level
	Carrying Amount			Fair Value			Level 1			Level 2		Level 3
	(In Thousands)
Assets (liabilities)
Mortgage loans	$	538,551			558,706			–			–		558,706
Notes receivable from related parties		1,540,658			1,540,658			–			–		1,540,658
Policy loans		413,188			425,401			–			–		425,401
Business-owned life insurance		20,266			20,266			–			–		20,266
Company-owned life insurance		23,606			23,606			–			–		23,606
Supplementary contracts without life contingencies		(9,539	)		(10,377	)		–			–		(10,377	)
Individual and group annuities		(4,611,973	)		(4,485,467	)		–			–		(4,485,467	)
Debt from consolidated VIEs		(361,428	)		(343,588	)		–			–		(343,588	)
Notes payable related to commission     assignments		(106,550	)		(106,550	)		–			–		(106,550	)
Surplus notes payable		(127,467	)		(167,567	)		–			–		(167,567	)
Long-term debt SAILES 2-0, LLC		(90,742	)		(95,316	)		–			–		(95,316	)
Mortgage debt		(26,911	)		(27,132	)		–			–		(27,132	)
Repurchase agreements		(241,195	)		(241,195	)		(241,195	)		–		–
Separate account liabilities		(5,692,529	)		(5,692,529	)		(4,228,209	)		–		(1,464,320	)

	December 31, 2013
							Fair Value Hierarchy Level
	Carrying Amount			Fair Value			Level 1			Level 2		Level 3
	(In Thousands)
Assets (liabilities)
Mortgage loans		485,791			485,949			–			–		485,949
Notes receivable from related parties		739,946			739,946			–			–		739,946
Policy loans		475,577			489,048			–			–		489,048
Business-owned life insurance		20,174			20,174			–			–		20,174
Company-owned life insurance		21,955			21,955			–			–		21,955
Supplementary contracts without life contingencies		(9,323	)		(8,598	)		–			–		(8,598	)
Individual and group annuities		(4,516,555	)		(4,100,932	)		–			–		(4,100,932	)
Notes payable related to commission     assignments		(33,500	)		(33,500	)		–			–		(33,500	)
Surplus notes payable		(125,628	)		(148,596	)		–			–		(148,596	)
Long-term debt SAILES 2-0, LLC		(97,279	)		(98,808	)		–			–		(98,808	)
Mortgage debt		(29,581	)		(28,832	)		–			–		(28,832	)
Repurchase agreements		(127,535	)		(127,535	)		(127,535	)		–		–
Separate account liabilities		(5,536,191	)		(5,536,191	)		(4,505,347	)		–		(1,030,844	)

70

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments not measured at fair value but for which fair value is disclosed:

Mortgage loans – The carrying amounts of the officer residential mortgage loans reported in the consolidated balance sheets for these instruments approximate their fair values. Fair values of the commercial mortgage loans not held as fair value option securities are estimated using discounted cash flow analyses based on a variety of factors, including credit spreads, duration of the loans and prepayment terms and assumptions.

Notes receivable from related parties – The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value.

Policy loans – Fair values for policy loans are estimated using discounted cash flow analyses based on market interest rates for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations.

Business-owned life insurance and company-owned life insurance – The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value.

Investment-type insurance contracts – The fair values of the Company’s reserves and liabilities for investment-type insurance contracts are estimated using discounted cash flow analyses based on risk-free rates, nonperformance risk, and risk margin. Investment-type insurance contracts include insurance, annuity, and other policy contracts that do not involve significant mortality or morbidity risk and are only a portion of the policyholder liabilities appearing in the consolidated balance sheets. Insurance contracts include insurance, annuity, and other policy contracts that do involve significant mortality or morbidity risk. The fair values for insurance contracts, other than investment-type contracts, are not required to be disclosed.

Debt from consolidated VIEs – Fair values are estimated using discounted cash flow analyses.

71

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

13. Fair Value Measurements (continued)

Notes payable related to commission assignments – The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair values.

Surplus notes payable, long-term debt and mortgage debt – Fair values are estimated using discounted cash flow analyses based on current borrowing rates for similar types of borrowing arrangements.

Repurchase agreements – The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair values.

Separate account liabilities – The fair values of the separate account liabilities are estimated based on the fair value of the related separate account assets, as these are considered to be pass-through contracts. As the applicable separate account assets are already reflected at fair value, any adjustment to the fair value of the block is an assumed adjustment to the separate account liabilities.

14. Commitments and Contingencies

In connection with its investments in certain limited partnerships, the Company is committed to invest additional capital of $11.0 million and $7.8 million at December 31, 2014 and 2013, respectively, over the next several years as required by the general partner.

As of December 31, 2014 and 2013, the Company had committed up to $139.5 million and $48.3 million, respectively, in unfunded bridge loans, unfunded revolvers, and other private investments.

72

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

14. Commitments and Contingencies (continued)

Expected future minimum rents related to the noncancelable portion of the FHLB and SAILES operating leases (see Note 1) to be received as of December 31 are as follows (in thousands):

2015	$	17,353
2016		17,353
2017		16,796
2018		16,398
2019		16,398
Thereafter		84,723

The amounts received under both leases are recorded in other revenues in the consolidated statement of operations.

Guarantees of related parties: The Company provided payment guarantees on behalf of its related party, se2, LLC (se2), to certain se2 customers for all obligations and liabilities arising or incurred under the third-party administration agreements between such customers and se2.

The Company provided a loan funding commitment on behalf of Cain Hoy Finance Limited (CHF), a related party, to a certain borrower in the event that CHF doesn’t meet its obligations as required under the loan agreement.  As of December 31, 2014, CHF has met its obligations under the loan agreement.  Management does not anticipate a material impact to the results of operations or financial condition due to this funding commitment at this time.

Other legal and regulatory matters: In the ordinary course of business, the Company is in discussions with its regulators about matters raised during regulatory examinations or otherwise subject to their inquiry. These matters could result in censures, fines, or other sanctions. Management believes the outcome of any resulting actions will not be material to the Company’s results of operations or financial condition. However, the Company is unable to predict the outcome of these matters.

Various legal proceedings and other matters have arisen in the ordinary course of the Company’s business. Management is of the opinion that the Company has substantial defenses with respect to these matters, and the Company’s ultimate liability, if any, resulting from such matters will not be material to its results of operations or financial position.

73

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

15. Debt

Long-Term Debt

At December 31, 2014, the Company has access to a $407.2 million line of credit facility from FHLB. Overnight borrowings in connection with this line of credit bear interest at 0.15% over the Federal Funds rate (.25% at December 31, 2014). The Company had no borrowings under this line of credit at December 31, 2014 and 2013. The amount of the line of credit is determined by the fair market value of the Company’s available collateral held by FHLB, primarily mortgage-backed securities and commercial mortgage loans, not already pledged as collateral under existing contracts as of December 31, 2014.

The Company has outstanding surplus notes with a carrying value of $127.5 million and $125.6 million at December 31, 2014 and 2013, respectively. The surplus notes consist of $50.0 million of 8.75% notes issued in May 1996 and maturing on May 15, 2016, and $100.0 million of 7.45% notes issued in October 2003 and maturing on October 1, 2033. 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 or principal on 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.

In February 2013, SAILES acquired a commercial airplane for other investment purposes. SAILES leases the airplane to an airline under an operating lease that expires on February 28, 2025. The asset is amortized on a straight-line method over 25 years which approximates its estimated productive life. Depreciation on the asset in the amount of $5.2 million and $4.4 million for the years ended December 31, 2014 and 2013 is included in commissions and other operating expenses in the consolidated statements of operations.

74

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

15. Debt (continued)

The following is a summary of the asset held at cost less accumulated amortization for the years ended December 31:

	2014			2013
	(In Thousands)
Airplane	$	145,000		$	145,000
Less accumulated amortization		(9,539	)		(4,358	)
	$	135,461		$	140,642

The asset is included in other invested assets in the consolidated balance sheet.

On February 28, 2013, SAILES entered into a long-term note of $111.9 million due to SAIL Finance LLC, a related party, to finance the commercial airplane, which is due February 28, 2025. The note bears interest at 6.0% per annum, with quarterly payments. The loan amortizes quarterly in arrears to the final maturity date.

At December 31, 2014, future principal maturities for the years ending December 31 are as follows (in thousands):

2015	$	6,649
2016		7,057
2017		7,490
2018		7,950
2019		8,437
Thereafter		53,159
	$	90,742

Mortgage Debt

The primary mortgage financing for the Company’s home office property was arranged through FHLB, which also occupies a portion of the premises. The underlying mortgage loan agreement with FHLB bears interest at 6.726% and will be fully paid off in 2022, with monthly principal

75

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

15. Debt (continued)

and interest payments totaling $381,600, including $62,805 applicable to the portion of the building leased to FHLB. The financing is collateralized by a first mortgage on the premises and $9.3 million of cash.

At December 31, 2014, combined future aggregate principal maturities of the mortgage borrowing for the years ending December 31 are as follows (in thousands):

2015	$	2,856
2016		3,054
2017		3,265
2018		3,492
2019		3,734
Thereafter		10,510
	$	26,911

Interest expense as presented in the consolidated statement of operations consisted of the following for the year ended December 31:

	2014			2013		2012
	(In Thousands)
Debt/notes payable:
Surplus note interest	$	13,665		$	13,462	$	13,281
Mortgage interest		1,908			2,081		1,875
SAILES interest		6,245			5,550		–
Commission assignment interest		5,247			1,585		160
Consolidated VIE interest		3,402			–		–
Total debt/notes payable interest		30,467			22,678		15,316
Repurchase agreement interest		640			1,430		520
Other interest		(150	)		287		115
Total	$	30,957		$	24,395	$	15,951

76

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

16. Related-Party Transactions

There are numerous transactions between the Company and entities related to the Company. Following are those the Company considers material that are not otherwise discussed (see Notes 1 and 10).

Gennessee had short-term notes outstanding with related parties as of December 31, 2014  and 2013, of $51.3 million and $33.5 million, respectively, which bear interest with rates ranging from 6.0 to 8.0%, and with maturities ranging from January 15, 2015 to December 23, 2015.  The company paid interest on these notes of $3.5 million and $1.6 million for the years ended December 31, 2014 and 2013, respectively.

Dunbarre had short-term notes outstanding with related parties as of December 31, 2014 of $55.3 million that bear interest at 8%, with maturities ranging from November 16, 2015 to December 30, 2015.  The company paid interest on these notes of $1.7 million during the year ended December 31, 2014.

As of December 31, 2014 and 2013, the Company had the following investments in affiliated parties with interest rates ranging from 3.35% to 10.0% and maturity dates ranging from January 2015 through October 2018.  These investments are included in notes receivable from related parties in the consolidated balance sheets:

	2014		2013
	(In Thousands)
Note Funding 1892, LLC	$	399,833	$	–
BA Seattle Aviation, LLC		372,917		–
SBC Funding, LLC		289,520		485,427
NF-GPIM		233,120		–
SBC Funding II, LLC		216,361		–
Other		28,907		254,519
	$	1,540,658	$	739,946

77

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

16. Related-Party Transactions (continued)

As of December 31, 2014 and 2013, the Company had investments in the following various investment vehicles managed by related parties. These are included in fixed maturities available for sale on the consolidated balance sheets.

	2014		2013
	(In Thousands)
5180 CLO LP	$	216,866	$	218,528
Guggenheim Private Debt Funding		136,000		135,995
Mercer Field CLO LP		121,588		107,334
Hempstead CLO LP		430,364		295,566
	$	904,818	$	757,423

As of December 31, 2014 and 2013, the Company had the following individually material investments in other related parties. These investments are included in fixed maturities available for sale on the consolidated balance sheets.

	2014		2013
	(In Thousands)
Sun Life Assurance Company of Canada	$	255,363	$	186,577
American Capital Holdings, LLC		–		157,460
Santiam Holdings, LLC		–		110,000
Cain Hoy Capital Company, LLC		287,359		–
DLPR LLC		139,683		1,500
American Media Productions, LLC		400,000		190,000
	$	1,082,405	$	645,537

The Company has contracted with GPIM to perform investment advisory services. For the years ended December 31, 2014, 2013, and 2012, the Company paid fees of $21.5 million, $15.9 million, and $12.7 million, respectively, associated with the services performed. These fees are included in commissions and other operating expense in the consolidated statements of operations.

78

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

16. Related-Party Transactions (continued)

The Company received revenue sharing income of $12.9 million, $13.7 million, and $13.6 million from Security Investors, LLC and Guggenheim Distributors, LLC, both related parties, for the years ended December 31, 2014, 2013 and 2012, respectively. These fees are included in asset based fees on the consolidated statement of operations.

The Company received $15.2 million, $13.6 million, and $11.7 million for the years ended December 31, 2014, 2013, and 2012, respectively, from related parties for distribution support fees based on asset values. These fees are included in other revenues on the consolidated statement of operations.

The Company paid $67.8 million, $62.5 million, and $65.9 million for the years ended December 31, 2014, 2013, and 2012, respectively, to various other related parties for providing management and administrative services. These fees are included in commissions and other operating expenses on the consolidated statements of operations.

The Company received $325.0 million and $60.0 million as capital contributions from SBC during 2014 and 2013, respectively. The Company paid $118.4 million and $154.9 million in dividends to SBC in 2014 and 2013, respectively.

17. Statutory Financial Information and Regulatory Net Capital Requirements

The Company’s statutory-basis financial statements are prepared on the basis of accounting practices prescribed or permitted by the Kansas Insurance Department. The State of Kansas has adopted the National Association of Insurance Commissioners’ statutory accounting practices (NAIC SAP) as the basis of its statutory accounting practices. In addition, the Commissioner of the Kansas Insurance Department has the right to permit other specific practices that may deviate from prescribed practices. Permitted statutory accounting practices encompass all accounting practices that are not prescribed; such practices may differ from state to state, may differ from company to company within a state, and may change in the future.

79

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

17. Statutory Financial Information and Regulatory Net Capital Requirements (continued)

The State of Kansas has granted its approval of permitted accounting practices for one year call options and multi-year call options that differ from NAIC SAP which allow the Company, to the extent the hedging program is and continues to be economically effective, to report call options at amortized cost. In addition, the corresponding reserve liabilities that are hedged by the call options are calculated under Actuarial Guideline (AG) 35, whereas the permitted practices allow the reserves to assume the market value of the eligible derivative assets associated with the current interest crediting periods to be zero. At the conclusion of each interest crediting period, interest credited is reflected in reserves as realized. These permitted practices will expire on September 30, 2015, unless extended by the Commissioner of Insurance.

As a result of these permitted practices, statutory surplus decreased $139.7 million and $55.6 million as of December 31, 2014 and 2013, respectively.

The Company offers riders on its fixed index annuities (FIAs) which provide for future withdrawal and death benefits. In accordance with the NAIC’s Accounting Practices and Procedures Manual, the FIAs with riders should be reserved for under the revised AG33. In 2012, the Company requested and received approval from the Kansas Insurance Department to use an alternative methodology to reserve for these contracts under the Practical Considerations section of AG33. The reserve held at December 31, 2013 and 2014 for FIAs with riders was based on AG43, the approved alternative method for these contracts. AG43 is a principles based reserving methodology which requires ongoing review of and updates to the assumptions. The Company closely monitors developing experience on this type of business as well as any new emerging industry information. The Company adjusts its AG43 assumptions when it determines it is reasonable and appropriate and reports the results of its experience analysis to the Department. During the fourth quarter 2014 review of the Company’s AG43 statutory reserving assumptions and methodology with respect to FIAs with riders, management determined certain lapse, income utilization and investment assumptions should be strengthened over time. The Company recorded a portion of the reserve increase in 2014 and the Company and the Kansas Insurance Department agreed to phase-in the remaining reserve increase related to strengthening these assumptions over a five year period from 2015 to 2019. Specifically, the Company will record an after-tax adjustment of $16.3 million for the first six quarters, $12.2 million for the next four quarters, and $8.1 million for the last ten quarters.  For FIAs with riders issued on or after February 1, 2015, the AG33 reserving methodology will be utilized.

80

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

17. Statutory Financial Information and Regulatory Net Capital Requirements (continued)

Statutory capital and surplus, including surplus notes (see Note 15) of the insurance operations, were $1,301.5 million and $1,044.8 million at December 31, 2014 and 2013, respectively. Statutory net income of the insurance operations was $122.1 million, $163.6 million, and $156.9 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Life insurance companies are subject to certain risk-based capital (RBC) requirements as specified by the NAIC and state insurance regulators. The NAIC has a standard formula for calculating RBC based on the risk factors relating to an insurance company’s capital and surplus, including asset risk, credit risk, underwriting risk, and business risk. State laws specify regulatory actions if any insurance company’s adjusted capital falls below certain levels, including the company action-level RBC and the authorized control-level RBC.

At December 31, 2014, the Company’s statutory adjusted capital per the RBC calculation is $1,602.5 million as compared to its company action level RBC of $418.1 million and its authorized control level RBC of $209.0 million.

The Company may not, without notice to the Commissioner and (A) the expiration of 30 days without disapproval by the Commissioner or (B) the Commissioner’s earlier approval, pay a dividend or distribution of cash or other property whose fair market value together with that of other dividends or distributions made within the preceding 12 months exceeds the greater of (1) 10% of its surplus as regards to policyholders as of the preceding December 31 or (2) the net gain from operations, not including realized capital gains, for the 12-month period ending on the preceding December 31. Any dividends paid must be paid from unassigned surplus. In 2015, the Company is not allowed to pay dividends without the approval or non-disapproval of the Commissioner.

SDI is subject to the SEC Uniform Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934). SDI computes its net capital requirements under the basic method, which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. Advances to related parties, dividend payments, and other equity withdrawals are subject to certain notification and other provisions of the SEC Uniform Net Capital Rule or other regulatory bodies.

81

Security Benefit Life Insurance Company and Subsidiaries

(A Wholly Owned Subsidiary of Security Benefit Corporation)

Notes to Consolidated Financial Statements (continued)

17. Statutory Financial Information and Regulatory Net Capital Requirements (continued)

At December 31, 2014, SDI had net capital of $10.0 million, which was $9.0 million in excess of its required net capital of $1.0 million. SDI claims exemption from Rule 15c3-3, which requires a reserve with respect to customer funds, pursuant to Paragraph (k)(2)(i) thereof. SDI’s ratio of aggregate indebtedness to net capital was 1.51 to 1 at December 31, 2014.

18. Subsequent Events

On March 4, 2015, the Company received a capital contribution of $400.0 million from its parent SBC. For statutory reporting purposes, the Company established a receivable for the capital contribution as of December 31, 2014.

The Company has evaluated all material subsequent events or transactions that occurred after the consolidated balance sheet date through the date on which the consolidated financial statements were issued for potential recognition or disclosure. Except as described above, the Company has not identified any other subsequent events requiring recognition or disclosure.

82

Financial Statements

Variable Annuity Account XI

Year Ended December 31, 2014

With Report of Independent Registered Public Accounting Firm

Variable Annuity Account XI

Financial Statements

Year Ended December 31, 2014

Contents

Report of Independent Registered Public Accounting Firm	1
Audited Financial Statements
Statements of Net Assets	3
Statements of Operations	6
Statements of Changes in Net Assets	9
Notes to Financial Statements	14
1. Organization and Significant Accounting Policies	14
2. Variable Annuity Contract Charges	17
3. Summary of Unit Transactions	18
4. Financial Highlights	19
5. Subsequent Events	23

Report of Independent Registered Public Accounting Firm

The Board of Directors and Contract Owners

Security Benefit Life Insurance Company

We have audited the accompanying statements of net assets of Variable Annuity Account XI (the Account), a separate account of Security Benefit Life Insurance Company comprised of the subaccounts as listed in Note 1, as of December 31, 2014, and the related statements of operations for the year or period then ended, and the statements of changes in net assets for each of the two years or periods then ended. These financial statements are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Account’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Account’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of investments owned as of December 31, 2014, by correspondence with the fund companies or their transfer agents. 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 each of the subaccounts constituting Variable Annuity Account XI at December 31, 2014, and the results of their operations and the changes in their net assets for the periods described above, in conformity with U.S. generally accepted accounting principles.

ERNST & YOUNG LLP

April 30, 2015

Variable Annuity Account XI

Statements of Net Assets

December 31, 2014

	Goldman Sachs VIT Small Cap Equity Insights (a)		Goldman Sachs VIT Strategic Growth		Guggenheim VIF All Cap Value (a)		Guggenheim VIF Large Cap Value (a)		Guggenheim VIF Mid Cap Value (a)
Assets:
Mutual funds, at market value	$	296,657	$	720,821	$	1,168,240	$	287,774	$	253,685
Net assets	$	296,657	$	720,821	$	1,168,240	$	287,774	$	253,685
Units outstanding:
Total units		12,766		38,032		28,302		12,820		10,008
Unit value	$	23.24	$	18.96	$	41.29	$	22.45	$	25.42
Mutual funds, at cost	$	288,156	$	630,641	$	675,454	$	264,806	$	205,221
Mutual fund shares		21,701		44,605		33,048		6,951		3,012
(a) Name change. See Note 1.

The accompanying notes are an integral part of these financial statements.

3

Variable Annuity Account XI

Statements of Net Assets (continued)

December 31, 2014

	Guggenheim VIF World Equity Income (a)		Invesco V.I. Global Real Estate		Invesco V.I. International Growth		Janus Aspen Janus Portfolio		Neuberger Berman AMT Socially Responsive
Assets:
Mutual funds, at market value	$	442,646	$	83,749	$	120,390	$	51,575	$	122,680
Net assets	$	442,646	$	83,749	$	120,390	$	51,575	$	122,680
Units outstanding:
Total units		23,092		3,985		5,963		2,127		4,903
Unit value	$	19.18	$	21.02	$	20.19	$	24.25	$	25.02
Mutual funds, at cost	$	344,447	$	78,002	$	113,955	$	43,711	$	94,730
Mutual fund shares		35,131		4,858		3,453		1,465		5,127
(a) Name change. See Note 1.

The accompanying notes are an integral part of these financial statements.

4

Variable Annuity Account XI

Statements of Net Assets (continued)

December 31, 2014

	PIMCO VIT Real Return		PIMCO VIT Total Return		Rydex VIF Energy Services (a)		T. Rowe Price Mid-Cap Growth
Assets:
Mutual funds, at market value	$	70,951	$	407,404	$	28,527	$	2,551,503
Net assets	$	70,951	$	407,404	$	28,527	$	2,551,503
Units outstanding:
Total units		5,210		29,619		2,038		46,154
Unit value	$	13.62	$	13.76	$	13.99	$	55.27
Mutual funds, at cost	$	75,472	$	411,120	$	47,441	$	2,167,993
Mutual fund shares		5,539		36,375		2,008		91,517
(a) Name change. See Note 1.

The accompanying notes are an integral part of these financial statements.

5

Variable Annuity Account XI

Statements of Operations

Year Ended December 31, 2014

	Goldman Sachs VIT Small Cap Equity Insights (a)			Goldman Sachs VIT Strategic Growth			Guggenheim VIF All Cap Value (a)			Guggenheim VIF Large Cap Value (a)			Guggenheim VIF Mid Cap Value (a)
Investment income (loss):
Dividend distributions	$	2,172		$	2,565		$	10		$	-		$	7
Expenses:
Mortality and expense risk charge		(1,310	)		(2,750	)		(5,113	)		(745	)		(1,018	)
Other expense charge		(2,650	)		(5,562	)		(6,363	)		(926	)		(1,266	)
Net investment income (loss)		(1,788	)		(5,747	)		(11,466	)		(1,671	)		(2,277	)
Net realized and unrealized capital gain (loss) on investments:
Capital gain distributions		40,792			133,117			-			-			-
Realized capital gain (loss) on sales of fund shares		5,756			13,563			25,778			1,498			2,806
Change in unrealized appreciation/depreciation on investments during the year		(31,098	)		(69,929	)		58,039			10,639			(2,410	)
Net realized and unrealized capital gain (loss) on investments		15,450			76,751			83,817			12,137			396
Net increase (decrease) in net assets from operations	$	13,662		$	71,004		$	72,351		$	10,466		$	(1,881	)
(a) Name change. See Note 1.

The accompanying notes are an integral part of these financial statements.

6

Variable Annuity Account XI

Statements of Operations (continued)

Year Ended December 31, 2014

	Guggenheim VIF World Equity Income (a)			Invesco V.I. Global Real Estate			Invesco V.I. International Growth			Janus Aspen Janus Portfolio			Neuberger Berman AMT Socially Responsive
Investment income (loss):
Dividend distributions	$	18		$	1,201		$	1,770		$	75		$	131
Expenses:
Mortality and expense risk charge		(2,021	)		(240	)		(386	)		(199	)		(425	)
Other expense charge		(2,516	)		(484	)		(782	)		(404	)		(858	)
Net investment income (loss)		(4,519	)		477			602			(528	)		(1,152	)
Net realized and unrealized capital gain (loss) on investments:
Capital gain distributions		-			-			-			2,215			-
Realized capital gain (loss) on sales of fund shares		4,202			409			481			5,546			288
Change in unrealized appreciation/depreciation on investments during the year		17,230			3,699			(4,336	)		(3,805	)		8,812
Net realized and unrealized capital gain (loss) on investments		21,432			4,108			(3,855	)		3,956			9,100
Net increase (decrease) in net assets from operations	$	16,913		$	4,585		$	(3,253	)	$	3,428		$	7,948
(a) Name change. See Note 1.

The accompanying notes are an integral part of these financial statements.

7

Variable Annuity Account XI

Statements of Operations (continued)

Year Ended December 31, 2014

	PIMCO VIT Real Return			PIMCO VIT Total Return			Rydex VIF Energy Services (a)			T. Rowe Price Mid-Cap Growth
Investment income (loss):
Dividend distributions	$	1,005		$	8,271		$	-		$	-
Expenses:
Mortality and expense risk charge		(326	)		(1,644	)		(154	)		(10,970	)
Other expense charge		(661	)		(3,325	)		(312	)		(22,185	)
Net investment income (loss)		18			3,302			(466	)		(33,155	)
Net realized and unrealized capital gain (loss) on investments:
Capital gain distributions		-			-			2,984			273,253
Realized capital gain (loss) on sales of fund shares		(1,158	)		(745	)		(102	)		43,511
Change in unrealized appreciation/depreciation on investments during the year		2,264			6,878			(15,839	)		(21,897	)
Net realized and unrealized capital gain (loss) on investments		1,106			6,133			(12,957	)		294,867
Net increase (decrease) in net assets from operations	$	1,124		$	9,435		$	(13,423	)	$	261,712
(a) Name change. See Note 1.

The accompanying notes are an integral part of these financial statements.

8

Variable Annuity Account XI

Statements of Changes in Net Assets

Years Ended December 31, 2014 and 2013

	Goldman Sachs VIT Small Cap Equity Insights (a)						Goldman Sachs VIT Strategic Growth						Guggenheim VIF All Cap Value (a)
	2014			2013			2014			2013			2014			2013
Increase (decrease) in net assets:
From operations:
Net investment income (loss)	$	(1,788	)	$	(1,084	)	$	(5,747	)	$	(4,582	)	$	(11,466	)	$	(10,666	)
Capital gains distributions		40,792			30,505			133,117			18,974			-			-
Realized capital gain (loss) on sales of fund shares		5,756			14,229			13,563			15,976			25,778			93,526
Change in unrealized appreciation/depreciation on investments during the year		(31,098	)		28,848			(69,929	)		99,684			58,039			206,929
Net increase (decrease) in net assets from operations		13,662			72,498			71,004			130,052			72,351			289,789
From contract owner transactions:
Variable annuity deposits		12,903			5,936			71,439			28,711			30,844			41,687
Terminations and withdrawals		(5,412	)		(51,781	)		(31,741	)		(64,955	)		(60,915	)		(254,998	)
Transfers between subaccounts, net		(43,119	)		75,465			58,454			8,127			39,131			(2,205	)
Net increase (decrease) in net assets from contract owner transactions		(35,628	)		29,620			98,152			(28,117	)		9,060			(215,516	)
Net increase (decrease) in net assets		(21,966	)		102,118			169,156			101,935			81,411			74,273
Net assets at beginning of year		318,623			216,505			551,665			449,730			1,086,829			1,012,556
Net assets at end of year	$	296,657		$	318,623		$	720,821		$	551,665		$	1,168,240		$	1,086,829
(a) Name change. See Note 1.

The accompanying notes are an integral part of these financial statements.

9

Variable Annuity Account XI

Statements of Changes in Net Assets (continued)

Years Ended December 31, 2014 and 2013

	Guggenheim VIF Large Cap Value (a)						Guggenheim VIF Mid Cap Value (a)						Guggenheim VIF World Equity Income (a)
	2014			2013			2014			2013			2014			2013
Increase (decrease) in net assets:
From operations:
Net investment income (loss)	$	(1,671	)	$	(483	)	$	(2,277	)	$	(1,555	)	$	(4,519	)	$	(4,400	)
Capital gains distributions		-			-			-			-			-			-
Realized capital gain (loss) on sales of fund shares		1,498			4,987			2,806			14,807			4,202			10,292
Change in unrealized appreciation/depreciation on investments during the year		10,639			8,481			(2,410	)		28,697			17,230			66,976
Net increase (decrease) in net assets from operations		10,466			12,985			(1,881	)		41,949			16,913			72,868
From contract owner transactions:
Variable annuity deposits		69,311			12,211			24,912			38,867			11,528			6,926
Terminations and withdrawals		(14,113	)		(17,109	)		(5,567	)		(51,059	)		(17,201	)		(61,463	)
Transfers between subaccounts, net		145,647			34,086			39,966			37,084			-			(21,080	)
Net increase (decrease) in net assets from contract owner transactions		200,845			29,188			59,311			24,892			(5,673	)		(75,617	)
Net increase (decrease) in net assets		211,311			42,173			57,430			66,841			11,240			(2,749	)
Net assets at beginning of year		76,463			34,290			196,255			129,414			431,406			434,155
Net assets at end of year	$	287,774		$	76,463		$	253,685		$	196,255		$	442,646		$	431,406
(a) Name change. See Note 1.

The accompanying notes are an integral part of these financial statements.

10

Variable Annuity Account XI

Statements of Changes in Net Assets (continued)

Years Ended December 31, 2014 and 2013

	Invesco V.I. Global Real Estate						Invesco V.I. International Growth						Janus Aspen Janus Portfolio
	2014			2013			2014			2013			2014			2013
Increase (decrease) in net assets:
From operations:
Net investment income (loss)	$	477		$	592		$	602		$	(182	)	$	(528	)	$	(246	)
Capital gains distributions		-			-			-			-			2,215			-
Realized capital gain (loss) on sales of fund shares		409			3,612			481			3,905			5,546			2,097
Change in unrealized appreciation/depreciation on investments during the year		3,699			(3,663	)		(4,336	)		3,874			(3,805	)		8,951
Net increase (decrease) in net assets from operations		4,585			541			(3,253	)		7,597			3,428			10,802
From contract owner transactions:
Variable annuity deposits		14,482			13,481			51,941			4,662			18,368			5,689
Terminations and withdrawals		(3,946	)		(10,193	)		(2,886	)		(17,669	)		(1,370	)		-
Transfers between subaccounts, net		34,516			1,837			21,963			10,565			(26,406	)		4,499
Net increase (decrease) in net assets from contract owner transactions		45,052			5,125			71,018			(2,442	)		(9,408	)		10,188
Net increase (decrease) in net assets		49,637			5,666			67,765			5,155			(5,980	)		20,990
Net assets at beginning of year		34,112			28,446			52,625			47,470			57,555			36,565
Net assets at end of year	$	83,749		$	34,112		$	120,390		$	52,625		$	51,575		$	57,555

The accompanying notes are an integral part of these financial statements.

11

Variable Annuity Account XI

Statements of Changes in Net Assets (continued)

Years Ended December 31, 2014 and 2013

	Neuberger Berman AMT Socially Responsive						PIMCO VIT Real Return						PIMCO VIT Total Return
	2014			2013			2014			2013			2014			2013
Increase (decrease) in net assets:
From operations:
Net investment income (loss)	$	(1,152	)	$	(349	)	$	18		$	(229	)	$	3,302		$	2,849
Capital gains distributions		-			-			-			533			-			2,924
Realized capital gain (loss) on sales of fund shares		288			4,716			(1,158	)		(2,083	)		(745	)		(604	)
Change in unrealized appreciation/depreciation on investments during the year		8,812			11,881			2,264			(9,675	)		6,878			(17,518	)
Net increase (decrease) in net assets from operations		7,948			16,248			1,124			(11,454	)		9,435			(12,349	)
From contract owner transactions:
Variable annuity deposits		37,570			-			17,142			2,992			15,409			49,312
Terminations and withdrawals		-			(12,502	)		(17,587	)		(35,037	)		(37,938	)		(32,827	)
Transfers between subaccounts, net		-			33,311			6,387			(37,637	)		93,130			(28,277	)
Net increase (decrease) in net assets from contract owner transactions		37,570			20,809			5,942			(69,682	)		70,601			(11,792	)
Net increase (decrease) in net assets		45,518			37,057			7,066			(81,136	)		80,036			(24,141	)
Net assets at beginning of year		77,162			40,105			63,885			145,021			327,368			351,509
Net assets at end of year	$	122,680		$	77,162		$	70,951		$	63,885		$	407,404		$	327,368

The accompanying notes are an integral part of these financial statements.

12

Variable Annuity Account XI

Statements of Changes in Net Assets (continued)

Years Ended December 31, 2014 and 2013

	Rydex VIF Energy Services (a)						T. Rowe Price Mid-Cap Growth
	2014			2013			2014			2013
Increase (decrease) in net assets:
From operations:
Net investment income (loss)	$	(466	)	$	(500	)	$	(33,155	)	$	(27,619	)
Capital gains distributions		2,984			1,139			273,253			176,662
Realized capital gain (loss) on sales of fund shares		(102	)		(1,791	)		43,511			30,746
Change in unrealized appreciation/depreciation on investments during the year		(15,839	)		8,536			(21,897	)		420,262
Net increase (decrease) in net assets from operations		(13,423	)		7,384			261,712			600,051
From contract owner transactions:
Variable annuity deposits		13,742			2,330			111,708			53,405
Terminations and withdrawals		(1,387	)		(3,414	)		(116,272	)		(202,856	)
Transfers between subaccounts, net		-			(10,363	)		(45,132	)		114,032
Net increase (decrease) in net assets from contract owner transactions		12,355			(11,447	)		(49,696	)		(35,419	)
Net increase (decrease) in net assets		(1,068	)		(4,063	)		212,016			564,632
Net assets at beginning of year		29,595			33,658			2,339,487			1,774,855
Net assets at end of year	$	28,527		$	29,595		$	2,551,503		$	2,339,487
(a) Name change. See Note 1.

The accompanying notes are an integral part of these financial statements.

13

Variable Annuity Account XI

Notes to Financial Statements

December 31, 2014

1. Organization and Significant Accounting Policies

Variable Annuity Account XI (the Account) is a separate account of Security Benefit Life Insurance Company (SBL).  The Account is registered as an open-end management investment company under the Investment Company Act of 1940, as amended.  As directed by the owners, amounts may be invested in a designated mutual fund as follows:

Mutual Fund	Class	Investment Adviser	Sub-Adviser
Goldman Sachs VIT Small Cap Equity Insights	Institutional	Goldman Sachs Asset Management, LP	-
Goldman Sachs VIT Strategic Growth	-	Goldman Sachs Asset Management, LP	-
Guggenheim VIF All Cap Value	-	Guggenheim Investments	-
Guggenheim VIF Large Cap Value	-	Guggenheim Investments	-
Guggenheim VIF Mid Cap Value	-	Guggenheim Investments	-
Guggenheim VIF World Equity Income	-	Guggenheim Investments	-
Invesco V.I. Global Real Estate	Series I	Invesco Advisers, Inc.	Invesco Asset Management Ltd.
Invesco V.I. International Growth	Series I	Invesco Advisers, Inc.	-
Janus Aspen Janus Portfolio	Service	Janus Capital Management LLC	-
Neuberger Berman AMT Socially Responsive	S	Neuberger Berman Management LLC	Neuberger Berman LLC
PIMCO VIT Real Return	Administrative	Pacific Investment Management Company LLC	-
PIMCO VIT Total Return	Administrative	Pacific Investment Management Company LLC	-
Rydex VIF Energy Services	-	Guggenheim Investments	-
T. Rowe Price Mid-Cap Growth	Institutional	T. Rowe Price Associates, Inc.	-

Fourteen subaccounts are currently offered by the Separate Account, all of which had activity.

Under the terms of the investment advisory contracts, investment portfolios of certain underlying mutual funds are managed by Security Investors, LLC doing business as Guggenheim Investments, a limited liability company controlled by its member and affiliated with Security Benefit Corporation.  As disclosed in the above table, Guggenheim Investments serves as investment adviser for certain mutual funds.  The advisory agreement provides for a fee at annual rates up to 0.60% of the average net assets of each respective fund.

Under applicable insurance law, the assets and liabilities of the Account are clearly identified and distinguished from SBL’s other assets and liabilities. The portion of the Account’s assets applicable to the variable annuity contracts is not chargeable with liabilities arising out of any other business SBL may conduct.

14

Variable Annuity Account XI

Notes to Financial Statements (continued)

1. Organization and Significant Accounting Policies (continued)

During the current year the following subaccount name changes were made effective:
Date	New Name	Old Name
April 30, 2014	Goldman Sachs VIT Small Cap Equity Insights	Goldman Sachs VIT Structured Small Cap Equity
June 6, 2014	Guggenheim VIF All Cap Value	Guggenheim VT All Cap Value
June 6, 2014	Guggenheim VIF Large Cap Value	Guggenheim VT Large Cap Value
June 6, 2014	Guggenheim VIF Mid Cap Value	Guggenheim VT Mid Cap Value
June 6, 2014	Guggenheim VIF World Equity Income	Guggenheim VT World Equity Income
June 6, 2014	Rydex VIF Energy Services	Rydex VT Energy Services

Investment Valuation

Investments in mutual fund shares are carried in the statements of net assets at market value (net asset value of the underlying mutual fund).  Investment transactions are accounted for on the trade date.  Realized capital gains and losses on sales of investments are determined based on the average cost of investments sold.  The difference between cost and current market value of investments owned on the day of measurement is recorded as unrealized appreciation or depreciation of investments.

The cost of investment purchases and proceeds from investments sold for the year ended December 31, 2014, were as follows:

Subaccount	Cost of Purchases	Proceeds from Sales
Goldman Sachs VIT Small Cap Equity Insights (a)	$      59,559	$      56,183
Goldman Sachs VIT Strategic Growth	272,978	47,456
Guggenheim VIF All Cap Value (a)	59,547	61,953
Guggenheim VIF Large Cap Value (a)	214,355	15,181
Guggenheim VIF Mid Cap Value (a)	71,224	14,190
Guggenheim VIF World Equity Income (a)	8,663	18,855
Invesco V.I. Global Real Estate	50,270	4,741
Invesco V.I. International Growth	75,236	3,616
Janus Aspen Janus Portfolio	20,976	28,697
Neuberger Berman AMT Socially Responsive	37,685	1,267
PIMCO VIT Real Return	27,563	21,603
PIMCO VIT Total Return	139,591	65,688
Rydex VIF Energy Services (a)	16,660	1,787
T. Rowe Price Mid-Cap Growth	426,479	236,077
(a)  Name change.  See Note 1.

Annuity Reserves

As of December 31, 2014, annuity reserves have not been established, as 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.

15

Variable Annuity Account XI

Notes to Financial Statements (continued)

1. Organization and Significant Accounting Policies (continued)

Reinvestment of Dividends

Dividend and capital gains distributions paid by the mutual fund to the Account are reinvested in additional shares of each respective fund. Dividend income and capital gains distributions are recorded as income on the ex-dividend date.

Federal Income Taxes

The operations of the Account are included in the federal income tax return of SBL, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (IRC). Under the current provisions of the IRC, SBL does not expect to incur federal income taxes on the earnings of the Account to the extent the earnings are credited under contracts. Based on this, no charge is being made currently to the Account for federal income taxes. SBL will review periodically the status of this policy in the event of changes in the tax law.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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.

Recently Issued Accounting Standards

In June 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-08, Financial Services - Investment Companies Measurement, and Disclosure Requirements, which provides comprehensive guidance for assessing whether an entity is an investment company and requires an investment company to measure noncontrolling ownership interests in other investment companies at fair value.  ASU 2013-08 also requires an entity to disclose that it is an investment company and any changes to that status, as well as information about financial support provided or required to be provided to investees. Management has evaluated the criteria in the standard and concluded that the Variable Account qualifies as an investment company and therefore will continue to apply the accounting requirements of ASC 946.  The adoption of ASU 2013-08 had no impact on the Account’s financial statements.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).  The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels:

 ·       Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.

 ·       Level 2 – Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly.

 ·       Level 3 – Unobservable inputs for the asset or liability reflecting internal assumptions.

The Account invests in shares of open-end mutual funds, which process contract owner-directed purchases, sales and transfers on a daily basis at the fund’s computed net asset values (NAV).  The fair value of the Account’s assets is based on the NAVs of mutual funds, which are obtained from the custodian and reflect the fair values of the mutual fund investments.  The NAV is calculated daily and is based on the fair values of the underlying securities.

Because the fund provides liquidity for the investments through purchases and redemptions at NAV, this may represent the fair value of the investment in the fund.  That is, for an open-ended mutual fund, the fair value of an investment in the fund

16

Variable Annuity Account XI

Notes to Financial Statements (continued)

1. Organization and Significant Accounting Policies (continued)

would not be expected to be higher than the amount that a new investor would be required to spend in order to directly invest in the mutual fund. Similarly, the hypothetical seller of the investment would not be expected to accept less in proceeds than it could receive by directly redeeming its investment with the fund.  As a result, management considers, the quoted NAV of the mutual fund to be quoted prices in active markets.

The Account’s financial assets are recorded at fair value on the statements of net assets and are categorized as Level 1 as of December 31, 2014, based on the priority of the inputs to the valuation technique above.  There were no transfers between levels during the year ended December 31, 2014.  The Account had no financial liabilities as of December 31, 2014.

2. Variable Annuity Contract Charges

Administration and Distribution Charge: SBL is currently charging an annual rate of 0.91% of each subaccount’s average daily net assets, except the Guggenheim VIF All Cap Value, Guggenheim VIF Large Cap Value, Guggenheim VIF Mid Cap Value and Guggenheim VIF World Equity Income subaccounts, which are being charged an annual rate of 0.56%.  SBL may deduct a maximum daily administration and distribution charge equal to an annual rate of 0.94% of each subaccount’s average daily net assets, except the Guggenheim VIF All Cap Value, Guggenheim VIF Large Cap Value, Guggenheim VIF Mid Cap Value and Guggenheim VIF World Equity Income subaccounts, for which the maximum annual rate is 0.59%.

Mortality and Expense Risk Charge: Mortality and expense risks assumed by SBL are compensated for by a fee equivalent to an annual rate of 0.45% of the average daily net assets of each subaccount.

Premium Tax Charge: 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 affect an annuity at the time annuity payments commence.

17

Variable Annuity Account XI

Notes to Financial Statements (continued)

3. Summary of Unit Transactions

The changes in units outstanding for the periods December 31, 2014 and 2013, were as follows:

	2014								2013
						Net								Net
	Units		Units			Increase			Units		Units			Increase
Subaccount	Issued		Redeemed			(Decrease)			Issued		Redeemed			(Decrease)
Goldman Sachs VIT Small Cap Equity Insights (a)		830		(2,525	)		(1,695	)		7,042		(5,726	)		1,316
Goldman Sachs VIT Strategic Growth		8,040		(2,637	)		5,403			3,078		(5,192	)		(2,114	)
Guggenheim VIF All Cap Value (a)		1,771		(1,516	)		255			1,900		(8,309	)		(6,409	)
Guggenheim VIF Large Cap Value (a)		9,769		(641	)		9,128			2,657		(1,128	)		1,529
Guggenheim VIF Mid Cap Value (a)		2,872		(604	)		2,268			3,354		(2,353	)		1,001
Guggenheim VIF World Equity Income (a)		599		(900	)		(301	)		407		(4,810	)		(4,403	)
Invesco V.I. Global Real Estate		2,438		(288	)		2,150			1,838		(1,553	)		285
Invesco V.I. International Growth		3,597		(214	)		3,383			942		(1,094	)		(152	)
Janus Aspen Janus Portfolio		794		(1,306	)		(512	)		1,584		(1,095	)		489
Neuberger Berman AMT Socially Responsive		1,554		-			1,554			1,727		(737	)		990
PIMCO VIT Real Return		1,947		(1,507	)		440			776		(5,702	)		(4,926	)
PIMCO VIT Total Return		9,756		(4,616	)		5,140			7,559		(8,499	)		(940	)
Rydex VIF Energy Services (a)		705		(141	)		564			287		(861	)		(574	)
T. Rowe Price Mid-Cap Growth		3,641		(4,706	)		(1,065	)		5,097		(6,180	)		(1,083	)
(a)  Name change.  See Note 1.

18

Variable Annuity Account XI

Notes to Financial Statements (continued)

4. Financial Highlights

A summary of units outstanding, unit values, net assets, expense ratios, investment income ratios and total return ratios for each of the five years in the period ended December 31, 2014, were as follows:

Subaccount	Units		Unit Values ($) (4)		Net Assets ($)		Investment Income Ratios (%) (1)		Expense Ratios (%) (2)		Total Returns (%) (3)(4)
Goldman Sachs VIT Small Cap Equity Insights (a)
2014		12,766		23.24		296,657		0.71		1.36		5.49
2013		14,461		22.03		318,623		0.90		1.36		33.76
2012		13,145		16.47		216,505		1.07		1.36		11.28
2011		18,198		14.80		269,301		0.84		1.36		(0.67	)
2010		18,155		14.90		270,571		0.55		1.36		28.34
Goldman Sachs VIT Strategic Growth
2014		38,032		18.96		720,821		0.40		1.36		12.12
2013		32,629		16.91		551,665		0.40		1.36		30.58
2012		34,743		12.95		449,730		0.75		1.36		18.26
2011		33,526		10.95		366,969		0.45		1.36		(3.95	)
2010		36,552		11.40		416,517		0.41		1.36		9.20
Guggenheim VIF All Cap Value (a)
2014		28,302		41.29		1,168,240		-		1.01		6.53
2013		28,047		38.76		1,086,829		-		1.01		31.88
2012		34,456		29.39		1,012,556		-		1.01		14.31
2011		44,716		25.71		1,149,313		-		1.01		(5.30	)
2010		48,378		27.15		1,313,237		-		1.01		15.43
Guggenheim VIF Large Cap Value (a)
2014		12,820		22.45		287,774		-		1.01		8.35
2013		3,692		20.72		76,463		-		1.01		30.64
2012		2,163		15.86		34,290		-		1.01		14.43
2011		2,501		13.86		34,658		-		1.01		(4.81	)
2010		1,697		14.56		24,720		-		1.01		15.01
(a)  Name change.  See Note 1.

19

Variable Annuity Account XI

Notes to Financial Statements (continued)

4. Financial Highlights (continued)

Subaccount	Units		Unit Values ($) (4)		Net Assets ($)		Investment Income Ratios (%) (1)		Expense Ratios (%) (2)		Total Returns (%) (3)(4)
Guggenheim VIF Mid Cap Value (a)
2014		10,008		25.42		253,685		-		1.01		(0.08	)

2013	7,740	25.44	196,255	-	1.01	31.95
2012	6,739	19.28	129,414	-	1.01	15.94
2011	10,292	16.63	170,724	-	1.01	(8.43	)
2010	13,739	18.16	249,018	-	1.01	16.63
Guggenheim VIF World Equity Income (a)
2014	23,092	19.18	442,646	-	1.01	3.96
2013	23,393	18.45	431,406	-	1.01	18.12
2012	27,796	15.62	434,155	-	1.01	15.36
2011	31,350	13.54	424,356	-	1.01	(16.68	)
2010	35,159	16.25	571,053	-	1.01	14.52
Invesco V.I. Global Real Estate
2014	3,985	21.02	83,749	2.04	1.36	13.07
2013	1,835	18.59	34,112	3.90	1.36	1.31
2012	1,550	18.35	28,446	0.45	1.36	26.38
2011	2,201	14.52	31,960	4.12	1.36	(7.75	)
2010	2,126	15.74	33,471	3.09	1.36	15.91
Invesco V.I. International Growth
2014	5,963	20.19	120,390	2.05	1.36	(1.03	)
2013	2,580	20.40	52,625	0.97	1.36	17.38
2012	2,732	17.38	47,470	1.54	1.36	13.97
2011	2,273	15.25	34,659	1.72	1.36	(7.97	)
2010	2,361	16.57	39,136	2.42	1.36	11.28
(a)  Name change.  See Note 1.

20

Variable Annuity Account XI

Notes to Financial Statements (continued)

4. Financial Highlights (continued)

Subaccount	Units		Unit Values ($) (4)		Net Assets ($)		Investment Income Ratios (%) (1)		Expense Ratios (%) (2)		Total Returns (%) (3)(4)
Janus Aspen Janus Portfolio
2014		2,127		24.25		51,575		0.14		1.36		11.19

2013	2,639	21.81	57,555	0.64	1.36	28.22
2012	2,150	17.01	36,565	0.66	1.36	16.67
2011	758	14.58	11,055	0.22	1.36	(6.78	)
2010	2,371	15.64	37,096	0.54	1.36	12.68
Neuberger Berman AMT Socially Responsive
2014	4,903	25.02	122,680	0.13	1.36	8.64
2013	3,349	23.03	77,162	0.60	1.36	35.55
2012	2,359	16.99	40,105	0.09	1.36	9.19
2011	2,848	15.56	44,316	0.28	1.36	(4.42	)
2010	2,730	16.28	44,460	0.02	1.36	21.04
PIMCO VIT Real Return
2014	5,210	13.62	70,951	1.49	1.36	1.72
2013	4,770	13.39	63,885	1.16	1.36	(10.49	)
2012	9,696	14.96	145,021	1.04	1.36	7.32
2011	5,188	13.94	72,333	1.98	1.36	10.11
2010	6,724	12.66	85,112	1.66	1.36	6.66
PIMCO VIT Total Return
2014	29,619	13.76	407,404	2.25	1.36	2.92
2013	24,479	13.37	327,368	2.21	1.36	(3.33	)
2012	25,419	13.83	351,509	2.40	1.36	8.13
2011	16,564	12.79	211,876	2.51	1.36	2.16
2010	15,314	12.52	191,669	2.35	1.36	6.64

21

Variable Annuity Account XI

Notes to Financial Statements (continued)

4. Financial Highlights (continued)

Subaccount	Units		Unit Values ($) (4)		Net Assets ($)		Investment Income Ratios (%) (1)		Expense Ratios (%) (2)		Total Returns (%) (3)(4)
Rydex VIF Energy Services (a)
2014		2,038		13.99		28,527		-		1.36		(30.33	)

2013	1,474	20.08	29,595	-	1.36	22.22
2012	2,048	16.43	33,658	-	1.36	(0.96	)
2011	3,380	16.59	56,075	-	1.36	(10.52	)
2010	1,112	18.54	20,620	-	1.36	24.35
T. Rowe Price Mid-Cap Growth
2014	46,154	55.27	2,551,503	-	1.36	11.57
2013	47,219	49.54	2,339,487	-	1.36	34.84
2012	48,302	36.74	1,774,855	-	1.36	12.35
2011	51,938	32.70	1,698,700	-	1.36	(2.62	)
2010	53,833	33.58	1,807,920	-	1.36	26.38
(a)  Name change.  See Note 1.

(1) These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccount invests.

(2)  These ratios represent the annualized contract expenses of the Account, consisting primarily of administrative, distribution, and mortality and expense charges, for each period indicated.  The ratios include only those expenses that result in a direct reduction to the unit values.  Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund are excluded.

(3) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented.  The total return is calculated for the period indicated or from the inception date through the end of the reporting period.

(4) Unit value information is calculated on a daily basis regardless of whether or not the subaccount has contractholders.

22

Variable Annuity Account XI

Notes to Financial Statements (continued)

5. Subsequent Events

The Account has performed an evaluation of subsequent events through the date the financial statements were issued and has determined that no items require recognition or disclosure.

23